Myth #5: The law requires companies to maximize financial value for shareholders
Shareholders are very clear on their rights – which are strong – and their responsibilities – which are minimal. Viewed from the outside, this can lead to disjointed behaviour: on the one hand, in 2005, over 48,000 investors in the company Railtrack, outraged by the decline in the value of their shares, clubbed together to raise over £4 million to challenge the British Secretary of State for Transport’s decision to force the company into administration, going so far as to allege a breach of their human rights.1 On the other hand, at the very same time, a judgment was handed down on Railtrack’s liability in relation to a fatal train crash, implicating the company’s poor safety record and working practices. The shareholders did not feel moved to campaign on this issue, seeing themselves as completely removed from responsibility and viewing corporate liability as completely unconnected to their rights as shareholders. When the value of their shares was not maintained, it was a breach of their human rights. When lives were lost in connection with their profit-making, their humanity was nowhere to be found.
Even if we can dispatch the idea that free markets are competitive (Myth #1) and that companies serve the public interest by competing (Myth #2), that corporate power is benign (Myth #3) and that antitrust already controls harmful corporate power (Myth #4), we are left with the very problematic idea that maximizing financial value for shareholders is the law. But why? Where is this statute or legal case that says that company directors must maximize the share price, no matter what? This is not what the law says at all, and yet it is what companies feel obliged to do. How does this misunderstanding persist?
When it began to be widely used as a form of business organization, the corporation was the subject of considerable suspicion. It was a peculiar entity: not a partnership of real human beings but an artificial legal construct, and the shareholders behind it came to be shielded from all personal liability.
This is not how the corporation started out. The original norm of accountability was not actually limited liability but unlimited liability. The corporation was not a vessel for Coasian efficiency in the sixteenth century but rather a vehicle for personal responsibility. But avoiding liability was a critical part of the evolution of the corporation and is what made it so popular. Limited liability drives companies to think more ambitiously about their scope for mischief and risk. Imagine if the shareholders of oil companies were responsible for their collective contribution to climate change? Limited liability removes true responsibility and accountability. As one commentator writes, limited liability ‘institutionalises irresponsibility’,2 and supercharges the basest instincts of the company. It is like giving a flamethrower to a pyromaniac. For shareholders there need be no concern: it is all upside.
As we have it today, shareholder value obliges directors to maximize returns whilst limited liability allows them to use all means necessary to shift costs out on to society without risk to shareholders. But the early corporations had a much wider scope of responsibility, as we have already seen – their very existence was subject to government decree.
Some of the first corporations were formed in England under charter by the King or Queen and they existed for a specified purpose. We talk now about a company having a ‘licence to operate’, based on the social contract struck between business and wider society. Originally, however, these were literal licences, granted by the sovereign. Corporate responsibility was a given: the purpose of any given corporation was defined by its charter in very practical terms – the responsibility to complete some particular public works ‒ and its licence to operate flowed from that charter.
When capital was in short supply, the corporation was seen as a way to outsource the completion of certain public projects, from the imperialistic voyages of the Honourable East India Company – one of the earliest Western corporations, formed in 1600 ‒ to the construction of sewerage and water systems. Such corporations were granted the protection of the state and exclusive rights to the proceeds of their endeavours – a government-granted monopoly, similar to intellectual property rights – but only if they stuck to the specified public purpose for which incorporation had been authorized. To be sure, the public benefit of commercial colonial rampages accrued primarily to the West, but there was a core idea that the expeditions were at the pleasure of the sovereign.
Licensing corporations in the early years of the American Republic took on a similar model. It took an act of legislation to charter each corporation and they were again formed for a limited, usually public, purpose ‒ building and running a canal, digging a road, laying railroads or forming a bank ‒ and for a limited term. The idea, at first, was not to enable the deployment of capital generally, but to facilitate the completion of projects for the common good. But the system was cumbersome, with each company requiring a government-granted charter. Free incorporation, without legislative decree, was eventually introduced to open up the possibility of forming a corporation beyond the nepotistic confines of the elite and in order to democratize industry.3
As we have seen, the power of the corporation was initially still circumscribed through incorporation laws that restricted the activities and potential scale of industry. Meanwhile, the sense of corporate public responsibility, present from the corporation’s beginning, reached a peak in the 1950s with ‘managerial capitalism’. The immediate post-war period was a unique time in business. The shared sacrifice of the Second World War produced a socio-economic culture in which it was understood that the post-war prosperity should also be shared. Labour unions were strong and CEOs saw themselves as stewarding vehicles of national wealth creation, with a mostly passive board of directors. The prosperity of corporate America was allowed to radiate out through the economy.
