Are Shareholders Their Own Worst Enemies?

Cornell’s Lynn Stout challenges the shareholder-value “ideology.”


[See How Safe Is Your American Dream?]

You write that "as a theory of corporate purpose" shareholder value is "poised for intellectual collapse." Will or should some form of managerialism replace it?

The lovely thing about the business world is that, given a little breathing room, it's highly adaptable. And what we're seeing are signs that the business world is already adapting by coming up with private ways of basically doing an end-run around shareholder-value theory. Fewer companies are going public but the ones that are increasingly tend toward dual-class or multi-class share structures, where the actual control of the firm is kept in the hands of the managerial class—the founders and the executives—and shareholders have virtually no power.

Your critics say managerial supremacy didn't work out so well in the last century and would be worse now.

But there's no evidence there. When people say it failed, they seem to be thinking primarily of the bear market of 1973-74, and assuming that somehow that reflects on the value of managerialism, which I think is faulty reasoning. Managerialism had been around for decades. What happened in 1973-74 was that Richard Nixon took the U.S. off the gold standard and triggered inflation, combined with [the first oil crisis]. The price of oil quadrupled. I'm perfectly willing to be convinced by evidence that managerialism can't work, but I have not yet seen that evidence.

I do not see this as a left-right issue. I think that people on both sides of the political spectrum want a corporate sector that works for our economy, for our society, and for investors. And the reality is, for 20 years we've been trying to make managers focus more on shareholders, and shareholder value clearly is not working.