Discussion With An Anti-Shareholder Value Advocate

On May 30, an article by Erik Sherman was published in Forbes. The title of this article is The Basic Corporate Error Of Maximizing Shareholder Returns. I completely disagree with the points made in this article but especially the following:

"The tenet of shareholder interest maximization would require managers and boards to do things that were detrimental to the success of the company. They would need to consider shortchanging workers, business partners, and customers. Every decision would be based on how to extract more value from every source — actions that would ultimately turn every broader concept of stakeholder into enemies. Many of the best potential employees, partners, and customers would go elsewhere, a terrible outcome for a business."

I wrote a comment expressing my disagreement and directing Mr. Sherman to an article that I had written and that was published on Medium entitled Happier Than We Have Ever Been and We Work for a Company Governed By No-Nonsense Capitalists. I wrote this article to provide an insight into what a company that had a Value Maximization Governance Model looked like and to contrast this with a stakeholder model as it seems that Mr. Sherman advocates. The following is the discussion thread that ensued that hopefully will be of interest:

Henry W.

1 June, 2025

I disagree with your basic premises. First, in regard to the legal issues related to shareholder value maximization, see "The Profit Motive: Defending Shareholder Value Maximization" by UCLA law professor Stephen M. Bainbridge.

Second, in regard to actual implementation of a shareholder value maximization model, see my article "Happier Than We Have Ever Been - And We Work For A Company Governed By No-Nonsense Capitalists." I tried to provide the link but the comment could not be published with an external link. You can find this article on Medium under my name Henry D. Wolfe.

This article provides a case study of a situation in which I was involved where the outcomes were materially different than what you describe in your piece. Note especially the letter I received from a member of management on behalf of all employees.

Erik Sherman

Senior Contributor

23 hours ago

There is no legal basis for saying a singular focus on shareholder value maximization, as many lawyers and experts in corporate governance have repeatedly shown. Again, conservatives on the Supreme Court have said this. That doesn't mean companies don't pay attention to shareholder interests. That would be equally self-defeating. But when everyone, including customers, employees, and business partners, are secondary to shareholders, eventually that will undermine if you follow the logic of making everyone else feel unimportant.

As far as your case study, a couple of comments. One is that a single case study doesn't necessarily prove a general thesis. Second, your list of initial problems at the company is so fundamental that the question of stakeholder versus shareholder emphasis was far from a basis issue. Bad corporate governance, high costs, inefficiency, "worst" performance metrics in the industry, bad relationships with major vendors, poor inventory strategy with turns only 4x a year? An utter mess and all things that could be fixed under a stakeholder focus as well.

Henry W.

22 hours ago

You missed the point of the article. It was provided to refute the following in your piece:

"The tenet of shareholder interest maximization would require managers and boards to do things that were detrimental to the success of the company. They would need to consider shortchanging workers, business partners, and customers. Every decision would be based on how to extract more value from every source — actions that would ultimately turn every broader concept of stakeholder into enemies. Many of the best potential employees, partners, and customers would go elsewhere, a terrible outcome for a business."

None of what you describe above took place as this company moved rapidly from a stakeholder model to a shareholder value maximization model. The underperforming employees who were fixtures under the previous model since no one was ever terminated were let go as were the redundant employees. And, there were some vendor changes. However, no one was "shortchanged" nor was there an "extraction of value." In fact overall, all "stakeholders" were better off under the value maximization model than the previous patriarchal stakeholder model including the communication from the VP that the entire management and employee group were happier than they had ever been at the company even though the performance demands had materially escalated.

In short, what happened at this company after shifting to a shareholder value maximization model is the exact opposite of what you suggest would happen.

Erik Sherman

Senior Contributor

8 hours ago

My point in my article was to note that if you really prize shareholder value maximization above all, there are logical conclusions. From what you wrote, you certainly brought a company back from the brink, and credit to you for that. But you also ensured a stronger company, which has requirements beyond what shareholders get. It's what the company itself needs. That you can point to more satisfied stakeholders is evidence for my point. It wasn't really a pure focus on maximation of what the shareholder got, except maybe in the sense of a stronger and more grounded and resilient company.

Calling it shareholder value maximization is a misnomer. Now, if you want to say that a strong company can deliver more fundamental value to shareholders, I'd likely agree, but that is a byproduct of proper operation, just as profits are a byproduct of running a company well and making customers happy.

Henry W.

3 hours ago

Replying to Erik Sherman

And the reason I wrote my article was to provide a clear picture of what real shareholder value maximization looks like. I can assure you without qualification that when we took over that company our intent was to maximize its value. And while we may not have been geniuses, we were astute enough to know that value maximization cannot happen if you run roughshod over everyone but shareholders. In fact one of the joys I have had in a long career as a capitalist is to see management and employees learn to perform at levels beyond what they believed possible. (When they experience this you get feedback such as "happier than we have ever been" as described previously).

All that said this company, as has been the case with other companies in which I have been involved (I have other case studies), was definitely shareholder centric. Any conflicts between shareholders and stakeholders were always resolved in favor of the shareholders. Otherwise there is no context for decision making.

Henry W.

27 seconds ago

Replying to Erik Sherman

Please note that this is my most recent comment but as I am writing it appears before the next to the most recent. (I adjusted the order for this Substack piece)

What you noted regarding ensuring a stronger company is part and parcel of maximizing the value of the company. Our objective was to be able to present not only a thriving, highly profitable company to potential buyers five or so years hence but also to develop it in such a manner that there is considerable potential for growth, profitability and value increases going forward beyond our ownership.

What you describe in your article that results from a shareholder maximization focus can happen. But, I would argue that these outcomes are actually not the result of a shareholder value maximization effort but instead the result of incompetent boards and executives.