As the Cold War took hold, company managers started to see their role in the ideological struggle as providing evidence that capitalism could provide a better life for workers than communism, through the socialization of the capitalist economy. One commentator wrote in 1960: ‘[W]hereas 50 or 100 years ago the profit maximizing manager would perhaps have been tolerated in some circles of some communities, today society clearly expects the businessman to act responsibly.’4 A 1961 Harvard Business Review survey of 1,700 executives revealed that approximately 83 per cent of the respondents agreed that: ‘[F]or corporate executives to act in the interests of shareholders alone, and not also in the interests of employees and consumers, is unethical.’5
That was in the early 1960s, ten years before Friedman’s diatribe against socially responsible business. But for Friedman and Hayek and the Mont Pelerin gang this logic was back to front: socializing corporations would lead to the stealthy spread of socialism more broadly. When Friedman’s article was published in 1970, it was considered far out of the mainstream. But then the 1970s were marked by poor corporate performance, against a backdrop of oil price shocks and stagflation (the unfortunate combination of inflation and unemployment). The passive boards of directors, rubber-stamping the strategies of unconstrained CEOs at the helms of industry, were thought to be part of the problem. High-profile firms were failing and the Watergate scandal came to engulf many public and private firms with revelations of bribes, illegal campaign contributions and dismal corporate governance.
The rise of bureaucracy through the 1950s had been so strong that economist Joseph Schumpeter predicted that it would wipe out the creative force of capitalism, stifling innovation in its drive for predictability and stability. Business executives administering sprawling bureaucracies could easily lose sight of shareholder interests, so there were real concerns about protecting shareholders from managers who were seen to be at best negligent and at worst fraudulent.6
As contemporary commentators have tried to unpick the reasons why Friedman’s article had such an impact, and how shareholder value eventually took hold, we come back again to the particular context of the 1970s. ‘The success of the article was not because the arguments were sound or powerful, but rather because people desperately wanted to believe,’7 remarks one commentator. The approach was eventually welcomed even by the chastised management, perhaps seeking to reclaim their venerated positions as the captains of industry. Global competition was starting to squeeze profit margins and executives were looking for new, intellectually respectable ideas to boost their revenues. So the suggestion that they could focus totally on making money, and forget about concerns for employees, customers, society or the natural world, was gratefully received. The boost to their own pay packets likely also helped.
Friedman was not making the idea of shareholder value up in 1970. Shareholder value was tentatively established in US law in 1919 and later embedded, somewhat uneasily, as part of UK law in the 1990s. Nevertheless, shareholder value is actually quite a peculiar sort of rule: it has its origins in law, yes, but equivalent legal principles in other fields of law will have reams of cases affirming and reaffirming the core tenets, shaping the boundaries of the rule and excising the exceptions. For shareholder value there is no well-established body of case law or specific statute ‒ just a few by-the-way musings from judges, and fragmentary decisions. Shareholder value is also more or less unenforceable. In fact, many statutes, including those in many US states and in the UK, provide for the opposite of shareholder value: they permit companies to consider interests beyond those of the shareholders, especially in day-to-day decision making. And yet this is not what many directors do.
To explore the legal origins of shareholder value we must start in a car factory, in Detroit, Michigan. Not just any car factory, but Henry Ford’s car factory where, in 1914, Ford declared a corporate policy to invest all capital profits into vertically integrating into iron, hiring more workers, and reducing the cost of his cars for customers ‘to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes’. Ford announced a $10 million bonus fund for workers, and thousands of people lined up outside the factory gates to secure a job. But his fellow shareholders, the Dodge brothers, were not pleased, even though, if Ford’s policies had been implemented, they were still due to receive annual income of $120,000 on a $200,000 investment, a rich return of 66 per cent (plus the special dividends of $3.6 million they had already received).
The brothers took Ford to court and their lawyer described Ford’s plans, with a touch of hyperbole, as ‘a purely reckless, chimerical, hare-brained scheme to spend the money of these stockholders in a plan that will, of its own force, break down and bring ruin and destruction on every man who has any money invested in it’.8 The court at least partly agreed. Finding against Ford, the Michigan Supreme Court forcefully declared:
A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among stockholders in order to devote them to other purposes.9
The court was clear: the primary responsibility of the directors, and the purpose of a corporation, is to create financial gain for the shareholders. They can choose how to do it, but do it they must.
