May 06, 2009
The Shareholder Wealth Maximization Norm
Posted by Ronald Colombo

Following up on Usha's post, I'd like to advance an argument here that I've explored more fully in some of my writing.  Namely, that the "shareholder wealth maximization norm" is a perverted application of the principle from which it has been derived:  that directors effectively serve as the shareholders' agents, and as such are to operate the corporation with the best interests of the shareholders in mind.

I have posited that to act with the best interest of the shareholder in mind is not the same thing as to act in order to maximize shareholder wealth.  Indeed, for 2,000 years Christians have been warned "what doth it profit a man, if he gain the whole world, and suffer the loss of his own soul?" (Matthew 16:26).  And similar sentiments can be found in some shape or form in pretty much all other religions.

So, viewing corporate law under the light of faith calls into question this very fundamental assumption.  It suggests a rejection of the de-humanizing assumption that human beings equate their best interests with their pocket-books and wallets.  In its place, it suggests an understanding of "shareholder best interests" that would take into account the moral interests and obligations of shareholders as well.

The risk of such an approach, however, is how it affects the very serious challenge of protecting  shareholders from management . . . .

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