The Past Speaks

This week, I’m lecturing on the emergence and social impact of the ideology of shareholder value.  Shareholder value is the view that the sole function of a company is to benefit its shareholders and that the interests of other stakeholders ought to be disregarded. The viewpoint began to be expressed with greater stridency in the late 1970s, perhaps as a response by institutional investors and business intellectuals to the post-1973 slowdown in economic growth and drop in corporate profitability.   During the heyday of the Keynesian consensus (1940s-1970s), we heard far less about the need to subordinate the interests of all other stakeholders to those of the shareholders. The shareholder value ethos of corporate governance, which was loosely associated with the libertarian political ideology of the Reagan-Thatcher era, was popularised by a number of eloquent public intellectuals, most notably Milton Friedman, and by those academics who taught it to MBAs.

I’ve asked the students to read a number of academics sources about shareholder value, including

Lazonick, W., & O’sullivan, M. (2000). Maximizing shareholder value: a new ideology for corporate governance. Economy and society, 29(1), 13-35.

Kemper, A., & Martin, R. L. (2010). After the fall: The global financial crisis as a test of corporate social responsibility theories. European Management Review,7(4), 229-239.

Chang, H. J. (2010). 23 things they don’t tell you about capitalism. Bloomsbury Publishing USA.

Tabb, W. K. (2013). Economic Governance in the age of Globalization. Columbia University Press.

I really want the students to read Roger L. Martin, Fixing the game: Bubbles, crashes, and what capitalism can learn from the NFL. (Harvard Business Press, 2011).  However, I know the North American sports metaphors used by Martin may not resonate that well with British students!

I’ve also asked them to look at this Forbes magazine article, which provided a nice gateway into Roger L. Martin’s ideas about shareholder value.

A number of academic authors, including William Lazonick, have argued that the development of the shareholder value ethos on Wall Street damaged American society and, indeed, many American companies.

In the 1990s, there were attempts to export the ethos to other capitalist countries, most notably Germany, but these efforts have failed, in part because the shareholder value approach was discredited by the bursting of the Dot.com bubble and then, a fortiori, the post-Lehman GFC. Germany seems to prove that you can run profitable companies using the rival stakeholder model of capitalism. Today, an increasing number of American business academics and, more important, corporate leaders, are pushing back against the ideology of shareholder value. Jack Welch, the former head of GE, recently called shareholder value “the dumbest idea in the world.” Moreover, as this video shows, business school academics are starting to push back against the ethos of shareholder value, as the following video shows:

It is, therefore, great to see that a panel on shareholder value has been organized at the Business History Conference, which is taking place next week in Germany, the heartland of the stakeholder variant of capitalism.  I’m really looking forward to hearing these papers.

6.C    Reassessing Shareholder Value
Room 254

Chair and Discussant: Jonathan Levy, Princeton University

Neil Rollings, University of Glasgow

The Dividend Prejudice in Postwar Britain

Marie Carpenter, Télécom School of Management, Bob Bell, University of California, Berkeley, Henrik Glimstedt, Handelshögskolan i Stockholm, andWilliam Lazonick, University of Massachusetts Center for Industrial Competitiveness

Cisco Systems and the Virtues and Vices of the New Economy Business Model
[Abstract]

Daniel Raff, Wharton School, University of Pennsylvania, and NBER

What Became of Borders?

William Lazonick, University of Massachusetts Center for Industrial Competitiveness

Investing for the Future or Living Off the Past? How Stock Buybacks Can Damage Your Company and Your Country
[Abstract]