And so it began. The case has not been relied upon often for its precedential value in US courts since, but the mere existence of the court’s pronouncement has had far-reaching consequences for the durability of the shareholder value concept.10
The Delaware Court of Chancery affirmed this position when it arose in the course of an attempted hostile takeover by eBay in the early 2000s of personal ads website craigslist, the popular marketplace for second-hand couches, sports memorabilia and dodgy housemates.11 eBay became a shareholder in craigslist when a previous shareholder became frustrated with craigslist’s lack of ambition to monetize and so decided to sell his share to eBay. The founders of craigslist then acted to resist any further takeover by eBay on the grounds that they were trying to protect craigslist’s social values and community-centric company culture, which would be threatened by an outright acquisition by the corporate giant. The Delaware Chancery Court, in probably one of the only times that it has ever been on first-name terms with defendants, said: ‘Jim and Craig did prove that they personally believe craigslist should not be about the business of stockholder wealth maximization, now or in the future.’ Then, here comes the ‘but’: ‘Having chosen a for-profit corporate form, the craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders. The “ Inc.” after the company name has to mean at least that.’ If you want to do good, form a charity, they said. For-profit companies exist to make money.
In fact, the main precedent in the UK is actually based in charity law, where the board of directors of a company is mirrored by the board of trustees of a charity. In 1992, the Bishop of Oxford sought a declaration by the court that the trustees investing Church property in order to generate returns to fund the stipends of clergy people should not be investing in ways that conflicted with the Christian faith.12 In particular, he did not think it right that the trustees should choose to, or feel compelled to, invest in companies with activities in South Africa, whilst apartheid continued to blight that country.
Seventy years and thousands of miles apart, the court’s decision resonated with that of the Michigan Supreme Court against Henry Ford. The court held that: ‘Most charities need money; and the more of it there is available the more the trustees can seek to accomplish.’ In other words, the social impact of a charity is to be achieved through its charitable works only. Any investments it makes with its endowment should seek maximal returns, so that additional income may be deployed towards its charitable aims. The investments themselves, however, should have profit as their focus, not social good. In the corporate world in the UK this is interpreted as the equivalent of maximizing profits and shareholder wealth. Companies should make as much money as possible for their shareholders, who can then contribute to the public good, however they wish, with their freshly minted profits.
This position was problematically cemented into UK law in the mid-2000s as the UK Companies Act was undergoing its once-per-generation update. Many argued vigorously for a ‘pluralist’ approach, based on the idea that companies should serve a wider range of interests, not subordinate to or as a means of achieving shareholder value, but as valid in their own right. But others argued that maximizing shareholder value is the best means of securing overall prosperity. The efficiency, trickledown, invisible hand argument won, with one minor concession: in the UK, shareholder value was to become ‘enlightened’.
‘Enlightened shareholder value’ under section 172 of the Companies Act 2006 means that directors owe a duty to ‘promote the success of the company for the benefit of its members’ (i.e. the shareholders), but here comes the important bit: ‘and in doing so have regard … to’ a host of factors listed in the statute: the long-term consequences, the interests of the company’s employees, suppliers and customers, the impact of the company’s operations on the community and the environment, the company’s reputation, and fairness as between the shareholders.13
The drafters were clear that in most cases, the ‘success’ of the company will be defined in economic terms, looking to a long-term increase in shareholder value, but they felt that listing the multitude of factors relevant to this would have a major influence on changing behaviour and the climate of decision making in business. Unfortunately, things have not quite turned out that way.
The bit that seems to really stick in people’s minds is the duty to promote the success of the company ‘for the benefit of its members’. This conveniently overlooks the long-established legal principle that directors owe their duties primarily not to shareholders but to the company itself. ‘Enlightened shareholder value’ does allow directors to take into account the interests of stakeholders, but it falls short of truly catalysing business to become a force for good. It is permissive, not compelling: it allows directors to pursue non-financial aims without fear of being sued, but it does not force or even full-throatedly encourage them to do so ‒ at least it has not been interpreted that way. Indeed, the only party with power to enforce the stakeholder protections that the law purports to give are the shareholders.
