Should the Modern Corporation Maximize Shareholder Value?
19 Pages Posted: 13 Mar 2020
Date Written: March 3, 2020
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: Suggested Citation