Editing Shareholder value (section)

==Criticism==
{{See also|Corporate social responsibility}}
The sole concentration on shareholder value has been widely criticized,<ref>Tirole 2001; Aglietta and Reberioux, 2005</ref> particularly after the [[2008 financial crisis]]. While a focus on shareholder value can benefit the owners of a corporation financially, it does not provide a clear measure of social issues like [[employment]], [[natural environment|environmental]] issues, or [[ethics|ethical]] business practices. A management decision can maximize shareholder value while lowering the welfare of [[Third party beneficiary|third parties]]. Shareholder value coupled with short-termism has also been criticized as lowering the overall rate of economic growth due to reduced business [[capital accumulation]].<ref>Masouros, Pavlos E., "Corporate Law and Economic Stagnation: How Shareholder Value and Short-termism Contribute to the Decline of the Western Economies" Eleven International Publishing. pp. 6–9</ref>

It can also disadvantage other stakeholders such as customers.  For example, a company may, in the interests of enhancing shareholder value, cease to provide support for old, or even relatively new, products.

Additionally, short term focus on shareholder value can be detrimental to long term shareholder value; the expense of gimmicks that briefly boost a stocks value can have negative impacts on its long term value.  [[Marc Benioff]], CEO of [[Salesforce]], said that "[...] the obsession with maximizing profits for shareholders has brought us: terrible economic, racial and health inequalities; the catastrophe of climate change." According to critics, oversimplifying the corporation's role has neglected the imperfect world we live in.<ref name=":6" />

=== Criticism for worker devaluation ===

==== Compensation packages ====
Within the 80's and 90's, numerous companies faced lawsuits from current and former employees alike for reducing or withholding workers from accessing benefits in the present or during retirement. The SV model has led to reduced pension support as a means of maximizing profits at the cost of the employees. Some companies have switched matching pension plans monthly to once a year.<ref name=":3" /> Critics remain alarmed at the nature of cutting out or underestimating the value of the labor a worker produces for maintaining or raising the value of stock. The reduced benefits are attributed to the trend of the corporate world's reduction in investing in non-shareholder constituents because it is not an immediate money producer—the main goal of SV theory.<ref name=":2" />

==== Layoff practices ====
The aforementioned status of workers faces criticism when looking at how this "reduced pension matching" loophole becomes manipulated. If laid off before the pre-pension matching period is complete, there is no compensation. Furthermore, mass layoffs have affected companies in the home headquarters with many jobs either going overseas or being hired out to [[Offshoring|contractors]] from similar positions to those that were laid off for lower benefits and protections as critics and experts have noted.<ref name=":5" /> According to economic experts and critics alike, the [[Layoff|downsize]]-and-distribute model invoked by SV theory extracts value and then further ingrains employee instability and greater income inequality.<ref name=":6">{{Cite news|date=2020-09-13|title=Greed Is Good. Except When It's Bad.|language=en-US|work=The New York Times|url=https://www.nytimes.com/2020/09/13/business/dealbook/milton-friedman-essay-anniversary.html|access-date=2020-12-19|issn=0362-4331}}</ref><ref name=":7">{{Cite magazine|last=Kolhatkar|first=Sheelah|title=The Economist Who Put Stock Buybacks in Washington's Crosshairs|url=https://www.newyorker.com/business/currency/the-economist-who-put-stock-buybacks-in-washingtons-crosshairs|access-date=2020-12-19|magazine=The New Yorker|date=20 June 2019|language=en-us}}</ref><ref name=":8">{{Cite news|date=2014-09-01|title=Profits Without Prosperity|work=Harvard Business Review|url=https://hbr.org/2014/09/profits-without-prosperity|access-date=2020-12-19|issn=0017-8012}}</ref>

=== Company criticisms ===

==== End of corporate responsibility ====
In [[Milton Friedman]]'s seminal piece advocating for shareholder value titled "[https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html The Social Responsibility of Business Is to Increase Its Profits]" makes the argument that the business of business is its business. Friedman's postulation suggests that if social responsibility and profit run counterintuitive, pick the latter. By prioritizing the accumulation of wealth by all means, it uncomplicated other responsibilities that may have a hindrance to achieving this goal. Some responsibilities include, but are not limited to: community development, employee investment, worker benefits, research and development, and more. These responsibilities are attributed to being long term and do not immediately satisfy the short term – and mainstream – interpretation of shareholder value.<ref name=":2" />

==== Stock buyback ====
{{Main|Stock buyback}}
[[Stock buyback]] is criticized for its extractive nature which takes profit and uses it to make stocks look more profitable than they might be in the name of shareholder value. In 1982, the U.S. Securities and Exchange Commission ([[U.S. Securities and Exchange Commission|SEC]]) implemented Rule 10b-18 of the [[Securities Exchange Act of 1934|Securities Exchange Act]], thus allowing for corporations to buy back stock under certain thresholds and circumstances. With low investigation and consequence rates for breaches, as well as loopholes, this opened up opportunity to legal stock price manipulation. With SV theory incentivizing the shareholder and tying executive pay, the stock price became intrinsically tied with success as critics note. One notable effect of this practice includes reduced investment. From 2003 to 2012, of the 449 firms in the [[S&P 500 Index|S&P 500]], 54% of earnings went to stock buyback and 37% to dividends. This leaves 9% of earnings to go elsewhere, a reduction from the previous rates of investment in past decades.<ref name=":8" /> Economists like Lenore Palladino point out the eventual consequence when this bubble will burst, the majority of Americans will face the consequence, not the ones leading the firms.<ref name=":7" />