As elsewhere in corporate law, ‘enlightened shareholder value’ retains enough ambiguity and lack of enforceability for directors to drive a truck through, and the disregard for stakeholder interests is reinforced through other limbs of corporate regulation like tax law and accounting practices. The law provides ample cover for shareholder value-minded companies, and despite any continued debate amongst legal scholars as to the status in law of shareholder value, wealth maximization is simply what many companies do.
Even the 2014 pronouncement by the Supreme Court in Hobby Lobby ‒ a case concerning corporate religious freedoms but which included a declaration by the court that companies are not required to maximize shareholder value, nor have they ever been ‒ cannot shake shareholder value from the corporate psyche: ‘[M]odern corporate law,’ the Supreme Court said, ‘does not require for-profit corporations to pursue profit at the expense of everything else.’14 But when this statement was made, by the highest court in the United States, American businesses did not turn around and change the foundations of how they do business – free, as it turns out they always had been, to do good for society. Instead, nothing changed. Shareholder value lives on.
Shareholder value’s unenforceability seems not to undermine its endurance as a governing principle. In fact, no case exists holding a director liable for not maximizing shareholder value in the everyday operations of the company since Dodge v Ford.15 If anything, judges have mostly seen fit to prevent shareholders from enforcing wealth maximization when investors have sued companies for paying their employees too much; for failing to pursue a profit opportunity; for not maximizing a settlement amount in a negotiation; or for failing to lawfully avoid taxes (yes, people bring such claims!).16 And as long ago as the 1800s, the English courts declared that they would not be called upon to second-guess how managers run businesses. The courts are loath to intervene lest they be required themselves to, in the words of Lord Eldon from a case in 1812, ‘take the management of every playhouse and brewhouse in the kingdom’.17 And yet the principles of profit maximization, of shareholder primacy and the idea that maximizing returns for shareholders is what companies must do, have been fully embraced. It is what the ‘Inc.’ stands for, after all.
If shareholder value is such a bad idea, with widely accepted costs as a contributor to inequality, industrial concentration and thus higher prices, destruction of the environment, and a whole host of other social ills, why do we not just get rid of it? This, it turns out, is actually three questions: what are the justifications for shareholder value (the ‘why?’ question), and how does shareholder value in practice endure (the ‘what?’ and ‘how?’ questions).
The first justification for shareholder value is that the shareholders own the company, therefore they have the right for it to be run in their interests. This point is easily dispatched: the English courts have made clear that the shareholders are definitively not owners of the company,18 and we can easily see why, as one commentator puts it: ‘ownership [of stock] is literally a betting slip, and it is mere coincidence that the slip relates to a share of stock, rather than a horse or a football game.’19 Renowned legal scholar Lynn Stout explains further: ‘corporations are legal entities that own themselves, just as human entities own themselves’.20 Shareholders do not own the company, they own shares – and often not for very long. They cannot sell the company; they can only sell their shares.21
Another argument is that shareholders put their capital at risk so they therefore deserve to be protected. But many other ‘investors’ also tie their fate to the company, and they too lack contracts sufficient to protect them ‒ in fact, often they are even more exposed. Leading management academic Colin Mayer argues that contractual rights are extremely restricted for factory workers who may lose their jobs, the workers in Rana Plaza who lost their lives, the citizens of smog-filled cities, the taxpayers who bailed out the banks.22 And contracts are non-existent for future generations who will inherit a planet in crisis.
Meanwhile, shareholders do not even seem to be investing risk capital any more; they invest in the secondary market, buy and sell at whim, and extract value beyond their investment. Economist William Lazonick has shown that the flow of cash from the stock market to companies is actually negative.23 Shareholders attempt to harvest value that they played no part in creating, and exit before the true costs are reckoned. Lazonick calls this the ‘legalized looting’ of the industrial corporation.24
These are the legal arguments. The final argument is economic, and it comes back to the invisible hand. On this argument shareholder returns act as a signal to investors, allowing them to shuffle resources around the economy to their most efficient use. If this signal is distorted, or if the control over managers by shareholders is loosened, there will be an inevitable drag on the efficiency of the economy.25 This assumes quite a bit of knowledge on the part of shareholders, whereas in fact it seems that even gargantuan investors like BlackRock, which has over $6.5 trillion of assets under management, keep themselves bizarrely under-resourced to monitor even the financial performance of its investee companies, let alone their performance on some grander, economy-wide welfare metric.
