'Maximizing Shareholder Value': A Theory Run Amok

Clarke, Clifton & Friedman, H. H. (2016). Maximizing shareholder value: A theory run amok. i-manager's Journal on Management, 10(4), 45-60.

34 Pages Posted: 18 Jun 2016 Last revised: 18 Apr 2018

See all articles by Clifton Clarke

Clifton Clarke

Brooklyn College, School of Business

Hershey H. Friedman

City University of New York - Department of Business Management

Date Written: May 1, 2016

Abstract

The doctrine of Maximizing Shareholder Value (MSV) has been largely viewed as a definitive tool for measuring the performance of the executives of public corporations. Countless business students have been taught that, the sole goal of the firm is MSV, despite the fact that, Jack Welch called this goal the “dumbest idea in the world”. This paper reviews the literature and examines the evolution of this corporate mantra and exposes its potentially disastrous effects on shareholders, employees, customers and the nation. It concludes that, the construct of MSV is a decoy for pursuing higher share price and contends that, corporate profit-making and corporate social responsibility are not incompatible goals. Thus, it proposes that corporations should stop promoting this doctrine as a sacred objective of management and that business schools should discontinue teaching it as the optimum measure of management performance.

Keywords: Maximizing Shareholder Value, Maximizing Profit, Business Ethics, Corporate Social Responsibility

JEL Classification: A22, A23, G18, G21, G28, M14

Suggested Citation

Clarke, Clifton and Friedman, Hershey H., 'Maximizing Shareholder Value': A Theory Run Amok (May 1, 2016). Clarke, Clifton & Friedman, H. H. (2016). Maximizing shareholder value: A theory run amok. i-manager's Journal on Management, 10(4), 45-60. . Available at SSRN: https://ssrn.com/abstract=2796836

Clifton Clarke

Brooklyn College, School of Business ( email )

2900 Bedford Avenue
Brooklyn, NY 11210
United States

Hershey H. Friedman (Contact Author)

City University of New York - Department of Business Management ( email )

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