Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
I think your argument hinges on the validity of
(6) For shareholders with well-diversified portfolios, "maximising shareholder value" entails maximising the (suitably weighted) share values of the corporations in their portfolios.
I don't think it is.

For any portfolio the return is a (suitably) weighted average of the returns of the constituent assets, irrespective of diversification.

Now, diversified portfolios arise precisely because maximizing return is not the only criterion by which investors make their investment decisions. So, in the specific case of investors with diversified portfolios, it is not only maximising the portfolio return that they're interested in.

The focus on share value (and return) comes from

(2) Running a corporation in the interests of its shareholders, commonly described as "maximising shareholder value", and this is generally taken to mean maximising the value of the shares.
The value of a stock to an investor may or may not come from its return. For those few with large stakes in it it appears to at first sight, but if their holdings are too large to liquidate quickly, they are "married" to the company for a longer period of time than the average investor, and so have an interest not just in maximising the immediate return to their investment, but in ensuring the continued health of the company for some period of time. For the large majority of investors with small holdings, those are presumably for diversification purposes, and for these minimising risk is as important as maximising return.

So it would appear that the identification of shareholder value with stock price is the weak link of the whole argument, and indeed I would say it's just a specious argument by ideologues bent on justifying notorious excesses by pseudoscientific use of economic arguments.

Where does this argument actually come from? Thomas Friedman?

Those whom the Gods wish to destroy They first make mad. -- Euripides

by Migeru (migeru at eurotrib dot com) on Sat Dec 23rd, 2006 at 01:33:16 PM EST

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