The Beginning of the End of Shareholder Value?
This is one of the most important stories of the year:
Nearly 50 years ago economist Milton Friedman proposed a theory called shareholder value, declaring that public companies have a legal obligation to maximize shareholder value at all costs. The public business sector slowly entered an era where short-term thinking became standard, leading to regular layoffs and putting profits above people.
In the end, Friedman’s theory has been proven wrong. If you invested in the S&P 500 prior to the widespread adoption of shareholder value (1976), you’d make an average annual return of 7.6%. From 1976 through 2013? 6.4%.
A 1.2% difference may not seem like a lot. But compounded over years, it’s significant.
This statement issued by The Business Roundtable will not turn things around overnight. But it’s a huge step in the right direction — towards companies that prioritize employees, customers, the environment and communities over profits. To be clear, profits are important — without profits, a business is not sustainable. But profits at all costs destroys more value in the long term.
