Maximizing Shareholder Value: A New Ideology for Corporate Governance

Abstract

The decade-long boom in the US stock market and the more recent boom in the US economy have fostered widespread belief in the economic bene ts of the maximization of shareholder value as a principle of corporate governance. In this paper, we provide an historical analysis of the rise of shareholder value as a principle of corporate governance in the United States, tracing the transformation of US corporate strategy from an orientation towards retention of corporate earnings and reinvestment in corporate growth through the 1970s to one of downsizing of corporate labour forces and distribution of corporate earnings to shareholders over the past two decades. We then consider the recent performance of the US economy, and raise questions about the relation between the maximization of shareholder value and the sustainability of economic prosperity.

Increasing inequality, consumer credit and financial fragility in an agent based macroeconomic model

“…This holds both for firms and banks. For instance, Lazonick and O'Sullivan (2000) show that non-financial corporations has been characterized by a shift from a retain and reinvest strategy to a downsize and distribute strategy. Moreover, over the decade 2001-2010, the corporations in the S&P 500 Index distributed the 40 % of their profits on cash dividends, but also another 54 % on stock buybacks (Lazonick 2013).…”

Waving, Not Drowning: Explaining and Exploring the Resilience of Labor Process Theory

“…Part of the effort has been focused on re-conceptualizing contemporary political economy as a new form of financialized capitalism rather than the more optimistic accounts of a new or knowledge economy (Thompson 2003). This is compatible with wider critical accounts of the rise of shareholder value growth regimes that rely on capital market metrics and measures to enforce ever increasing rates of dividend payments and appreciation in share price as markers of financial performance (Lazonick and O'Sullivan 2000;Henwood 2003). Whilst the credit crunch or financial tsunami has focused attention on the general nature and contradictions of such economies, where LPT has added something distinctive is on the destabilizing effect of the pursuit of shareholder value on the management of work and employment relations.…”

Globalizing Business Ethics Research and the Ethical Need to Include the Bottom-of-the-Pyramid Countries: Redefining the Global Triad as Business Systems and Institutions

“…It would be beneficial for international business research to differentiate between shareholder and stakeholder business systems (Albert, 1991;Andreff, 2002;Chui, 2002;Freeman, 1984;Lazonick and O'Sullivan, 2000;Lenway and Murtha, 1994). The growing academic debate on shareholder research has focused on research in comparative corporate governance (Lazonick and O'Sullivan, 2000;Pedersen and Thomsen, 1999;Roe, 1994) that compare the legalistic, stock market driven approaches of the Anglo-Saxon countries with the more informal cross share holding system adopted in Japan and Germany.…”

“…The growing academic debate on shareholder research has focused on research in comparative corporate governance (Lazonick and O'Sullivan, 2000;Pedersen and Thomsen, 1999;Roe, 1994) that compare the legalistic, stock market driven approaches of the Anglo-Saxon countries with the more informal cross share holding system adopted in Japan and Germany. A legal contract with ultimate redress to courts is fundamental to the operation of the Anglo-Saxon business culture (Barzel, 1997;Roe, 1994).…”