The Dumbest Idea In The World: Maximizing Shareholder Value

The Dumbest Idea In The World: Maximizing Shareholder Value
forbes.com

Maybe the real genius of Steve Jobs was to actually spend his time running Apple, creating real products and services instead of playing the expectations game with investors and shareholders.

The Enron problem is ... the predictable result of too strong of a share-centered view of the public corporation... Corporate law demands that managers simultaneously be selfless servants and selfish masters. On the one hand, it directs managers to be faithful agents, setting aside their own interests entirely in order to act only on behalf of their principals, the shares. On the other hand, in the service of this extreme altruism, they must ruthlessly exploit everyone around them, projecting on to the shares an extreme selfishness that takes no account of any interests but the shares themselves. Having maximally exploited their fellow human corporate participants, managers are then expected to selflessly hand over their gains...

Altruism and rationally self-interested exploitation are extreme and radically opposed positions, psychologically and politically. ... For managers, one easy resolution of these tensions is a simple, cynical selfishness in which managers see themselves as entitled, and perhaps even required, to exploit shareholders as ruthlessly as they understand the law to require them to exploit everyone else. ...

Internally, the share-centered paradigm is just as self-destructive. Corporations succeed because they are not markets and do not follow market norms of behavior. Rather, they operate under fiduciary norms as a matter of law and team norms as a matter of sociology. However, the share-centered paradigm of corporate law teaches managers to treat employees as outsiders and tools to corporate ends with no intrinsic value. Just as managers are unlikely to learn simultaneously to be selfish maximizers and selfless altruists, they are unlikely to be simultaneously cooperative team players and self-interested defectors. Thus, the share-centered view undermines the prerequisite to operating the firm in the interests of shareholders. ...

Managers constructing the firm as a tool to the end of share value maximization treat the people with whom they work as means, not ends. ...they learn as part of their ordinary life to break ordinary social solidarity. Learning to exploit ruthlessly is surprisingly difficult. ... But cynicism can be learned, and managers subjected to the powerful incentives of the share value maximization principle do eventually learn it. ... This training, however, surely creates cynics, not faithful agents. ... A manager whose lived experience is a pretense of selflessness (with respect to employees, customers and business partners) covering real disinterested exploitation (on behalf of shares) is unlikely to suddenly see himself as “in a position in which thought of self was to be renounced, however hard the abnegation” and voluntarily hand over these hard-won gains of competitive practice to his principal. If you can properly lie to your subordinates, why not lie to your superior as well? ... In the end, the cynicism of the share value maximization view must eat itself alive.

-- http://slackwire.blogspot.com/2011/04/selfish-masters-selfle...