Reclaiming the Idea of Shareholder Value

Michael J. Mauboussin and Alfred Rappaport write about what we would call structural governance vs. substantive governance in the Harvard Business Review.

The problem with the term “maximize shareholder value” is that it has been hijacked by those who incorrectly believe that the goal is to maximize short-term earnings to boost today’s stock price. Properly understood, maximizing shareholder value means allocating resources so as to maximize long-term cash flow. Because an organization’s success depends on long-term relationships with each of its stakeholders, lengthening the investment time horizon benefits not only shareholders but customers, employees, suppliers, creditors, and communities as well.

Source: Reclaiming the Idea of Shareholder Value

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