In the midst of diagnosing what he sees as an ailing U.S. computer industry, Cringely makes the classic anti-shareholder-wealth-maximization rhetorical move of conflating shareholder wealth maximization with raising the share price. By so doing, share-price manipulations (like those of the top management at now-defunct Enron) become a liability on the shareholder wealth maximization norm’s ledger. But of course, the shareholder wealth maximization norm doesn’t hold that machinations to raise share prices in ways that decouple them from the underlying value of the firm are shareholder wealth maximizing. This isn’t to say that there’s nothing wrong with the shareholder wealth maximization norm. It is to say that this cheap rhetorical trick (built on a conflation of two two distinct ideas) is intellectually dishonest—and in the same way manipulating stock prices is. >>>
LINK: The U.S. computer industry is dying and I’ll tell you exactly who is killing it and why (by Robert X. Cringely in I, Cringely)
The only problem is the alignment of interests suggested by Jensen and Meckling works just as well – maybe even better – if management just cooks the books and lies. And so shareholder value maximization gave us companies like Enron (Jeffrey Skilling in prison), Tyco International (Dennis Kozlowski in prison), and WorldCom (Bernie Ebbers in prison).
It’s just a theory, remember.
The Jensen and Meckling paper shook the corporate world because it presented a reason to pay executives more – a lot more – if they made their stock rise. Not if they made a better product, cured a disease, or helped defeat a national enemy – just made the stock go up.
What do you think?