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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region ForumsWhy the "World's Dumbest Idea" is Finally Dying: The "maximize shareholder value" myth
http://www.forbes.com/sites/stevedenning/2014/06/17/why-the-worlds-dumbest-idea-is-finally-dying/Thats the big news coming out of a recent report from the Aspen Institute which convened a cross-section of business thought leaders, including both executives and academics. The reports most important finding is that majority of the thought leaders who participated in the study, particularly corporate executives, agreed that the primary purpose of the corporation is to serve customers interests. In effect, the best way to serve shareholders interests is to deliver value to customers.
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Friedman won the way a great debater wins, says Martin, by cleverly framing the terms of the debate Because Friedman was so inflammatory in his call for a 100 percent versus 0 percent handling of the trade-off, his entire opposition has focused on making arguments for a number lower than 100 percent for shareholders. In doing so, they implicitly accepted Friedmans premise that there is a fundamental trade-off between the interests of shareholders on the one hand and other societal actors such as customers, employees and communities on the other hand. Ever since, the Friedmanite defense has been to force the opposition to prove that making a trade-off to any extent whatsoever against shareholders wont seriously damage capitalism.
Had the opposition been cleverer, it would have attacked the premise from the very beginning by asking: what is the proof that there is a trade-off at all? Had they done so, they would have found out that Friedman had not a shred of proof that a trade-off existed prior to 1970. And they would have found out that there still isnt a single shred of empirical evidence that 100 percent focus on shareholder value to the exclusion of other societal factors actually produces measurably higher value for shareholders.
JHB
(37,158 posts)...it was just ignored, swamped, and buried under a mountain of Friedmanite bombast. It was long-enough ago hat I don't remember from where or the particulars, but there was argument against that premise.
The "dumbest idea" wasn't embraced by so many because of a failure for someone to say "prove it!" It was embraced because it provided a seemingly-intellectual and -objective justification for doing what they wanted to do anyway.
jollyreaper2112
(1,941 posts)There's the quote about the modern conservative's quest for a superior moral justification for selfishness. That is pretty much all this shit in a nutshell. They know what they want to do and will pay handsomely any tame intellectual who wants to come along and make a pretty bit of post hoc justification.
A fair approach is asking what is good, determining what is good and then acting on it. They ask what do they want, act on it and pay a propagandist to call it good.
closeupready
(29,503 posts)That is precisely the model used in much of modern business, IMHO. (And a more familiar term for propagandist in business is the 'consultant'.)
socialist_n_TN
(11,481 posts)That's the essence of ideological thinking. Freidman took a pre-conceived idea of what capitalism should look like and ignored any evidence to the contrary. The question really is, IMO, WHY did it catch on so readily? My answer is because the basic laws of capitalism in it's purest form says that Freidman's view IS capitalism. IOW, the ideology was logical under the system itself.
I don't see any way to go back though. At least not permanently. Capitalism is always flexible enough to give a few more crumbs to the working class when they get too uppity because they know they can sweep those crumbs back up at the first sign of the next crisis.
Orrex
(63,199 posts)It stemmed from a debate about raising minimum wage to a survivable level, and his trump card was "it will hurt the shareholders."
This self-evidently stupid idea is beloved by people lining up to get screwed by it.
HughBeaumont
(24,461 posts)Let's not topple that apple cart for when their ship finally DOES come in!
Seriously, all this idea reinforced is that accountability and competition are for the underlings. If it wasn't for occasional artificial bubbles for three decades and some change, the foundation of Reagoneomics doesn't have a very stellar track record.
CTyankee
(63,901 posts)n/t
Orrex
(63,199 posts)"Doesn't matter," he said. "That's the exception that proves the rule."
This is the kind of reasoning that we have to deal with.
Demo_Chris
(6,234 posts)Businesses exist for one purpose: to generate wealth for their owners. Some businesses have taken this basic truth and used it to generate flawed and ignorant strategies that place short term profit ahead of all other considerations, but that's just bad management and greed.
klook
(12,154 posts)it's inevitable that shareholder value is paramount. When CEOs are rated and paid based on long-tee sustained growth and value is gauged realistically, maybe this will change.
blackspade
(10,056 posts)loudsue
(14,087 posts)And we'll see if this little "Aspen" conference makes any difference in the real world. I won't hold my breath. Insanity seems to be the most widely followed mind-set these days.
BlueEye
(449 posts)It demonstrates that company's actions really do little to create shareholder value, but that value is derived from Wall Street's illogical high-frequency trading mechanisms.
The "create shareholder value" meme is just something designed to mask short-term profit minded actions, the customers/employees/society be damned.
Cal Carpenter
(4,959 posts)Nice framing, assholes. Why don't you admit that some of the major premises of late, hyper-financialized capitalism DON'T FUCKING ADD UP? That the flawed foundations of capitalism are crumbling? That 'growth' is not infinite and devaluing labor can't go on forever? Naw, they can't word it like that, or they'd sound like fucking Marxists. "Ooops, we've based our entire economic system on bullshit and done our damnedest to spread it all over the globe at massive human and environmental costs. How dumb!"
Well, at least they haven't mentioned the actual workers, just 'consumers'. I suppose it is a step forward, LOL.
Orsino
(37,428 posts)Its only dumb if non-shareholders go along with it.
rock
(13,218 posts)which cause quality (and profit) to go right out the window (and door). This is one of them.
laundry_queen
(8,646 posts)my business school doesn't teach that stuff anymore at all (profit/shareholder gain at all costs). It's shocking to me any do. The question is why some business schools are still teaching this stuff? My answer to that is (and I've had profs like this) that academics concentrate on knowing the theories inside out and so many of them are not big picture thinkers and are incapable of extrapolating their theories into the 'real world' scenarios. So you are left with students who don't know how to use the information and they apply the theories as if we are still in a vacuum as in the classroom. This is just my observation of course.