The Myth of Maximizing Shareholder Value
In 2010, the 500 largest companies in the United States, otherwise known as The Fortune 500, generated $10.7 trillion in sales, reaped a whopping $702 billion in profits, and employed 24.9 million people around the world.
Historically this has been good news. After all, when these corporations have invested in the productive capabilities of their U.S. employees, Americans have typically enjoyed plentiful well paying and stable jobs. That was the case a half century ago.
Unfortunately, as Bill Lazonick points out in the interview below, it's not the case today.
For the past three decades, top executives have been rewarding themselves with mega-million dollar compensation packages while American workers have suffered an unrelenting disappearance of middle-class jobs. Since the 1990s, this hollowing out of the middle-class has even affected people with lots of education and work experience.
As the Occupy Wall Street movement correctly recognized, the concentration of income and wealth of the economic top "one percent" of society has left the rest of us largely high and dry. Corporate profits are increasingly going to share buybacks or dividend distribution, but very little is going back into research and development efforts, capital reinvestment, and employment.
Corporations, in other words, are devoting increasing amounts of their considerable and growing financial resources to redistribution rather than innovation. And they are doing so based on the justification of "increasing shareholder value."
However, as Lazonick points out, when the shareholder-value mantra becomes the main focus for companies executives usually concentrate on avoiding taxes for the sake of higher profits and don't think twice about permanently axing workers. They also increase distributions of corporate cash to shareholders in the form of dividends and, even more prominently, stock buybacks.
When a corporation becomes financialized in this way, the top executives no longer concern themselves with investing in the productive capabilities of employees, the foundation for rising living standards. Instead they become focused on generating financial profits that can justify ever higher stock prices -- in large part because, through their stock-based compensation, high stock prices translate into megabucks for these corporate executives themselves.
It's not a pretty state of affairs. Lazonick discusses how we evolved from a society in which corporate interests were largely aligned with those of broader public purpose into a state where crony capitalism, accounting fraud, and corporate predation are predominant characteristics.
Lazonick makes a very powerful case that the ideology of "maximizing shareholder value" primarily works to the benefit of the very corporate executives who make corporate resource allocation decisions, and who derive high levels of remuneration from munificent stock option awards. As for the rest of us, we're left to fight over the crumbs.
Пікірлер: 17
Corporate market speak for "corporations keep their wealth rather than reinvest it the future via jobs."
9 extremely rich billionaires clicked the thumbs down button while sipping on their cocktails in a caribbean tax haven. In the meantime, you better get back to work ...
The concept of serving the Public, as opposed to serving the Shareholder, has become lost, as the allocation of profits to those who seem to be able to afford to control the selection of Government, becomes more apparent..... In 1967 when the US Railroad System was declared redundant, the diversion of dividends that were at one time feeding the Widows and relatives of former Railroad Workers, as well as those who invested in Railroad stock, was condensed to a few systems that fed the needs of a selected group of individuals. The Profits that were diverted to the companies that served the investors in Oil Production Inventory, became the most competent and profitable funds..... The current failure of the environment to support this obvious greed, has proven that the Rockefeller's may not have been the most selfless individuals to appoint as our advisors...... We could ask Warren Buffett about investing in Railroad Stock?
Talk about prophetic.
Thank you!
This is shocking news!
When the corporate tax rate was above 50% company's where encouraged to invest more, not less. Taxes encourage investment. The corporate tax rate should be 80% on the excess profits.
nice video keep up the good work
Does this surprise anyone?
@tophan5146
4 жыл бұрын
Patrick Cahill political compas?
...all stench leads back to Reagan and Jack Welch.....
People can smell the problem, but it can be hard to see exactly where the rot is coming from. The hope of this is… it’s so very fixable. We can have a thriving capitalist economy and country that is good for workers and business people. The hard part is fighting against the power that the accumulated money can wield in implimentation
The Winter 2014 issue of Columbia University's magazine "Columbia Ideas at Work" contains an article entitled "Hedge Fund Activists' Real Returns" by Professor Wei Jiang. The article says "New research shows that stock price jumps following hedge fund activism are the result of genuine productivity gains, not merely financial engineering." Professor Jiang, along with Prof Alan Brav of Duke U. and Prof Hyunseob Kim of Cornell U. conducted the research by looking at 650 instances of shareholder activism between 1997 and 2004. The myth of maximizing shareholder value through shareholder activism and democracy is therefore not a myth, but is real and verified.
Lower tax, a flat rate, will increase the tax base. It's not true that lower taxes decrease tax revenues. The push back to this comes from lawyers and those who benefit from a larger government.
@watching99134
Жыл бұрын
The Trump tax cuts increased tax revenue by 25 billion through increased activity but lost something like 90 billion for a net loss of 65 billion iirc?
I thought I smelled something when I started watching videos from this channel, but now I see that I have stepped in a big pile of Soros. Please Mr Billionaire, tell me how you would like the oligopoly to run.