The Shareholder Value Myth

How Putting Shareholders First Harms Investors, Corporations, and the Public

By Lynn Stout

“Shareholder value is the dumbest idea in the world.”

—Jack Welch

 Executives, investors, and the business press routinely chant the mantra that corporations are required to “maximize shareholder value.” The results have been disastrous. “Shareholder primacy” thinking causes corporate managers to focus myopically on short-term earnings reports at the expense of long-term performance; discourages investment and innovation; harms employees, customers, and communities; and causes companies to indulge in reckless, sociopathic, and socially irresponsible behaviors. It’s the kind of thinking that led directly to the recent worldwide economic collapse

Lynn Stout proves that there is in fact no legal obligation for corporations to maximize shareholder value—scholars, lawyers, and corporate officers just assumed there was. Nor, she demonstrates, is maximizing shareholder value the optimal economic model—that’s just another unproven assumption, one that is conceptually muddled.

Stout also shows how shareholder primacy actually hurts individual investors by obscuring their real, diverse, human interests in the name of serving a hypothetical, homogeneous, abstract, and conscienceless shareholder.

“Calm, careful, plainspoken, and relentless argumentation that peels away the distracting layers of abstract mumbo jumbo to expose the lunacy of the underlying theory for all to see. Lynn Stout does the world a great favor in exposing shareholder value theory for what it is: flawed and damaging.” —Roger Martin, Dean, Rotman School of Management, University of Toronto, and author of Fixing the Game

Lynn Stout is the Marc and Beth Goldberg Distinguished Visiting Professor of Law at Cornell Law School and the Paul Hastings Distinguished Professor of Corporate and Securities Law at the UCLA School of Law. She has taught at Georgetown University Law Center, Harvard Law School, New York University School of Law, and George Washington University Law School and has been a guest scholar at the Brookings Institution. Her work on corporate theory was cited in Justice Stevens’s dissent in Citizens United. She is also the author of Cultivating Conscience.

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The Shareholder Value Myth

by Lynn Stout

May 2012

Paperback, $16.95; 120 pages

978-1-60509-813-5