What if one of the core principles of Capitalism today was wrong, utterly wrong, even from a legal and economic standpoint ? This is the thesis defended by Lynn Stout in this brilliant book.
Today, most companies in the United States and in some parts of the world seem to exist only to maximise shareholder value, a short term approach that has not been a good thing in the past few years. According to the author, the Enron and scandals as well as the BP Deepwater Horizon catastrophe can be directly linked to such an approach as managers are forced to favor short term profitability over long term responsibility.
But nothing in today’s laws or rules warrant such a myopic approach, contrarily to what many a manager and an economist believe. The author, a Law Professor at Cornell, gives an extensive explanation on how this is not even in any law or anything. It is just a myth, convenient for many a manager to justify his salary, but a myth…
This approach started to gain traction in the 1970s, after Milton Friedman, a reknown economist, stated in the New York Times Magazine that ” because shareholders ‘own’ corporations, the only social responsibility of business is to maximize profits. ”
Most fortunately, this is getting less and less the case nowadays with the ascend of Corporate Social Responsibility. Additionally, undermining everyone’s interest for just a figure – share value – is just preposterous, obnoxious and even dangerous.
Conclusion : This is to me an essential reading for today’s MBA students and business managers around the world. Written in a mostly day-to-day English, it is easy to understand and short (less than 120 pages).
Grade : 16 / 20.