Reflection Paper on "the Shareholder Value Myth"

Jason Ng

Professor Brancatelli

Ethics in Business

10th October 2017

Reflection on “The Shareholder Value Myth”

This particular excerpt from Cornell Law Library written by Stout discusses about the theory that taught most companies were owned by their shareholders, which is why it’s natural for companies to aim for maximization of shareholder’s value as it ultimately turns back into self-interest. Stout first introduced the fact that Fortune 500 companies’ life spans were declining significantly from an average 75 years to just 15 years, then debunks the shareholder value’s myth by, first giving a brief history recap, then discusses its legality and finally consolidates evidence and gives a conclusion.

As the author went through the evidence and suggested that maximizing shareholder value was dead. Instead, he proposed an alternative solution: instead of “corporate maximizing”, substitute it with “corporate satisficing”. What corporate satisficing actually means is, rather than having companies maximize one certain gain, companies can tackle several objectives simultaneously and do decently well on each. Tout explained that one of the advantages satisficing has is that it allows companies’ management level to decently serve the interest of different shareholders, such as bond holders, long-term shareholders, etc. without compromising the profitability or credibility of their investors, employees, consumers, etc.

Through Satisficing, managers are enabled to retain earnings and reinvest in different departments to further contribute to the corporation and the society while protecting shareholders’ interests and also respect the desires of their prosocial shareholders trying to run the firm in a socially ethical and environmental friendly manner.

In my opinion, I believe his proposition has already existed under another name, sustainability reporting. Sustainability reports disclose information about economic, environmental, social and governance performance. Corporate Social Responsibility (CSR) also have similar characteristics as Sustainability reporting, which is a form of corporate self-regulation integrated into a business model. Additionally, over my summer course in Global Sustainability & Marketing class, we discussed and observed that CSR and sustainability reporting or anything in this nature has a direct correlation to sales/ revenue. When a consumer is convinced that a corporation is environmental friendly and has a mature product life cycle, companies tend to rake in higher revenue and thus creates a special customer-brand loyalty.