"Shareholder value" will always be prime, when the CxOs, drivers of corporate direction, are major shareholders.
Statement on the Purpose of a Corporation
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Re: Statement on the Purpose of a Corporation
#12If corporations want to make a real change and provide value to all stakeholders, they will need to develop a practice to systematically eliminate all negative externalities (risk) being transferred to society. Unfortunately, the current regulatory environment still makes this illegal/impossible, given that executives are still legally bound to create value for shareholders. The thoughts and feelings of these CEOs me…
To be fair, I still feel like it all depends on the company's definition of value. There is an interesting book on Financial Analysis by McKinsey, in which two of the firm's partners write in the foreword that the maximisation of shareholder value should always take into account long term thinking, and as such has to consider the deeper effect of a company's action. In that argument, then, a company isn't truly maximising shareholder value when it depletes its workforce and creates a bad work environment for short term profits, because the long term consequences may be far more negative.
Re: Statement on the Purpose of a Corporation
#13Wake me up when I can use such a statement as a means to legally coerce corporations into compliance with existing laws, to say nothing of the exigent environmental threats facing the world.
Literally every CEO would laugh at this statement in the privacy of their office, while they engineer stock manipulation to trigger their stock options and retire in 5 years.
It's like an ethics in business class at MBA schools. It's window dressing.
Of course the political donations of the signers of this document, which is in all likelihood:
- non-binding - has no monetary commitments - involves no policy commitments contrary to their revenue streams - addresses no previous examples of bad behavior by the companies, nor any pledges to ameliorate those impacts
The political donations from these entities most assuredly will point to the exact opposite motivations.
Re: Statement on the Purpose of a Corporation
#14I think that's great. This notion that corporations exist solely to maximise shareholder value is a neat solution for some real problems (principal/agent) in a neat theoretical setting, but not a necessary fact of life, not a sufficient solution in the messy real world, and should certainly not be dogma.
Now, whenever there's a discussion about what some company should do, and some free market devotee repeats the mantra that the company should just maximise shareholder value, one can point to this.
If hundreds of CEOs agree that the purpose of a corporation is a bit more complex than shareholder value maximisation, then the discussion can proceed to the hard part (how to trade off the different objectives and interests optimally).
Re: Statement on the Purpose of a Corporation
#15Earlier quoted context omitted.
>Are they trying to get ahead of government regulation with this? It looks like a declaration of self-regulation to me. I think it's more a bit like the Henry Ford deal where he insisted on paying his workers enough to actually be able to afford the cars. Anemic demand is one of those things that can get an economy stuck in a low-growth poverty trap. Either that or they're trying to get ahead of the guillotines.
My impression is the last sentence - self preservation. With the threat of automation, they can see the pressure mounting on finding solutions that do not result in unions or pitchforks.
My assumption is that all the union talk and action in the last few months has board members scared and they want to put on a show to employees that they're doing stuff to make things more fair, in order to push off folks unionizing. Growing inequality...
Re: Statement on the Purpose of a Corporation
#16If corporations want to make a real change and provide value to all stakeholders, they will need to develop a practice to systematically eliminate all negative externalities (risk) being transferred to society. Unfortunately, the current regulatory environment still makes this illegal/impossible, given that executives are still legally bound to create value for shareholders. The thoughts and feelings of these CEOs me…
The thoughts and feelings of these CEOs mean a lot, because I am pretty sure that the current regulatory environment underdetermines the choices a corporation has (otherwise it would be General Councel and Compliance that runs companies).
So, CEOs can take externalities into account when making decisions within the legally feasible.
Re: Statement on the Purpose of a Corporation
#17This new purpose stated by the CEOs of America's largest corporations is a welcome change to the corporate ethos that has prevailed in the US since the "greed is good" days of the 1980's. It is also a preemptive response to the growing popularity of politicians like Bernie Sanders and Elizabeth Warren.
Re: Statement on the Purpose of a Corporation
#18If corporations want to make a real change and provide value to all stakeholders, they will need to develop a practice to systematically eliminate all negative externalities (risk) being transferred to society. Unfortunately, the current regulatory environment still makes this illegal/impossible, given that executives are still legally bound to create value for shareholders. The thoughts and feelings of these CEOs me…
> Unfortunately, the current regulatory environment still makes this illegal/impossible, given that executives are still legally bound to create value for shareholders.
It's a myth that executives are legally bound to create value for shareholders.
From [0], "Directors and officers, broadly speaking, have a duty of care and duty of loyalty to the corporation. From that flow more specific obligations under Federal and state law. But notice: those responsibilities are to the corporation, not to shareholders in particular…..Equity holders are at the bottom of the obligation chain. Directors do not have a legal foundation for given them preference over other parties that legitimately have stronger economic interests in the company than shareholders do."
[0] https://www.nakedcapitalism.com/2017/02/why-the-maximize-sha...
Re: Statement on the Purpose of a Corporation
#19If corporations want to make a real change and provide value to all stakeholders, they will need to develop a practice to systematically eliminate all negative externalities (risk) being transferred to society. Unfortunately, the current regulatory environment still makes this illegal/impossible, given that executives are still legally bound to create value for shareholders. The thoughts and feelings of these CEOs me…
Externalities are considered in shareholder value. It has never been just monetary, contrary to popular opinion.
Re: Statement on the Purpose of a Corporation
#20I think the final point is where there is the most leverage- giving preference to long term ownership interests over short term interests. Time based voting preferences, longer minimum holding periods for manager stock grants, more tax differential on long and short term gains and similar policies have potential to create an environment which is not as focused on the daily stock price and the quarterly numbers. Having the company serve the purpose of its owners is not a bad thing, otherwise the concept of ownership is meaningless, but if the intention of some of those owners is to briefly increase its value or liquidate assets to increase short term returns at the expense of longer term returns, that seems worthy of disincentivizing.