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Is Shareholder Value Bad For Business? Shareholder Vs Stakeholder


Business  (tags: Shareholder, Stakeholder, James Post, Boston University School of Management, Redefining the Corporation, Market Basket, life expectancy of S&P 500 companies, Corporation, CEO )

Sheryl
- 1480 days ago - bostonglobe.com
If you're younger than 50 or 60, you've lived in a world where everyone taught you that this is what a corporation is supposed to do maximize profit and shareholder value. But the world used to be different. Shareholder vs Stakeholder. Good read.



   

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Comments

Animae C (506)
Monday September 1, 2014, 5:29 pm
Thanx for posting Dandelion
 

Roger G (148)
Tuesday September 2, 2014, 1:48 pm
way too much power to the shareholders, and way too little to the workers, let's change the mix asap...
noted, thanks
 

Past Member (0)
Tuesday September 2, 2014, 6:41 pm
Thank you Dandelion for posting.
 

Laurie H (818)
Tuesday September 2, 2014, 8:59 pm
Wish we could turn the hands of time back on some things, dearest Sheryl. Noted & So Appreciated!!!~~~
 

SusanAWAY Allen (219)
Tuesday September 2, 2014, 9:23 pm
Noted and shared
 

TomCat S (126)
Tuesday September 2, 2014, 10:30 pm
Authentic capitalism can be managed in a way that is best for workers and shareholders. Vulture capitalism, which the Republican Party represents serves only the short term greed of the super rich.
 

P A (117)
Tuesday September 2, 2014, 11:21 pm
An excellent article - and reminds me wistfully of the days when companies felt a responsibility to people, the land and animals that has rarely been seen since the 1980s when the new capitalist ideas from America - vulture capitalism as TC so aptly puts it - came onto the world stage and ate almost everyone's hopes and future.
 

Giana P (398)
Tuesday September 2, 2014, 11:33 pm
The same is going on in my company, in 1973 it was so employer oriented, now we've been taken over by billionaires who don't give a damn about us only about making money. Thank god I am old and can go on pension and at least I remember better days. The young ones are so different, they also care less about their co-workers and just want to advance on the corporate ladder. Very sad. Thanks Dandelion.
 

Athena F (131)
Wednesday September 3, 2014, 1:26 am
thank you
 

Arild Gone for now (174)
Wednesday September 3, 2014, 3:18 am
Excellent article Sheryl,unfortunately the shareholders are looking at the bottom line and the workers wages doesn't reflect the Corporations earnings,I'm afraid the middle-class will keep on shrinking with this policy.
 

Edwin M (346)
Wednesday September 3, 2014, 4:46 am
Thanks Sheryl
 

Sheryl G (360)
Wednesday September 3, 2014, 5:03 am
Very true Ros, and according to the article below.....

Lynn Stout, a professor at Cornell University Law School and the author of “The Myth of Shareholder Value.”

A bit of history......

During this era of so-called managerial capitalism, which began roughly in the 1920s, corporations were seen by both their managers and much of the American public as institutions that mattered in themselves: They produced useful products, gave workers and their families a stable and often long-term source of income, and played a role in the cities and towns where they did business. A company like IBM or General Motors could be the heart of an entire ecosystem of suppliers, investors, and even civic institutions.

But a change was coming to American capitalism. Facing unprecedented competition from Europe and Asia, these long-stable firms began to look like sleepy behemoths. And economists had begun to worry that top executives had become so powerful they were running companies with their own personal interests at heart, lining their pockets at the expense of the stockholders who, in theory, should have been benefiting in proportion to the company’s success.

The Shift beginning in the 1970's.......

By framing the corporation purely in terms of its monetary value to shareholders, and setting aside the notion that it might be a valuable entity in and of itself by virtue of what it did, corporate America suddenly had an easy way to measure performance. The scheme had a kind of moral clarity: The risk of operating a company is borne by stockholders, so they’re the ones who deserve to reap the rewards.

The outcome:

The broader social effects of the shift toward shareholder value are clear, critics say, with wages stagnating and unemployment remaining stubbornly high even as the stock market has rebounded after the recession.

So a lot of us understand that point above, we've felt our wages stagnate.....we see the unemployment and a rise in part-time workers needing full time work.

