The End of (Shareholder Value) Ideology?

Abstract

Frank Dobbin and Dirk Zorn have admirably summed up what we know about how large U.S. corporations have been governed in the past 20 years. As such, I do not have many quibbles with their story. Instead, I would like to argue that the era of shareholder value has now come to a close. This is for two reasons. First, and most importantly, the methods and practices of financial engineering Dobbin and Zorn describe, have reached an endpoint in their ability to make corporations more profitable. The recent stock market crash is at least in part a result of investors becoming convinced that firms could not sustain the upward profit path. Second, the financial scandals of the early 1980s show the limits of these tactics. Firms like Enron and Worldcom were aggressively pursuing exotic forms of financial engineering with the help of their accountants and the forbearance of financial analysts. They, of course, veered from legality into illegality as they tried to convince investors that their futures were bright. The Oxley–Sarbanes Act has made it more difficult for CEOs to cook their books and it has pushed accounting firms out of the business of selling such advice. Financialization in the pursuit of increasing shareholder value has been given a bad name from which it is unlikely to recover. In this article, I would like to briefly describe why I think this is so. Then, I will briefly illustrate some of this through the Enron case. I conclude with some speculation about the future of the American economy.

Citation

Fligstein, N. (2005), "The End of (Shareholder Value) Ideology?", Davis, D.E. (Ed.) Political Power and Social Theory (Political Power and Social Theory, Vol. 17), Emerald Group Publishing Limited, Leeds, pp. 223-228. https://doi.org/10.1016/S0198-8719(04)17010-5