=== Anthropological criticisms ===

==== Under-emphasis of corporate entity ====
[[Peter Drucker]], author of "The Concept of the Corporation", makes the argument that shareholder value in fact serves to underplay the important social role which corporations occupy in contemporary society. Drucker states "In the social reality of today, shareholders are but one of several groups of people who stand in a special relationship to the corporation.  The corporation is permanent, the share-holder is transitory. It might even be said without much exaggeration that the corporation is really socially and politically a priori, whereas the share-holder's position is derivative and exists only in contemplation of law".<ref name="Ho, Karen Zouwen, 1971–2009">{{Cite book|last=Ho, Karen Zouwen, 1971– |url=https://www.worldcat.org/oclc/310715693|title=Liquidated : an ethnography of Wall Street|date=2009|publisher=Duke University Press|isbn=978-0-8223-4580-0|location=Durham|oclc=310715693}}</ref> Drucker's argument is expanded upon by anthropologist [[Karen Ho]], who notes that in the immediate period following the second world war, the corporation existed primarily as a social institution which largely accepted its responsibilities to those involved in its operations outside of shareholders, concerning itself with the longevity and well-being of the corporation as an institution even if this meant undertaking actions that may run counter to the immediate concerns of the corporation's shareholders.<ref name="Ho, Karen Zouwen, 1971–2009"/> This post-war outlook is contrasted by the attitude adopted by management of modern-day corporations, which according to former WebTV CEO [[Randy Komisar]] see themselves not as institutional stewards but rather as investors themselves.<ref name="Ho, Karen Zouwen, 1971–2009"/> Critics such as Ho believe that the shift of management attitude towards treating corporations as investments has led to the decline of the corporation as a social entity, and allows corporate management to make decisions that may be against the interests of the corporation's social stakeholders or even longevity of the corporation itself.

=== Economic criticisms ===

==== Failure of accurate modelling within neoclassical economics ====
The failure of the corporation to readily fit within the neo-classical economic model which dominates contemporary economics academia and policy is a frequently-targeted flaw by critics. Anthropologist [[Karen Ho]] argues that the concept of shareholders and subsequently shareholder value was developed primarily for the purpose of shoehorning the insertion of the corporation into the neoclassical economic model, and ignores that the neoclassical model, which was originally created in eighteenth and nineteenth century prior to the proliferation of corporate organization, was never designed to operate with number of inputs the modern corporation requires.<ref name="Ho, Karen Zouwen, 1971–2009"/> Ho claims that advocates of neoclassical proprietorship ran directly counter to the limited-input "owner and property" intentions of influential founding figures of neoclassical economics such as [[Adam Smith]], and that the neoclassical economic model hinges on the idea of the owner-entrepreneur being directly involved in the management and operation of their enterprise. As the modern shareholder typically has very limited or no connection to the regular operations of a corporation they have invested in, the shareholder does not fit within the owner-entrepreneur role required by the neoclassical economic model. Adam Smith himself noted his belief that managed corporations were not viable due to this issue, stating "The directors of [joint stock] companies, however, being the managers rather of other people's money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own".<ref name="Ho, Karen Zouwen, 1971–2009"/> Critics such as Ho and Smith believe that failure of the shareholder model to accurately represent the key neoclassical owner-entrepreneur concept is a foundational issue of the neoclassical economic model, leading to an inaccurate assumption that corporate interest remained identical to shareholder interest.

=== Legal criticisms ===
A common critique of shareholder value is the mystification surrounding its legal validity. It is often espoused that shareholders are the owners.<ref name=":9">{{Cite news|last=Friedman|first=Milton|date=1970-09-13|title=A Friedman doctrine – The Social Responsibility Of Business Is to Increase Its Profits (published 1970)|language=en-US|work=The New York Times|url=https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html|access-date=2020-12-19|issn=0362-4331}}</ref> This status as a shareholder comes with an assumed legal claim of all profits after contractual obligations have been fulfilled and that they have the ability to decide the structure of the corporation on the board level however they want.<ref name=":9" /> Yet, none of these are rooted in any law because shareholder value is ultimately a management decision, not a legal requirement. Corporations are their own legal entity and shareholders simply hold shares, making them equal stakeholders to employees, suppliers, and more.<ref name=":10" /> They only get guaranteed full access to residual funds in the case of liquidation. Otherwise, the firm has all control of how to do things as they please like investing into the company, raising salaries, etc.<ref name=":10" /> And when it comes to the shareholder supremacy over structure, the ability is flimsy and hard to use. The few cases in which legal action can be taken is when a director is explicitly stealing.<ref name=":10" /> In spite of the reality of shareholder obligation and abilities, corporate America has convinced itself, according to legal critiques, that there is a legal duty to their shareholders.