Perhaps, though, the more interesting question is: why do we have shareholder value, not in theory but in reality, when it is barely respectable law, it is certainly not respectable practice, and it cannot even be enforced? Lynn Stout caused quite a stir in the legal community when she declared that managers of public companies have ‘no enforceable legal duty to maximize shareholder value’. She continues:
Certainly they [directors] can choose to maximize profits; but they can also choose to pursue any other objective that is not unlawful, including taking care of employees and suppliers, pleasing customers, benefiting the community and the broader society, and preserving and protecting the corporate entity itself. Shareholder primacy is a managerial choice – not a legal requirement.26
Shareholders do indeed find it very hard to enforce shareholder value in the courts, and yet companies often claim to, or attempt to, maximize shareholder value anyway. It may be a managerial choice, but it is a choice that company managers make repeatedly. Prioritizing shareholders is not a legal obligation – but tell that to your lawyer and they will likely look at you as if you have become a flat-Earther.
The pressure managers and investors feel to conform to the shareholder value norm is very real, even for those who have tried, along the way, to do some good. Consider the forces that drove Ben & Jerry’s to sell to global conglomerate Unilever.27 Ben & Jerry’s was a pioneering, socially minded company before that concept had entered the popular consciousness. Founders Ben Cohen and Jerry Greenfield pursued a double bottom line of social good and financial return (they referred to this as the ‘double-dip’) by committing 7.5 per cent of their profits to a charitable foundation; by buying ingredients from suppliers who employed disadvantaged populations and supported the local economy; by initially raising money through a local public offering to Vermont residents; by being one of the first companies to offer health care benefits to employees’ same sex partners; by using eco materials in its packaging; and by registering voters in-store in the run-up to elections. Their ambitions were grand, and why not? For its Chocolate Fudge Brownie ice cream, the company purchased the brownies from Greyston Bakery, a producer employing formerly homeless, low-income and disenfranchised people, about which Ben & Jerry’s said: ‘It’s no stretch to say that when you eat our Chocolate Fudge Brownie ice cream, you’re striking a blow for economic and social justice.’ It was a lofty, admirable and delightfully preposterous goal to combat social injustice with ice cream.
But when it came down to it, as a publicly traded company they felt under pressure to sell ‒ or, some would say, sell out ‒ to Unilever, in 2000, considering the litigation risk of resisting the takeover to be too great. Indeed, three class action lawsuits alleging that the directors were breaching their fiduciary duties to shareholders by failing to maximize shareholder value were filed whilst the deal was still being negotiated.28 Jerry Greenfield said subsequently that they did not want to sell the business but felt that their legal duties to shareholders ran counter to their hearts and ultimately superseded their sentiments about the company.
So shareholder value exists in law but only weakly. It is unenforceable, but company directors believe they have to do it anyway. Can a simple belief, then, be self-perpetuating? In the 1970s, evolutionary biologist Richard Dawkins developed the concept of ‘selfish genes’.29 The idea was that we think that we fall in love, have children and form communities through free will, but actually we are just hosts for our selfish genes, hell-bent on their own propagation. The internet generation of today may be surprised to learn that the origin of the word ‘meme’ was Dawkins’ generalization of this theory to the cultural spread of things like language, religion, melodies, ideas, fashions and schools of thought. Coining a new word, he helpfully included a guide to pronunciation, stipulating that it should rhyme with ‘cream’.
It is useful to think of money as a meme ‒ an idea that has been extremely successful at replicating itself in the minds of human beings. The corporation and shareholder value are the two companion fictions that facilitate the reproduction of money. We think that money exists because it is useful to us, as a means of exchange – the more useful it is, the more money we make. But what if the runaway success of money, and its ability to grow seemingly exponentially, owes its cause not to the utility of money to us but to the reverse: because we, and our human economic interactions and legal structures, are useful to it?
Money finds a way to ensure the continuance and spread of shareholder value despite its shaky legal standing. Money, of course, has no will of its own, rather it is like water, following the path of least resistance, flowing into the available cracks and spaces, eroding the institutions through which it courses, adopting its own path and suffusing the system with its presence like a high water table in a porous aquifer. If we let it, money will stop us from acting to control the corporate power and corporate abuse that fuels its growth – it has no reason to step out of the way.
Perhaps precisely because the law and logic serve to undermine the concept of shareholder value, the mechanisms the market finds for enforcing it are myriad: the threat of hostile takeovers if management performance lags, through the ‘market for corporate control’ facilitated by robust capital markets and the watchful eyes of scores of securities analysts; institutional investors in public companies, enjoying special privileges of access to management due to their greater stockholding, with the opportunity to remind managers who controls their appointment; strong shareholder wealth maximization norms, established through socialization in business schools and on the job, and through the constant utterance of the firm’s lawyers. And of course some directors are also shareholders, and vice versa – a very effective mechanism for aligning shareholder and managerial interests.
