May 8, 2014 CR Magazine | R. Paul Herman & Srdana Pokrajac
Just How Sound is Shareholder-Value Primacy
The debate around shareholder-value primacy heated up at the end of February when a representative from conservative think tank National Center for Public Policy Research (NPCCR) asked the Apple (Nasdaq: AAPL) CEO Tim Cook to commit to act only for the benefit of shareholder return on investment (ROI), expressing concern that Apple’s investments in renewable energy might jeopardize company and shareholder value.
NCPPR questioned the soundness of Apple’s membership in the Retail Industry Leaders Association (RILA), which supports sustainability initiatives and encourages its members to apply such views in their business operations. Apple’s shareholders seem to align with Apple, and NCPPR’s proposal only obtained 2.95 percent of the votes at the annual shareholder meeting.
In her new book, “The Shareholder Value Myth,” Cornell University Law Professor Lynn Stout seeks to debunk the shareholder primacy myth, or “ideology” as she defines it. She points out that there is no legal requirement to maximize shareholder value in the United States. Stout has researched the question of company purpose and corporate governance for the past two decades and has come to a conclusion that the belief that the purpose of the company is to maximize shareholder value does not derive from corporate law, but rather from business practice and academia.
Read the full article HERE.