The shareholder value myth
by Lynn A. Stout · first published 2012
36% recommend64% neutral
Why HN recommends it
Explains in accessible terms that corporate law does not actually require maximizing shareholder profit, countering a widespread belief. Suits readers curious about corporate governance and fiduciary duty.
Summarised by Claude from recommending comments
Executives, investors, and the business press routinely chant the mantra that corporations are required to "maximize shareholder value." In this pathbreaking book, renowned corporate expert Lynn Stout debunks the myth that corporate law mandates shareholder primacy. Stout shows how shareholder value thinking endangers not only investors but the rest of us as well, leading managers to focus myopically on short-term earnings; discouraging investment and innovation; harming employees, customers, and communities; and causing companies to indulge in reckless, sociopathic, and irresponsible behavior
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…investor money; they thus owe a legal duty to make as much money for their investors as they can is not, strictly speaking, true. This has been discussed a few times on HN recently. (And this book The Shareholder Value Myth is well worth reading: https://news.ycombinator.com/item?id=17529520 .) There's no categorical legal requirement for a company to make share value the absolute, #1 priority. On the other hand, it may…
on “Mastodon Is Better Than Twitter: Elevator Pitch” ↗…the value of a thriving society in general, it can consider much besides short-term maximization of profit. Fiduciary duty exists only to curb overtly abusive self-dealing. For more on this, see The Shareholder Value Myth by Lynn Stout. She has written a gloss on it here [1]. Her seminal 2008 legal review article, "Why We Should Stop Teaching Dodge v. Ford" [2], is a delight to read and I highly recommend it. [1] https://scholarship.law.cornell.edu/cgi/viewcontent.cgi?arti...…
on “IRS builds task force to explore running its own free e-file system” ↗The Shareholder Value Myth is a good recent-ish book laying out the case that maximizing profits no matter what is not in fact a requirement. There's been discussion of it occasionally on HN. For example: https://news.ycombinator.com/item?id=17529520
on “Is Google evil? (2017)” ↗…https://corpgov.law.harvard.edu/2021/12/01/dodge-v-ford-what... Much more in-depth read: https://scholarship.law.vanderbilt.edu/cgi/viewcontent.cgi?a... If you'd like to read a book on each side of the coin: "The Shareholder Value Myth" - Lynn Stout and Stephen Bainbridge just published a rebuttal book "The Profit Motive" I've read Lynn Stouts book, it's good, I've yet to start Stephen Bainbridge but I've been told it's a good read.
on “Are U.S companies legally obligated to maximize profits for shareholders? (2012)” ↗"The Shareholder Value Myth" is an interesting book about companies purpose https://www.amazon.com/The-Shareholder-Value-Myth-Shareholde...
on “A Message from Intel CEO Pat Gelsinger to Employees” ↗…responsibility to maximize profits has to die :-) Fortunately there is now (since 2012 in fact) a book that explains it very well in terms that almost anyone can understand, certainly anyone here on HN: The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public http://www.amazon.co.uk/Shareholder-Value-Myth-Shareholders-... Don't even need to read it all, the first few chapters are…
on “What Happens When a Healthcare Startup Leaves You With the Bill” ↗…relatedly, it's actually not true that corporate responsibility to profit is codified in the law. See e.g. https://en.wikipedia.org/wiki/Shlensky_v._Wrigley (discussed further in https://www.amazon.co.uk/Shareholder-Value-Myth-Shareholders...)
on “Etsy is under pressure to start acting more like a conventional company” ↗Lynn Stout, a Cornell Corporate Law Professor, seems to disagree with you: http://www.amazon.com/Shareholder-Value-Myth-Shareholders-Co...
on “Tim Cook Rejects Politics of the NCPPR” ↗…the contrary, through the routine application of the business judgment rule, courts regularly provide prophylactic protection for the informed and non-conflicted decisions of corporate boards" [1] "The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corportations, and the Public" by Lynn Stout http://www.amazon.co.uk/The-Shareholder-Value-Myth-Sharehold... [2] http://arizonastatelawjournal.org/book-review-the-shareholde...
on “What Happens When a Healthcare Startup Leaves You With the Bill” ↗…the contrary, through the routine application of the business judgment rule, courts regularly provide prophylactic protection for the informed and non-conflicted decisions of corporate boards" [1] "The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public" by Lynn Stout http://www.amazon.co.uk/The-Shareholder-Value-Myth-Sharehold... [2] http://arizonastatelawjournal.org/book-review-the-shareholde...
on “The World's Dumbest Idea: Maximizing Shareholder Value [pdf]” ↗More info for those curious: Corporations Don’t Have to Maximize Profits Lynn Stout, the distinguished professor of corporate and business law at Cornell Law School, is the author of "The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public." https://www.nytimes.com/roomfordebate/2015/04/16/what-are-co...
on “iPhone crashing bug likely caused by code added to appease Chinese government” ↗…maximizing shareholder value is not a legal obligation, but the product of the pressure that activist shareholders, stock-based compensation schemes and financial markets impose on corporate directors. The Shareholder Value Myth , Eur. Fin. Rev. Lynn Stout (April 30, 2013) The Ideology of Shareholder Value Maxim (Watch), Evonomics"
on “Facebook account now required to login to Oculus devices” ↗Reminded of this following the comments to the earlier submission "What Happens When a Healthcare Startup Leaves You With the Bill" https://news.ycombinator.com/item?id=7983281 The actual book is: "The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corportations, and the Public" by Lynn Stout http://www.amazon.co.uk/The-Shareholder-Value-Myth-Sharehold... but linking to a review to get an idea.
on “Book Review: The Shareholder Value Myth” ↗…the contrary, through the routine application of the business judgment rule, courts regularly provide prophylactic protection for the informed and non-conflicted decisions of corporate boards" [1] "The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corportations, and the Public" by Lynn Stout http://www.amazon.co.uk/The-Shareholder-Value-Myth-Sharehold... [2] http://arizonastatelawjournal.org/book-review-the-shareholde...
on “Amazon's heavy investing eats into bottom line, shares drop” ↗…this chapter shall be managed by or under the direction of a board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation. † http://www.amazon.com/The-Shareholder-Value-Myth-Shareholder... †† http://www.lawschool.cornell.edu/faculty/bio_lynn_stout.cfm ††† http://delcode.delaware.gov/title8/c001/sc04/index.shtml
on “Board Members” ↗