Posted on 22/11/2010
Professor Brendan McSweeney
A research paper by Professor Brendan McSweeney from the School of Management at Royal Holloway, University of London is one of the top 10 downloaded papers from the Social Science Research Network, which is the biggest open access global network in the USA and elsewhere.
The paper – ‘Maximizing Shareholder Value: A Panacea for Economic Growth or a Recipe for Economic and Social Disintegration?’ – evaluates the claim that making the maximization of returns for shareholders is the most effective way of generating economic wealth and economic welfare.
The paper argues that the most effective way for companies to achieve better returns for shareholders is not to seek to do so but instead to improve the quality of its products and services. It also says policies which facilitate maximization of shareholder value inevitably lead to greater inequality.
Professor McSweeney argues that instead of being underpinned by solid empirical support, the policy of maximizing shareholder value relies on “anecdotes; crude notions of causality; exaggerated predictive power; simplistic views on the internal workings of companies, and an unreal and utopian/dystopian notion of markets.”
The paper looks at why so many companies pursue a maximizing shareholder value policy and says largely it is because they are pressurized into doing so by stock and other capital markets and their financial institutions.
Professor McSweeney says: “Contrary to the widely held myth, the financial services industry in the UK makes very little real investment and when it does so its short-term focus is dysfunctional.
"The images we so often see on television of the fevered activities of expensively suited men and women surrounded by batteries of computers in ‘investment’ locations in Wall Street, the City of London, and elsewhere are not, as is usually suggested, pictures of a highly paid elite investing in companies – most of the time they are simply gambling, not on dogs or horses but on share prices. Descriptions of shareholders as 'investors', as 'wealth creators' reinforce the myth of shareholders as significant providers of funding to top companies. In most countries, including the US and the UK, the stock market is not, and never has been an important source of investment funds for major corporations.”
For more information about Professor McSweeney visit: http://pure.rhul.ac.uk/portal/en/persons/brendan-mcsweeney_5d6ce54a-93fd-4bf2-b52b-b666ec92d88a.html