“We hold these truths to be self-evident, that the purpose of corporations is to maximize shareholder value.” Ok, that’s not actually what the Declaration of Independence says, but somewhere along the way we have come to treat “maximize shareholder value” with that kind of reverence. Despite the reverence, or perhaps because of it, we tend to overlook the “maximize shareholder value” maxim’s utter ambiguity in regard to time. When should shareholder value be maximized?
Such a simple question, yet too rarely asked, and it has profound implications. There is a difference between maximizing value today -- sell everything immediately for the highest available price -- and maximizing value for the future.
If your answer to when to maximize shareholder value is any time beyond today, then you recognize that future value matters.
Recognizing that future value matters means recognizing that sustaining value matters. Value that isn’t sustained isn’t value in the future; value that isn’t sustained isn’t maximized but ceases to be value at all.
Recognizing that sustaining value matters means recognizing that the full economic ecosystem matters. If you just want to maximize value for shareholders today, you sell everything and give that value to the shareholders, with no concern about the rest of the economic ecosystem. If you want to have value for shareholders in the future, you need a value-generating economic ecosystem of shareholders/investors, employees, partners, vendors, distributors, natural resources, communications infrastructure, transportation infrastructure, financial infrastructure, markets that bring together well-matched buyers and sellers, and governance that fosters trust and effective collaboration among all of the above. For immediate shareholder value maximization, perhaps shareholders could extract value for themselves from the larger economic ecosystem. For value in the future, though, shareholders are inextricably part of a larger economic ecosystem, so shareholder value in the future inextricably depends on the value of the larger economic ecosystem, i.e. all stakeholders.
This topic can be contentious and lead to spouting more heat than light. Somehow we have arrived at a point that the “maximize shareholder value” camp and the “stakeholder capitalism” camp treat each other as polar opposites and demonize each other as if they are advocating for the end of the world, or at least the end of civilization as we know it. But are the positions really so irreconcilable?
When you encounter voices shouting down any notion of stakeholders as part of a corporation’s purpose or voices just as adamantly proclaiming shareholder profit-seeking as inherently evil, advance the conversation with the simple question, “When?” Unless the voice you’re encountering has no regard for any future beyond today, the logic in the bulleted points above bridges the supposed gap between “maximize shareholder value” and “sustain stakeholder value.” By considering “when?”, we stop pitting “maximize shareholder value” and “sustain stakeholder value” against each other and let common ground come into view. This simple yet powerful question lets us move beyond destructively condemning each other and instead constructively reframe for mutual benefit.
This is one aspect of our Partnership Economics ethic, explored more fully in our book Better Capitalism. The Partnership Economics ethic provides a framework for both why and how to advance both shareholder value and stakeholder value. Personal profit and common good -- in the paradigm shift of Partnership Economics, both increase!
If we value our future, including as shareholders, we need to get more serious about how that future value plays into our expectations of corporations. If we want to “maximize shareholder value” for a when beyond today, we do it by sustaining value for all stakeholders.
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