Monday, July 16, 2012
Justin Fox and Jay Lorsch have a piece, What Good Are Shareholders?, in the new Harvard Business Review. They join Lynn Stout (The Shareholder Value Myth) and others call into question the question of whether pursuit of short-term stock prices is the best way to run a railroad. Fox and Lorsch conclude:
Given how many unintended and unwelcome consequences have flowed from the governance and executive pay reforms of the past few decades, we’re wary of recommending big new reforms. But we do think that giving a favored role to long-term shareholders, and in the process fostering closer, more constructive relationships between shareholders, managers, and boards, should be a priority. So should finding roles for other actors in the corporate drama—boards, customers, employees, lenders, regulators, nonprofit groups—that enable those actors to take on some of the burden of providing money, information, and especially discipline. This is stakeholder capitalism—not as some sort of do-good imperative but as recognition that today’s shareholders aren’t quite up to making shareholder capitalism work.
They, like Stout, recommend a new stakeholder capitalism. One that's focused on value, but long term value, and not necessarily social constituencies (though the two goals need not be mutually exclusive). Along the lines of long term shareholder value, Andrew Schwartz has an article, The Perpetual Corporation, that argues that directors have a legal obligation to manage for the long term. That might be a bit strong, but the article is a good marker for the long-term value argument.
Still 90+ degrees and melting in Massachusetts...