
The World's Dumbest Idea: Maximizing Shareholder Value (2014) [pdf] - kick
https://www.gmo.com/globalassets/articles/white-paper/2014/jm_the-worlds-dumbest-idea_12-14.pdf
======
refurb
The challenge is that people need to think of shareholder value more broadly.

If I'm running a company, maximizing shareholder value might include:

\- paying my employees top dollar so that my turnover is lower and I don't
waste money on recruiting

\- donating money to local school to incentivize students to join my industry,
so that I have a pool of potential employees in the future

\- providing really nice (and expensive) customer service as that will make me
more competitive and I'll end up with higher market share

Maximizing shareholder value doesn't necessarily mean cutting costs to the
bone, treating employees like crap or polluting my local river.

~~~
_bxg1
Yeah, the problem seems to be more about short-term thinking. So then, why are
shareholders becoming so short-sighted?

My theory is the increased abstraction between shareholders and actual
businesses is to blame. Having patience for long-term thinking by a company
means understanding the business, seeing why they're doing what they're doing,
looking at the long-game for how things will work out in the end. More and
more it seems like shareholders just want to play the market; buy low and sell
high with little interest in getting their hands dirty with the business
itself.

------
narrator
Nah. I agree with Paul Romer and think the world's dumbest idea was devaluing
the need for empirical evidence in economics by ignoring identifiability[1].
Without that, the whole of economics becomes unhinged from reality and
devolves into ideology. One can't even properly ask or answer the question "Is
maximizing shareholder value good for the economy?" if the methods of such an
inquiry ignore empirical evidence.

[1][https://paulromer.net/the-trouble-with-macro/WP-
Trouble.pdf](https://paulromer.net/the-trouble-with-macro/WP-Trouble.pdf)

------
H8crilA
This is a popular secular trend that's very important to watch out for. You
never know when's the next big rewiring of property relations, and it's
foolish to think it will not happen again. Suffice to say that "socialism" is
no longer the dreaded name for failed economic policies of the past, it's a
popular word with the young people. I'm not advocating for or against it, it's
just a fact that there's some chance that it will happen.

Declining labor share as a % of GDP is very real and very threatening (it does
piss many people off, whether or not they know about this metric).

"Distribution of Average Income Growth During Expansions" is quite scary too.

~~~
freehunter
>"socialism" is no longer the dreaded name for failed economic policies of the
past

The only reason it ever was "the dreaded name for failed economic policies" is
because of political lies conflating Communist Autocracy (USSR, China) with
Social Democracy (basically all of Western Civilization) during the Cold War.
Socialism has been, is, and will continue to be incredibly popular in America
where the word is quite possible hated more than anywhere else.

From The New Deal in the 30s (not many people would want to get rid of Social
Security or interstate highways for example) to Wall Street and auto industry
bailouts to today's oil and farm subsidies, socialism is incredibly popular
among both the right and the left wing of US politics.

Without the spectre of Soviet Russia and mutually assured destruction hanging
over America's head, the boogeyman of "socialism = Stalin" is a lot harder to
maintain.

------
smabie
When the author literally lists dozens of ideas that me and other people have
spent their entire lives working on and dismissed them out of hand, I can’t
even bring myself to read anymore.

I don’t know anything about the firm GMO, but this guy is a troll and no one
who actually cared about or respected finance would start a white paper with
that sentence.

~~~
asveikau
With respect, the fact or idea that some group of people has spent their life
on something does not necessarily make it into the correct choices.

~~~
BurningFrog
It does make them experts in the field, and qualified to call out bullshit.

~~~
asveikau
Which means experts in the field were qualified to call bullshit on, say,
Galileo or Copernicus? Sometimes entire fields are themselves based on
bullshit, until a better theory comes along.

I don't think it's this extreme in this case, and the parent provided some
good elaborating context elsewhere, but do remember to stay humble and open.

------
mac01021
If you're not going to pursue shareholder value (and you're upfront about
that) then you aren't going to get many investors.

~~~
CalChris
Profit comes to mind.

------
Mirioron
> _To move from the micro to the macro, we can contrast the returns achieved
> by shareholders in the era of managerialism (defined here as 1940-90,
> although the results are robust to the exact sample chosen) with those
> achieved in the era of SVM (1990-2014)._

> _Given this data, the natural follow-on question is, of course, what went
> wrong?_

I don't really understand. Can you really do a comparison like this? Aren't
the events that transpired during these two periods very different from one
another? My layman's expectation is that WW2 and its aftermath would have a
significant positive effect on the first period considered. I would also guess
that globalization in the second period would have an impact due to
manufacturing moving away from the US.

Am I just mistaken and you can just straight up compare these two periods with
one another?

------
ggm
Maximise societal value, maximise shareholder value consistent with the first
goal. Tax and regulatory oversight are parts of trying to maximise the first
goal. It depends on honesty and utilitarian views. If you are selfish in
motivation, self interest does not maximise societal outcome.

------
marcusverus
Here's the (non-pdf) executive summary:

[https://www.gmo.com/americas/research-library/the-worlds-
dum...](https://www.gmo.com/americas/research-library/the-worlds-dumbest-
idea/)

------
AndrewKemendo
I wrote about this years ago [1] and all the feedback I received was: Hey
that's great and all, but the business world will never care about anything
other than percentage return. Go start a charity if you don't share that
priority.

[1][https://medium.com/@andrewkemendo/startups-need-to-start-
val...](https://medium.com/@andrewkemendo/startups-need-to-start-valuing-
themselves-on-impact-not-valuation-8276690ae862)

------
crazypython
The companies with the highest Corporate Social Responsibility budgets also
pay the least taxes. Go figure.

------
wnmurphy
Capitalism is supposed to result in the highest good for the greatest number.
In practice it's often more like "the cheapest, lowest quality we can get away
with providing before you take your business elsewhere."

------
notacoward
Maximizing shareholder value would be a fine goal for a corporate entity that
had received no special deals from government. Like limited liability. Like
corporate personhood. Like infrastructure and other subsidies. Like tax
preference. Like exemption from paying for broadly dispersed externalities via
regulatory capture. Like government help to quash freedom of association -
oops, I mean collective bargaining.

Oh, but wait, that's not the kind of deal that's on offer, is it? IS IT? No,
once you've formed a corporation you've _made a contract_ with the government.
I mean "contract" in the philosophical sense, not the legal one which has been
quite deliberately defined to suit the very entities we're discussing. The
contract is that you will receive these favors, in return for some social good
or at least for not undermining the social good that already exists. Go read
your history, on the early corporations chartered to build canals and such.
Corporations should be held to that deal, or the contract should be considered
broken and all the favors withdrawn. Why? Because _honoring contracts_ is the
most fundamental pillars of a real functioning market - the very market that
laissez-fairists who push the "maximizing shareholder value" fallacy claim to
revere. To say it's OK to break contracts is to say you don't believe in
markets. If you don't have real markets and you don't have socialism all
that's left is oligarchy.

Oops. That's the part we're not supposed to figure out, isn't it? I see the
downvote brigade has already shown up.

