Yves Smith — Why the “Maximizing Shareholder Value” Theory of Corporate Governance is Bogus

Yves debunks the myth of the obligation of corporate management to maximize shareholder value. Legally, "equity is residual" and sits at the bottom of the scale of corporate obligation.

This myth lies at foundation of short-term managerialism aka managing to the quarterly report that is distorting incentives. As Yves points out, it was dreamed up by an economist with no legal expertise and no deep expertise in management science other than theoretical.

It doesn't hold water legally, and management gurus like Peter F. Drucker have denounced it as short sighted, designed to enrich corporate top management based on performance bonuses, equity compensation, and equity prices at the expense of developing long-term strategy.

Naked Capitalism
Why the “Maximizing Shareholder Value” Theory of Corporate Governance is Bogus
Yves Smith