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Yes, you do seem to miss my point (though at the comments=19 mark, the other remarks on the thread don't even aim at it).

What I reject is the fundamental concept that corporations maximise shareholder value by maximising the value of the corporation's shares. The reason is that investors (predictably) have other interests, e.g., in other corporations' share values. Accordingly, for a corporation's shareholders, on average, the value of an action is not its value to the corporation.

What I find attractive is redefining the responsibility of corporate decision makers to allow them to increase shareholder value as measured by more realistic, extended standards -- even if this reduces the value of the corporation's shares.

This is radically different from internalising externalities by conglomeration, or by emissions trading, or by any other means. It is instead (with caveats) legitimising the creation of large positive externalities (and the avoidance of large negative ones), despite (lesser) internal costs.

This thesis rejects Milton Friedman's famous statement that "there is one and only one social responsibility of business -- to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game", and does so on the very grounds often used to support it. This feature could give it ideological traction.

(Please excuse my excessive use of emphasis.)

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Fri Dec 22nd, 2006 at 01:45:34 PM EST
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There is another aspect to this, and that is that the "Shareholder Value" manifests itself in the form of the bank-created IOU's/"Claims over Value" we use as our Money.

Such "Deficit-based" Money is one form of what Marx called "Fictitious Capital" and the other was - wait for it - Shares in Joint Stock Limited Liability Corporations.

ie Fictitious Capital essentially consists of two different legal claims over Value - "Debt" and "Equity".

Deficit-based Money is exponentially hungry - since the loans which gave rise to it have to be repaid PLUS INTEREST. The Black Hole of deficit-money sucks "Shareholder Value" out of all of the productive stakeholders (aka externalities) through the finely evolved structure of the Corporation, which, like a Submarine, is a beautiful piece of engineering, but with a malign purpose.

I simply advocate a simple new "Open" form of Corporation which may operate and thrive without Rentier monkeys on its shoulder.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Dec 22nd, 2006 at 05:11:59 PM EST
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My comment was n°3 - don't blame me if the debate was sidetracked.

The thing is - a company is only responsive to those that own shares in THAT company - and they may own nothing else. If you start worrying about shares of other companies that may be affected by the actions of that company, you get into impossible to solve conflicts of interests.

Not all shareholders have the same portfolio, nor the same time horizons. If what that company does has differnet impacts on different other companies, how do you decide between these effects (including that on the shares of the company itself) which is most worthy.

I do think that the solution I mentioned (conglomerates, and internalisation of these wider externalities) are relevant in that context.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Dec 23rd, 2006 at 05:06:56 AM EST
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Indeed, you were a strong force for tracking rather than side-tracking (though the side-track is quite good), and conglomeration does have effects in the same direction as what I discuss. Your comment is about part of the reason why my whine says the thread, as a whole, was almost perfectly nonresponsive to the idea.

Not all shareholders have the same portfolio, nor the same time horizons. If what that company does has different impacts on different other companies, how do you decide between these effects (including that on the shares of the company itself) which is most worthy.

Yes, this is related to the point I raised in (a) above, "Different shareholders will hold different portfolios, and they will experience non-financial externalities to different degrees. Thus, there can be no metric as simple as share value." I think that this is a powerful objection to the hard reform option (shifting the definition of fiduciary responsibility).

Regarding differences among shareholders' portfolios, this objection is weakened somewhat (but remains powerful) if one is willing to adopt a model of the average shareholder; which might be something like "a fully diversified portfolio", whatever that means. This stance would bias decisions toward over-weighting broad benefits -- a bias relative to perfect adherence to the principle, but far from pathological from a social-welfare perspective.

I am not sure how the time-horizon issue affects the total-shareholder-value principle differently from the partial-shareholder-value principle. (Ha! An advance in tactical terminology -- total-value : partial-value :: Bolshevik : Menshevik :: Mahayana : Hinayana)

If you start worrying about shares of other companies that may be affected by the actions of that company, you get into impossible to solve conflicts of interests.

If this means conflicts of interest for decision makers in the conventional sense, then it arises with both the partial- and whole-value principles. In either case, an individual may have incentives to make improper decisions. The whole-value principle would, however, provide effective excuses for decisions that are in fact driven by conflicts of interest, along the lines of my point (c) above.
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In the soft reform option, increasing total shareholder value would merely be a defence against accusations of wrongdoing through deliberate sacrifice of partial shareholder value. Here, the objections you raise seem substantially weaker, particularly if the burden of evidence regarding this is placed on the defence. Presumably, a prudent decision maker would take actions of this kind only when the external benefits are clear and enormous.

The hidden agenda in all this is to drive a wedge into a crack on the intellectual structure of what I have called orthodox market ideology, of the Friedman sort.

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Sat Dec 23rd, 2006 at 06:01:50 PM EST
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