Perhaps the dumbest aspect to the entire idea is the idea - supported by court cases like Dodge v Ford - that shareholder value is maximixed by maximizing the current quarter’s or current year’s bottom line. Prior to the advent of shareholder suits for delinquency of fiduciary duty - as opposed to outright fraud or embezzlement - the courts were wont to take the position that a company’s management knew what was best for it in the long term. If Ford’s approach of generous compensation to highly skilled assembly-line workers were not suited to the shareholders’ preferences, they could either vote out the board of directors, or vote with their feet and invest their money in a company run according to their wishes, but not try to get a court to second-guess the decisions of management.
Nowadays, shareholders can all but get a court to order a company to engage in unethical behaviour. The argument that over the long run, that will diminish the company’s value by destroying its goodwill appears not to stand up. This is perhaps the single greates perverse incentive in the corporate world.
