“One thing clearly stands head and shoulders above the rest when you talk to many people in corporate America. It’s an idea that completely removes responsibility from many corporations in our society. It’s an idea that threatens not only our constitutional democracy, but also every value Christians hold dear and every value we hold dear from modernity and post-modernity.
It’s an idea so bad that Jack Welch, former CEO of General Electric, called it ‘the dumbest idea in the world.’
The idea, called shareholder value theory, is that the sole purpose of publicly-held corporations is to return profit to shareholders.
Customers be damned. Society be damned. Families be damned. Results be damned. America be damned.
Where did this idea come from?”
In a long, detailed article, a look at why the focus on the Libertarian idea of “shareholder value” is dumb. It leads to a short-term approach, a focus on the value of a company through its market capitalization (Google is now bigger than Apple, FWIW), and turns the stock market into a spectator sport, something it isn’t and should not be.
This point in the article is interesting:
Privately held companies, which are free from the pressures of shareholder value theory, invest more and create more value than publicly-held companies. Privately held companies invest 6.8 percent of total assets, compared with 3.7 percent for publicly-owned companies. Rather than invest, publicly-held companies are more likely to spend money on stock buybacks.
Why? Because once again, their mission is driven solely by short-term profit to shareholders rather than long-term value.
I really don’t see the point in Apple buying back so many of their shares. Sure, they pay less dividends, but the buybacks haven’t kept the shares from dropping. (One can argue that Apple’s share price highlights how illogical the stock market is…)
I would say the second dumbest idea in America is the lack of single-payer health care. Not just because of the cost involved with having a for-profit health care system, but because for many people health care is tied to their jobs. This gives people less incentive to change jobs, or to try their hands at setting up their own businesses. If you run a business, you don’t want people staying in your company simply because they’re afraid to lose their health care. (I know there are systems in place that allow you to hold on to your health care for 18 months if you leave your job in the US, but that’s not enough for some people.)