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Is It Wrong for Shareholder Value to Rule Business Thinking?
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Is It Wrong for Shareholder Value to Rule Business Thinking?

Knowledge at Wharton·Knowledge at Wharton Staff·about 1 month ago
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It has been a business maxim for years: Shareholder value trumps all when it comes to measuring corporate success. But by overrating shareholder value, management could focus too much on short-term stock price measures, given that outsized executive compensation often is fueled by stock options. And focusing too much on the short term can hurt a business over the long run, says Eric W. Orts, a Wharton professor of legal studies and business ethics. There are better measures of corporate success, he points out in an interview with Knowledge at Wharton about his new book, Business Persons: A Legal Theory of the Firm . An edited transcript of the conversation follows. Knowledge at Wharton: Eric, you take issue with the idea that shareholders and executives are too often viewed as if they are the only entities in the corporation that matter. No one else is really important to the process.…

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