Businesses Must Stop Worshiping Shareholders

The notion that businesses exist solely to increase their stock prices and thus reward shareholders may be a "bedrock principal of our era," writes Jesse Eisinger at the Trade blog for ProPublica, but it also may be taking a serious toll on America's financial health. He sums up the argument of Cornell law professor Lynn Stout, who thinks the "shareholder dictatorship" philosophy makes businesses focus on stock prices and short-term gains at the expense of long-term development. It's also why CEOs get outrageous pay—their performance is usually measured in terms of stock moves.

The idea that shareholders "own" a company is legally incorrect, argues Stout, but it's taken hold and has come to mean that corporations should be constantly on the hunt for ways to increase shareholders' claims. "She calls for a return to 'managerialism,' where executives and boards of directors run companies without being preoccupied with shareholder value," writes Eisenberg. "Companies would be freed up to think about their customers, their employees and even start acting more socially responsible." Shareholders would be "relatively weak." Click here for the full article, which includes a counter-argument to Stout's push for "managerial supremacy" from an advocate of the corporate governance movement. (More shareholders stories.)