Is the Responsibility of Business to Pursue Shareholder
Is the Responsibility of Business to Pursue Shareholder Value? By Oliver Hart and Luigi Zingales June, 2016 Preliminary
Two Questions 1. Does the board of directors of a public company have a legal duty to maximize shareholder value? (We take shareholder value to mean the monetary return from holding shares. ) 2. Should it maximize shareholder value?
n (1) is the subject of much current debate in the U. S. The situation seems quite confused (some say deliberately so). n Concerning (2). Milton Friedman famously argued that the answer is yes. n Most corporate finance and law scholars seem to agree, at least if value max is interpreted as long-run value max.
n (There are exceptions, e. g. , if shareholders work in the company, consume the company’s product, or hold shares in competing or related companies. ) n In this talk we want to develop by way of example the idea that, if shareholders have ethical concerns, the answer to (2) may be no. Connection to CSR literature, especially Baron (2007). n
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Conclusions n A blanket requirement that a board must pursue long-run value maximization seems unjustified n To put it another way, shareholder interests and value max may not be the same thing n But of course giving the board too much flexibility can be dangerous n So maybe encourage founder to include a mission statement in their charters: purse these goals to avoid shareholder lawsuits n Maybe encourage boards to consult shareholders more often on what they want: do so and you will avoid lawsuits n (Do we need benefit corporations? The dead hand problem…)
- Slides: 11
