Should the Modern Corporation Maximize Shareholder Value?

19 Pages Posted: 13 Mar 2020

See all articles by Sanjai Bhagat

Sanjai Bhagat

University of Colorado at Boulder - Department of Finance

R. Glenn Hubbard

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: March 3, 2020

Abstract

The modern corporation should maximize shareholder value. To strengthen the prospects for success of long-term shareholder value maximization, we suggest steps to align shareholder wealth maximization with stakeholder interests: First, antitrust public policies should be vigorously enforced to maintain and enhance competition in product markets and labor markets. Second, management and board compensation should be reformed to focus on creating and sustaining long-term shareholder value. Third, the Business Roundtable and other organizations should reconsider their policy of applying direct and indirect pressure on corporations to focus on non-shareholder priorities. Because public corporations are more susceptible to such pressure, it could be an impetus to companies to go private or not go public. Recent evidence suggests fewer public companies leads to more concentrated product markets, with the increased likelihood of diminished competition in these product and labor markets. Finally, and more importantly, for many of society’s more serious problems, corporations do not represent the appropriate level of action. Climate change, for example, poses significant challenges for societies and businesses. But significant changes to combat climate change require public policy changes in the United States and abroad. Turning more to corporations because the political process seems broken won’t do.

Keywords: Stakeholder value, stakeholders, CSR, corporate social responsibility, ESG, corporate governance, shareholder value maximization

JEL Classification: G00, G02, G3, D21, D23, K22

Suggested Citation

Bhagat, Sanjai and Hubbard, Robert Glenn, Should the Modern Corporation Maximize Shareholder Value? (March 3, 2020). Available at SSRN: https://ssrn.com/abstract=3548293 or http://dx.doi.org/10.2139/ssrn.3548293

Sanjai Bhagat (Contact Author)

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States
303-492-7821 (Phone)

Robert Glenn Hubbard

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www.gsb.columbia.edu/faculty/ghubbard

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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