We, the employees and costumers are considered "Stakeholders".

But the shift was suppose to help the Shareholder......the article moves on......

Meanwhile, if the point was to benefit shareholders, it’s not clear that worked either.

According to Roger Martin, the former dean of the Rotman School of Management at the University of Toronto, in his book, “Fixing the Game,”

From 1933 to 1976, returns on investment in the S&P 500—the decades immediately BEFORE the “shareholder value” took hold—were actually HIGHER than they have been since.

In the 20 years after 1993, when a change to the tax code encouraged corporations to tie executive compensation to share price, investors in the S&P 500 saw returns that were slightly WORSE than what they were getting during the 40 years prior.

And here is one that everyone should be able to wrap their minds around......I grew up with businesses that my Mother knew, and most likely my Grandmother did. Now they come and go, even those long time business that made things familiar to us.......like Norman Rockwell......something we could attach to.....longevity and that meant for the employees as well.

Final......no longevity for anyone.....

The life expectancy of S&P 500 companies, meanwhile, has been cut dramatically—from around 70 years in the 1920s to 15 years today.

 

Don H (45)
Wednesday September 3, 2014, 5:22 am
Thank you, Dandelion!

Put an end to this predatory disaster capitalism!
 

Winn Adams (179)
Wednesday September 3, 2014, 6:31 am
Thanks Sheryl.
 

Kathleen Mireault (211)
Wednesday September 3, 2014, 7:22 am
Noted. Very interesting article. Thanks for posting, Dandelion! A glimmer of a better way? Maybe?
 

Bella F (94)
Wednesday September 3, 2014, 8:58 am
Hmmmmmmmm interesting thank you for posting
 

Bryan S (105)
Wednesday September 3, 2014, 12:20 pm
Great article Sheryl, and good to hear of the solidarity among workers and customers at Market Basket.

Of course we have a term for people who are only concerned with their own benefit with no regard for others they are in contact with or the larger community: sociopath. Though widely understood to be a negative quality, somehow it has become accepted (even revered) as "the way things must be" when it comes to our most influential institutions.

As i understand, any German company (don't know if any other European or other countries have a similar model) with 500+ employees must have workers make up half of the board of directors as a way to ensure social responsibility is part of the equation.
 

Caitlin M (104)
Wednesday September 3, 2014, 12:37 pm
It is so refreshing to see the employees sticking together behind a benevolent employer and helping him regain his status and control of the company they all work for. They did this without the organization of a union, also. That's quite a feat. It is a real shame that the greedy bastards who are simply out to make a buck won't realize what they're missing by short-cutting their employees. Our entire society has lost so much as a result of chasing the dollar bill. Our education system has been ruined because children are taught nothing about ethics and honesty as a value. They are taught that the end justifies the means so that they have no guilt over cheating because they consider themselves to be chumps if they lose the dollar bill for any reason. They, like the board of Market Basket, would consider the benevolent Mr.Demoulas to be a chump for paying his employees well. What a sad thing for the generations since 1980 or so who have no idea what honor really is.
 

John B (185)
Wednesday September 3, 2014, 2:03 pm
Thanks Dandelino for the link to the article by Mr. Neyfakh. Great read and I like the concept of a “stakeholders” not a shareholders. Read and noted.
 

John B (185)
Wednesday September 3, 2014, 2:05 pm
LOL...Sorry Dandelion for screwing up your name.
 

Terrie Williams (798)
Wednesday September 3, 2014, 2:21 pm
Thanks, Sheryl.....the workers won one for once.....so glad for them!
 

Sheryl G (360)
Wednesday September 3, 2014, 2:35 pm
Well this article was not really so much about the Market Basket employees, although it took them in as a type of example. The article was so much more than that. Please read my breakdown of Wednesday September 3, 2014, 5:03 am for a quick overview. This to me was a most enlightening piece I do hope people will actually take time to fully read it.
 

Sheryl G (360)
Wednesday September 3, 2014, 2:45 pm
Giana, even in the Human Services environment this shift happened. I recall the non Union Management out of Boston coming into our Office and preparing us for the "new" model. For years we were told that we were a Human Services Office with the emphases on the word human.

