A Critique of Shareholder Value
The Cournot Centre series
Chapter 2 presented a critique of the theoretical and normative foundations of shareholder value. We described the reasons for the diﬃculties generated by shareholder control over managers. This brought out the idea that the ﬁrm is a collective entity coordinating numerous diﬀerent skills and functions that are very imperfectly contractualized. Because there are multiple interests vested in the ﬁrm, the search for a collective interest is essential for directing the coordination of its activities. The managerial ﬁrm necessarily possesses a centre of policy management. This is the seat of power, and it is subject to the inﬂuences of the interests connected with the ﬁrm through diﬀerent types of incomplete contracts. A range of diﬀerent governance regimes therefore exists, depending on the conﬁguration of the interactions between the diﬀerent interests vested in the ﬁrm. In Chapter 3, we demonstrated that this diversity does indeed exist. The connection of interests in the ﬁrm is codiﬁed by three sources of law: ﬁnancial market, corporate and labour. Their relative inﬂuence diﬀers greatly between the United States and continental Europe. Any serious study must therefore distinguish between the rhetoric of shareholder value and the governance principles that are actually implemented by ﬁrms. It is the legal rules underlying these principles which give each country its dominant characteristics. The extraordinary rise in stock market prices during the 1990s enriched shareholders enormously. However, ﬁnding a causal link between the concomitance of the stock market boom and the...
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