The myth of governing for shareholder value.

• Author: Stout, Lynn
• Position: NOVEMBER

Back when I was a law school student in the early 1980s, my professors taught me that shareholders "own" corporations and that the purpose of corporations is to "maximize shareholder value." I was just out of college at the time and not very familiar with the business world, so this made sense enough to me. When I first began lecturing and writing in business law myself, I incorporated the shareholder value thinking that I had been taught into my own teaching and scholarship.

It soon became apparent to me there was a problem with this approach. The more I read business law cases, the more obvious it became that U.S. corporate law does not, in fact, require corporations to maximize either share price or shareholder wealth. My first reaction was puzzlement and frustration. Shareholder value thinking was almost uniformly accepted by experts in law, finance, and management. Why then, I asked myself, wasn't it required by the actual rules of corporate...