On the "Death" of Shareholder Value

There has been a good deal of writing lately within the management field (seen in both popular and scholarly writing--a couple of nice exemplars are Justin Fox's article in The Atlantic and Lynn Stout's book The Shareholder Value Myth) on the demise of shareholder value as a guiding goal of corporations. One management writer even suggests that shareholder value is (or, rather, was) "the world's dumbest idea," though one that's still taught to MBAs as conventional wisdom.

If shareholder value is dead, this work then wonders what is the "real" measure of value that firms should adopt in its place. One common alternative is that a determined focus on the customer, rather than the shareholder, is key in the formula for organizational success. Management guru (and Boulder resident) Jim Collins, in Good to Great, suggests that firms should pursue big, audacious goals that have no intrinsic connection to stock price--though, of course, the firms he counts as "great" are those that have provided shareholder returns over time. As another alternative, Steve Coll, in his book Private Empire: ExxonMobil and American Power shows how former ExxonMobil CEO Lee Raymond enjoined Wall Street analysts in the mid-1980s to reject traditional measures of firm performance and to instead substitute "return on capital employed," a measure of how well the company used capital it appropriated from previous earnings or borrowed (it didn't catch on, either in in the oil industry or more generally).

In other words, those inside the system want to overthrow the dominant ideology and replace it not with some radical alternative, but with something that becomes a proxy for (or an alternative route to) shareholder value. And the alternatives still seek to guarantee firm performance--in the long term rather than merely the short term--which is a long way away from a dramatic departure from the conventional.

In a sense, moving in this direction is a rather pragmatist stance: It's a refusal to take a stance, with the argument that communities arrive at answers to such questions through complex and power-laden processes of communication.

From this perspective, the interest turns to how we can access and analyze the (historical) processes by which a given logic of value creation (and, thus, conception of value) becomes ascendant, and how we can then trace the consequences of its pursuit. An attention to communication shifts the focus away from the ways managers engineer contracts or resources to achieve particular ends, and instead encourages an analysis of the authoring of both the firm and the institutional field, replying on the knowledge that multiple logics can be competing at any given time, that a logic may be employed in a hypocritical way, and that any pursuit of a given logic of value is likely to have unintended consequences.

Another way of saying this is that we need an account that develops a communicative explanation for the existence of an entity or a practice--where a "communicative explanation" is "any account that hones our understanding of how communication constitutes organizational reality, clarifies how communication works as an organizing mechanism, or illuminates communication (rather than, for instance, physical location) as the site of organization” (Ashcraft, Kuhn, & Cooren, 2009, p. 23). More of those would certainly be great for the organization studies field, but they don't necessarily either break with existing logics of value or present alternative arguments about the constitution of a firm.

The question, then, is what that stance should look like. That's the challenge facing those who see organizing and communicating (as in the title of this blog) as socially-important practices requiring a new way of seeing. In sum, it's all well and good to celebrate the death of the dominance of shareholder value as a discourse and logic of value. But if we substitute an alternative that merely aims at the same sort of outcome--"performance," measured by the stock indicators that have dominated it for a long time--then we've made very little change to our understandings of firms and their place in our world. Until we start thinking more broadly about value--about values beyond those expressible in a monetary code--it's unlikely that firms will be active contributors to social progress.

The issue being debated in this work is what is right, correct, and even morally responsible as a foundational and fundamental goal/mission of the firm. The question is what heuristic should guide decision-making all throughout the firm, and either shareholder value or customer satisfaction are pretty simple guides. I don't think that there's a single correct answer to the question of what the firm should be about. I also don't think a communicative view--the sort I propound--has a single alternative that is somehow superior (though it can cast light on practices of value creation that are often overlooked). The important question, rather, is how it is that some forms of value become dominant (across entire industries, among financial analysts, etc.) and what the consequences are of pursuing these logics of value creation. And an additional question is who--or what group--benefits from the logic guiding the firm.