One myth dies and another is stillborn.

• Author: Wilcox, John C.
• Position: Book review

Lynn Stout's The Shareholder Value Myth is really two books in one. The first (Part I) is a closely argued refutation of the widely endorsed theory of "shareholder primacy." The second (Part II) is an effort to blame shareholders for the misdeeds of the business community that were perpetrated under the guise of shareholder primacy. Part I is successful--Stout effectively demolishes the shareholder value myth. But Part II is not--her reductionist theory of shareholder culpability is unconvincing.

This useful little (at 134 pages) book has implications far broader than the narrow ideological disputes of governance professionals. As Stout explains, the narrow focus on shareholder value creation influenced an entire generation of business leaders and provided the rationale for conduct that ultimately led to the global financial crisis. Systematically and with barbed prose, she deconstructs the misguided logic of lawyers, economists, academics, financial advisors and regulators who transformed the theory of shareholder primacy into a business axiom. In four short chapters she builds a convincing case that the practice of running businesses exclusively with an eye on stock price and short-term profit was an epic misdirection that, in her words, caused companies "to engage in reckless, sociopathic, and socially irresponsible behaviors."

These first 60 pages should be required reading for CEOs and corporate directors, not to mention academics, lawyers, institutional investors and other professionals (including politicians and regulators) whose decisions led to disastrous consequences for companies and the global economy.

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Unfortunately, Stout abandons her intellectual rigor when she gets to Part II, cryptically entitled "What Do Shareholders Really Value?" Here she seems to argue that shareholders are primarily responsible for an array of...