Shareholder value is an idea, a very powerful idea. Legal scholars divert themselves with tireless debates as to whether shareholder value really exists in theory, even though it plainly does in practice. Whether or not shareholder wealth maximization is written into law, people seem to think that it is. We need to accept this and think about how we can begin to challenge such a powerful norm. As it stands, the idea of shareholder value has seeped into our core understanding of how business works, and the abdication of corporate responsibility that it mandates leads to a proliferation of destructive corporate power.
On the face of it, we seem to have a system in conflict: antitrust argues for maximum ‘consumer welfare’ and profit minimization whereas shareholder value demands the opposite – profit maximization at any cost.30
But what at first seems to be a system pulling in two directions turns out to be a mechanism oriented towards a single goal: shareholder wealth. The norm of shareholder value is much stronger than the law of consumer welfare ‒ for the simple reason that consumer welfare under Borkian antitrust is actually corporate welfare, since whatever is good for the presumptively efficient company is assumed to be good for the consumer too. Competition law has typically ignored what happens inside companies, which is where shareholder value casts its spell, focusing instead on dynamics in the market. It is therefore assumed that companies act in a certain way ‒ a way that, when constrained by competition from rival firms, benefits everyone. Antitrust therefore did not need to concern itself with the internal workings of the company, as the market would see to it that consumers would get the lowest prices.
The meme of money propagates itself in the cocoon of the shareholder value company and spreads its wings by hunting for other forms of power. Shareholder value pushes the company to exploit market failures, including by annexing market power and producing externalities, and antitrust does little to stop it. And with money amassing power, other regulators will struggle to prevent the transmission of the spillovers of this industriousness on to society.
The whole of the corporate world, in the US and UK at least, is designed around shareholders, including the defence of the monopolistic companies they invest in. There is no real corporate responsibility. We seem to have forgotten that the formation of a corporation was, and still is, a publicly granted privilege allowed only at the sufferance of the state. Corporate law no longer controls power – as it did before incorporation laws were watered down – and it no longer enforces responsibility either.
As Chief Justice Strine of Delaware, the most important American court for companies, given that the majority of Fortune 500 companies are organized under Delaware corporate law, explains:
Under the current legal rules and power structures within corporate law, it is naïve to expect that corporations will not externalize costs when they can. It is naïve to think that they will treat workers the way we would want to be treated. It is naïve to think that corporations will not be tempted to sacrifice long-term value maximizing investments when powerful institutional investors prefer short-term corporate finance gimmicks. It is naïve to think that, over time, corporations will not tend to push against the boundaries of whatever limits the law sets, when mobilized capital focused on short-term returns is the only constituency with real power over who manages the corporations. And it is naïve to think that institutional investors themselves will behave differently if action is not taken to address the incentives that cause their interests to diverge from those people whose funds they invest.31
Of course the motivations of the company matter, he says, and affect how it goes about competing, and the lengths to which it will go to secure a profit. But the neoliberal economic paradigm of free markets and freedom for the powerful calls upon our willing naivety, over and over ‒ and, blindly, we give it.
Some have referred to antitrust as a religion,32 and to those in the neoliberal sect as a ‘disciplined army of the faithful’,33 and it is true that, in the past, a lot was taken on faith. My career crisis as a disillusioned competition lawyer, and my frustration with the limits of what can be achieved with competitive markets, pushed me to dig deeper and lift the lid on the company to see whether how companies are run could explain why markets do not always generate good results for people. Making fizzy drinks markets competitive and the products as cheap as possible seemed to be entirely beside the point; I could not be blindly faithful any more.
We cannot expect better corporate conduct whilst the myth of the shareholder value duty persists. The biggest and most powerful firms, in particular, should have a clear responsibility to respect the public interest in a manner befitting the immense privileges bestowed on the corporate form as a money-making machine.
Shareholder value is not the law ‒ or it does not have to be, if we collectively agree that it is not. But doing so involves letting go of one more free market myth first.
Myth #5: The law requires companies to maximize financial value for shareholders.
Reality: The law is being wilfully misinterpreted to our collective detriment as it does not require companies to maximize shareholder profit.