The Staff was being cut back, as people left they didn't get replaced, so after awhile trying to be "human" to the "humans" got harder and harder. It became all about the numbers, how many "cases" did we process not how many people did we service. When we complained we were told to work "smarter" as gone are the days when we could just take our time. That one really ticked me off as we always worked hard, but we had time to truly spend with the people, trying to figure out how to best help them, programs they'd qualify for, or how to direct them for a leg up so they didn't have to remain on programs. This so called "wasted time" was most valuable......but that is the time that was removed as all they wanted was how many "cases" got fed into that computer be they a case we helped or one we didn't.

The clients were not cared about, we employees were not cared about, all that was cared about was there was less taxes going into the State (yes, the beginning of the Corporations and Well to Do Not wanting to be supporting "helpful" programs for the poor) and those of us that worked for the poor, well we didn't matter in fact either........5 years no pay raise and when we got it, after paying higher taxes, parking rate for my car in fact went up (they must of heard we got a raise), union dues went up, health care premiums went up, and of coarse work load went up.......after the raise, I had $5 LESS in my pay check after waiting 5 years. I told them they could keep the raise.

That was back in the 80's.........

What we all didn't realize at the time was what was causing this to happen and that it was happening to more and more of us as the years went along.
 

Sheryl G (360)
Wednesday September 3, 2014, 2:54 pm
Oh yes, I want to clarify my taxes going up in the statement above.....Middle Class taxes went up. You know the weekly wage earner to begin the process of shifting what the Corporate and the Elites use to pay.....as they paid less we paid more. Then a place comes when the Middle Class just can't shoulder that any longer so in fact all of those programs that helped keep people out of poverty or to help them get out of poverty began to disappear or in fact help fewer people.

That was the "trickle down' we got in this Country.
 

. (0)
Wednesday September 3, 2014, 4:02 pm
Companies should realize that putting the firm's interest in a symbiotic relationship with their clients and their staff profits everyone. Working to improve the lives of people within the community where they exist profits everyone and creates goodwill toward the company. When a store has a good product; good staff; reasonable pricing and facility ambience; people will want to shop there or avail themselves of the services offered.
This has not been the case for a long time. We were taught that the customer was always right, even if they weren't; they were always right.
You raise a good point about the middle class Ms. D. It just seems that the upper percentile won't be happy until they have reduced society on a global structure to the "haves" and have nots and no in betweens.
I remember that if you were making 10K in the 50s to pre 1968; you could afford a house, a car, a couple of kids and a two week vacation. Not anymore.
 

Lois Jordan (63)
Wednesday September 3, 2014, 4:08 pm
Noted. Thanks for posting, Dandelion. So many good comments. We used to have a "trickle-down" economy; but lately, it seems like an upward flow of wealth. We are being nickel-and-dimed to death. And, I'm reminded of the woman who worked 4 jobs, slept in her car in-between, and died sleeping in her car. Corporate raiders have killed many a corporation, leaving workers with nothing. This is a systemic problem that could be greatly helped by Congress imposing some new regulations---like a cap on CEO salary. Won't hold my breath, though. I've already signed petitions & sent letters to no avail.
 

Kamia T (89)
Friday September 5, 2014, 10:17 am
Very interesting article and comments. I'll be glad when big corporations begin to learn what any small farmer running a CSA knows -- don't take care of your customers, and your business ultimately will die.
 

Iona Kentwell (129)
Friday September 5, 2014, 7:05 pm
This is an excellent article.
long term intelligent thinking is so often ignored in favour of short term personal gains. As a society, including our governance, we need to turn that around. We still have a chance, after all, at least many of us can still think and see what makes sense, both for survival as a group and for life worth living.
 

Sherri G (128)
Friday September 5, 2014, 8:09 pm
TY Dandelion Noted and Shared. I remember when workers were not as complacent as they are now about their bosses.
 

Bruce C D (89)
Friday September 5, 2014, 8:37 pm
It isn't just that we have the wealthy conducting class warfare on the rest of us, with too many suckers dreaming they could be a lucky lotto winner someday defending the status quo. No, as I've been saying for many, many years, capitalism and consumerism is not the be all and end all; they need to be recognized as stepping stones in the advancement of human society. Perhaps a wrong turn, but a needed lesson, if you will. While it must be acknowledged that capitalism and consumerism have enabled tremendous progress, we must also accept that it has carried a very high cost, and that the practice is unsustainable.

