Dear Joe Nocera: Thank You!

I've been arguing against "shareholder value" as the prime measure of corporate performance and CEO bonuses for quite a while (most recent blogpost on the subject, here). But sometimes my soapbox has felt pretty lonely.

Saturday, Joe Nocera, columnist for The New York Times, picked up his much bigger microphone and made the call: "Down With Shareholder Value" (here).

As Nocera writes, the results of the corporate focus on shareholder value are plain to see, and they're "not pretty":

Too many chief executives succumb to the pressure to boost short-term earnings at the expense of long-term value creation.... In the lead-up to the financial crisis -- to take just one example -- financial institutions took on far too much risk in search of easy profits that would lead to a higher stock price.

But the times appear to be a-changin'. Nocera notes that Cornell Law professor Lynn Stout and other academics are questioning the legal basis for the emphasis on shareholder value. Other academics are looking at the issue more closely, too. Nocera quotes from a recent Harvard Business Review article, "What Good are Shareholders?", by Harvard Business School professor Jay W. Lorsch and HBR Group editorial director Justin Fox (article, here; note that a subscription is required for full access).

Lorsch and Fox report, "There's a growing body of evidence... that the companies that are most successful at maximizing shareholder value over time are those that aim towards goals other than maximizing shareholder value."

That's not to say that shareholders are irrelevant. Lorsch and Fox argue for "a favored role" for long-term shareholders. In addition, there should be

roles for other actors in the corporate drama -- boards, customers, employees, lenders, regulators, nonprofit groups -- that enable those actors to take on some of the burden of providing money, information, and especially discipline. This is stakeholder capitalism -- not as some sort of do-good imperative but as recognition that today's shareholders aren't quite up to making shareholder capitalism work.

This is a movement I could get behind.