Challenging the Long-Held Belief in Shareholder Value – NYTimes.com

Shareholder value and corporate governance have done nothing to actually improve stock returns.

That concept has expanded to mean that a corporation should always be run to maximize the size of shareholders’ claims. But Ms. Stout, who also serves as a trustee for the Eaton Vance family of mutual funds, argues that those special circumstances shouldn’t dominate how we view the obligations of continuing corporations. A solvent company has completely different purposes from those of insolvent ones. We don’t decide what to do with living horses because we turn dead horses into glue, she says.

It’s clear that something is deeply wrong with our capital markets. Stock market returns have been terrible for well over a decade. Wall Street investment banks, pushing their stock prices ever higher, took on risks that blew up the global financial system. In the early 2000s, companies sought to lift their share prices through an epidemic of accounting fraud.

via Challenging the Long-Held Belief in Shareholder Value – NYTimes.com.

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