Humans have a very unique and special capability: we can determine what kind of society under which to live. Who says we need to work 40 hours a week or more to "earn" a living? The "economy" is an artificial construct we've created for ourselves--a kind of prison of our own choosing, or a trap of our own making. I think most of us have been indoctrinated to some extent into thinking that the kind of society we are building is the best that can be hoped for, and too many are afraid of thinking outside of the box, of leaving our temporary security to risk a more enduring variety.

This doesn't mean we should stop fighting for equality and improvements to the present system, but neither should ideas and experiments that could lead to a better quality of life and a more symbiotic relationship with our environment be constrained or summarily rejected. We can do better, and we should be demanding better. Not only for ourselves, our progeny, and future generations, but for all the other living things with which we share this planet.

Didn't mean to get up on the soapbox, although I'm probably preaching mainly to the choir. Thanks for the provocative article, Dandelion. This was a good piece of reporting.
 

Sheryl G (360)
Saturday September 6, 2014, 5:46 am
First Nations and American Indian had a great way of living and I suppose the Aboriginal people did as well, but I'm sure those concepts would be far too radical for the worlds people today. Caring, sharing, respect for all our relations......yup too radical.

Thanks everyone for your input.
 

Sheryl G (360)
Saturday September 6, 2014, 10:32 am
At this point, I'm a beholder. Walk In Beauty everyone.
 

Judith Hand (55)
Saturday September 6, 2014, 2:18 pm
Noted, tweeted. Ahhhh, the Globe. Thanks, Dandelion!
 

LucyKaleido S (82)
Tuesday September 16, 2014, 4:40 am
I've arrived here a bit late, but this article is & will be valid for months, if not years, to come.

It is really a great read. I have never come across an article that so thoroughly & so articulately put current short-term, greed-driven, Wall-Street-oriented company management practices into perspective by clearly showing how companies used to be run & how much better that was for everyone.
When I say 'current' that is relative - it hasn't happened overnight & it started, as the article points out, with the growing influence of University of Chicago free market economist Milton Friedman in the 70s that has come to DOMINATE management technique & strategy completely!

There are so many statements from the article worth reprinting here, but I just don't have the time now.

It IS particularly striking that investing in a company by buying stock & shares used to mean you were taking a bet on that company's growth over time. The money collected by the sale of its shares was used by managers to make investments & develop the company. Now, with the vulture capitalism dictum of ever-greater & ever more immediate profit, companies are 'hollowed out' rather than developed. How many times have I read that a company's Wall St share value on took a bound because hundreds of people were fired?

And Leon Neyfakh documents all the important points by citing books & articles & their economist authors whose thoughts & works are definitely worth remembering & exploring in greater detail. I'll be coming back to the article to get the names of those authors & economists and the books & articles mentioned.

It's good to know that AT LONG LAST the predominance of the Chicago School is being seriously questioned, with numbers to prove it. The idea of a company's 'social responsibility' first started taking root in the 80s, I think, (at a time when the Chicago School had already begun doing harm), but it was mainly a response to public criticism of environment damage that companies were responsible for doing. And that was quickly followed by corporate 'green wash' operations that had more to do with PR than actually protecting the environment.

The 'new' notion of 'corporate social responsibility,' as explained here, goes beyond the environment to include employees, clients, the community & the world at large.

You have really picked a winner, here, Sheryl! But you'll have to wait till later for my green star in appreciation because I've already rewarded a comment of yours elsewhere today.
 

LucyKaleido S (82)
Tuesday September 16, 2014, 4:47 am
Forgot to say:

Great cartoon! It's what attracted me to the post in the first place.

I had never heard of Market Basket & was delighted to read about a company run on basic ethical standards.
I hope the employees' & clients' solidarity movement to reinstate the good CEO will bear fruit.

And, finally, I enjoyed reading some great comments here & wasn't stingy with stars.
I particularly love Bryan's dictionary comment: "Of course we have a term for people who are only concerned with their own benefit with no regard for others they are in contact with or the larger community: sociopath. Though widely understood to be a negative quality, somehow it has become accepted (even revered) as "the way things must be" when it comes to our most influential institutions. "
 
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