End shareholder value tyranny: put the corporation first

Abstract

Purpose

Many investors view maximizing shareholder wealth as the only obvious and defensible, corporate objective function. But to contradict this view, the paper aims to consider the shortcomings of the “shareholder first” view and offer an alternative.

Design/methodology/approach

To make strategic tradeoffs effectively the whole organization needs a clear sense of what it is trying to achieve, and how choosing between specified alternatives serves its highest goal. Organizations need a “best metric” for the corporate strategy. The paper considers what ultimate end should corporations – that is, the managers who run them – refer to when making these difficult and sometimes painful tradeoffs?

Findings

The widely held shareholder‐value view holds that every choice should be made with an eye to creating as much financial wealth as possible for the providers of equity capital. But none of the familiar justifications for this view stand up to scrutiny. It is not true that: shareholders are owners; shareholders bear the most risk; maximizing shareholder value is a clear goal; and maximizing shareholder value is a legal requirement.

Practical implications

The corporation‐first view is a better alternative principle. It is that the ultimate purpose of the corporation is the survival of corporation itself. The corporation should not seek to maximize the interests of shareholders, or employees, or suppliers, or the environment, or anyone or anything else. The Costco model is examined.

Originality/value

This paper provokes some serious soul‐searching about the largely unquestioned primacy of shareholder interests as the objective function of the corporation and makes the case for a better alternative.

Citation

Raynor, M.E. (2009), "End shareholder value tyranny: put the corporation first", Strategy & Leadership, Vol. 37 No. 1, pp. 4-11. https://doi.org/10.1108/10878570910926007