Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Your article is focusing on maximizing shareholder value, and I agree that is an important goal of corporations.  But it is not the only goals of today's corporations.  Corporations have goals such as providing high quality innovative products to their customers, amongst many other goals. So I disagree with your premise, and the premise of the authors of the Economist article,
Orthodox market ideology rests on a mistaken understanding of the principle -- its own principle -- that corporations should maximise shareholder value. A correct understanding of this principle undermines the reasoning that requires corporations to behave in a manner that has some have termed "psychopathic".
Companies are very capable of balancing and executing on multiple goals--they can walk and chew gum at the same time.  The company you and the Economist article  describe might indeed by a psychopath, and just as there are human psychopaths (that become totally fixated on one object in life), there are certainly examples of business psychopaths.  But just as it would be inaccurate to label the human race as psychopathic because of the actions of a few, it is similarly inaccurate to libel the business community with the same logic.

As an example, following is the mission statement of Medtronic, the worldwide market leader in Cardiac Rhythm Disease Management.  First, a very short history for those unfamiliar with the company:

Medtronic was founded in 1949 by Earl E. Bakken and the late Palmer J. Hermundslie.

Since developing the first wearable external cardiac pacemaker in 1957 and manufacturing the first reliable long-term implantable pacing system in 1960, Medtronic has been the world's leading producer of pacing technology. Today, Medtronic is the world's leading medical technology company, providing lifelong solutions for people with chronic disease. Headquartered in Minneapolis, Minnesota, our operations are primarily focused on providing therapeutic, diagnostic, and monitoring systems for cardiovascular, neurological, diabetes, spinal, and ear, nose and throat markets.

Next, the company's mission statement, which sets the tone for the way the company is run:

The Medtronic Mission

In 1960, Earl Bakken, with the help of the company's board of directors, produced a formal statement of Medtronic's objectives. Nearly a half-century later, the Mission Statement continues to serve as both the ethical and practical framework for Medtronic's operations. It reads as follows:

To contribute to human welfare by application of biomedical engineering in the research, design, manufacture, and sale of instruments or appliances that alleviate pain, restore health, and extend life.

To direct our growth in the areas of biomedical engineering where we display maximum strength and ability; to gather people and facilities that tend to augment these areas; to continuously build on these areas through education and knowledge assimilation; to avoid participation in areas where we cannot make unique and worthy contributions.

To strive without reserve for the greatest possible reliability and quality in our products; to be the unsurpassed standard of comparison; and to be recognized as a company of dedication, honesty, integrity, and service.

To make a fair profit on current operations to meet our obligations, sustain our growth, and reach our goals.

To recognize the personal worth of employees by providing an employment framework that allows personal satisfaction in work accomplished, security, advancement opportunity, and means to share in the company's success.

To maintain good citizenship as a company.

I wouldn't be surprised if some of us have friends and relatives who are living high quality lives due to some of these Medtronic products.  

Thank God there are a lot more Medtronics out there than Erons.

by wchurchill on Fri Dec 22nd, 2006 at 05:04:00 PM EST
In an earlier draft, I included a discussion of why Friedman's position is far more reasonable than it might seem. For example, corporation that maximises long-term profit has powerful incentives to innovate, to produce quality products, to be an attractive place to work, and so on. In the orthodox framework, however, these are (or rather, should be) subsidiary goals -- not independent, but serving the primary goal of maximising share value.

That said, a focus on maximising share value per se is, in the world of real human beings, likely to lead to short-term thinking that produces inferior long-term results. Treating the subsidiary goals as primary may, in fact, better serve the primary goal than would directly pursuing it. (The psychopath model breaks down in part because corporations often pursue a more enlightened form of self-interest than the model would indicate.)

What I suggest would fully legitimise, in hard-core Friedmanesque terms, more corporate behaviour of the sort that you praise. It would recognise that these "subsidiary goals" have value external to the corporation that should, in some measure, be considered part of shareholder value.

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

by technopolitical on Fri Dec 22nd, 2006 at 07:09:30 PM EST
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That said, a focus on maximising share value per se is, in the world of real human beings, likely to lead to short-term thinking that produces inferior long-term results.
I know this is popular thinking, but I, and I think many others in business, disagree with it.  There is a book written by a couple of Stanford professors 10 years or so ago, called, I think, "Good to Great".  They had a great line, which was a question and answer: "Should we manage for the short term or the long term?"  the answer is "yes".  To think that you can't do both, is like saying you can't walk and chew gum at the same time.  Of course there are tradeoffs, and at times it's easy to forego the long term for a short term quarter, or year.  But if you're a CEO that wants to be around for 10--20 years, obviously you have to do both.  And there are many companies that accomplish this.

I believe the thinking that I espoused above is now very standard in business, at least US business.  But like so many other things the press writes about, it's the scandals at Enron, etc. etc. that make the headlines--not the consistent progress at Medtronic, GE, etc, etc.

by wchurchill on Fri Dec 22nd, 2006 at 09:31:17 PM EST
[ Parent ]
The natural difference between "news" and the rest of human activity does indeed create a systematic bias in how we see the world. For example, there have been many more failed start-up companies because failure and mediocrity are so much less newsworthy than is blazing success.

Good management must indeed balance many tasks, including those with short- and long-term goals. I'm only claiming that there is not only an inherent trade-off between goals (as you note), but also a psychological tendency for easily measured, short-term, monetary goals to crowd out long-term investment in (for example) people and knowledge. An attitude that directly values the latter serves, I think, as a counterweight to this tendency.

This is a squishy point, and I was moved to state it in order to expand my agreement with your earlier point, as I understood it. Disparage my effort at ET civility if you must... Bite the hand... Examine the equine teeth... ;^)

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

by technopolitical on Sat Dec 23rd, 2006 at 06:47:59 PM EST
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