The job of a CEO is to increase profits and shareholders value

Two distinguished Harvard Business School professors–Joseph L. Bower and Lynn S. Paine—recently declared in Harvard Business Review that maximizing shareholder value is “the error at the heart of corporate leadership.” It is “flawed in its assumptions, confused as a matter of law, and damaging in practice.” Bower has long held this view: back in 1970, he told NPR that maximizing shareholder value was “pernicious nonsense.”

Jack Welch, who in his tenure as CEO of GE from 1981 to 2001 was seen as the uber-hero of maximizing shareholder value, has been even harsher. In 2009, he famously declared that shareholder value is “the dumbest idea in the world. Shareholder value is a result, not a strategy... your main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal… Short-term profits should be allied with an increase in the long-term value of a company.”

But despite these denunciations, the “pernicious nonsense” of shareholder value has spread. Shareholder value thinking, say Bower and Paine, “is now pervasive in the financial community and much of the business world. It has led to a set of behaviors by many actors on a wide range of topics, from performance measurement and executive compensation to shareholder rights, the role of directors, and corporate responsibility.”