M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Tuesday, December 4, 2012

Decline of the shareholder value paradigm?

That seems a bit extreme.  Actually, I doubt that shareholder value, now that it has firmly taken root, will retreat from being the dominant framework for investors and managers.  But, there has been some recent attention to the question of shareholder value as the central organizing theme for the corporation.  In its Schumpeter column, The Economist suggested it was time to focus on long-term shareholder value.  Henry Blodget of the Business Insider noted that the capacity for firms to create wealth has outpaced their capacity (or willingness) to create employment, thus calling into question the vital link between corporate success and social welfare.   In Virtue, Inc., the Boston Globe explored the role that benefit corporations might play in realigning the social contract with the corporation. 

For all their faults, newly public firms like Google and Facebook are using controlling positions by founders and dual-class stock to keep market pressures to chase short-term shareholder value at the expense of long-term value at bay. So,there is a real discussion going on about the proper role of the corporation.  Clearly, there is no legal obligation that existing corporations chase short-term shareholder value.  But there is now a renewed discussion about what the responsibilities corporations can/should have to the communities in which they exist. We'll see where it leads, but it strikes me as a productive discussion to have. 

-bjmq

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