Sublime Myths: An Essay in Honor of the Shareholder Value Myth and the Tooth Fairy
Macey, Jonathan, Texas Law Review
Sublime Myths: An Essay in Honor of the Shareholder Value Myth and the Tooth Fairy THE SHAREHOLDER VALUE MYTH: HOW PUTTING SHAREHOLDERS FIRST HARMS INVESTORS, CORPORATIONS, AND THE PUBLIC. By Lynn Stout. San Francisco, California: Berrett-Koehler Publishers, 2012. 134 pages. $16.95.
In The Shareholder Value Myth,1 law professor Lynn Stout pitches her tent firmly in the camp of the nascent and prematurely moribund Occupy Wall Street movement. And if contradictions abounded among Occupy Wall Street folks, they similarly flourish in this slim text. This book simultaneously argues that the idea of shareholder primacy is-in addition to being a myth-(a) "the dumbest idea in the world";2 (b) "an ideology, not a legal requirement or a practical necessity";3 and (c) bad law.4 My responses to these observations are: (a) shareholder primacy is not an idea at all; (b) shareholder primacy is an ideology, but like certain other ideologies, such as the ones about the Constitution being sacred or the one about God not being dead, it is quite useful in a wide variety of situations and contexts; and (c) shareholder primacy is not bad law because it is not law at all-at least not in the cartoonish version often presented-and nobody thinks that it is. There is of course a difference between ideology and law, and the fact that shareholder primacy is an ideology does not mean that it is irrelevant to law; and it does not even necessarily mean that there is anything wrong with it. Christianity, Judaism, capitalism, and vegetarianism are ideologies rather than laws. But a lot of people find them convincing and even inspirational all the same.
Sadly, in my view, many people, and academics disproportionately, hate ideology of any sort and consider the very idea of ideology to be abhorrently anti-intellectual. As this book illustrates, among a certain sort of academic, to describe something as an ideology is to condemn it. Ideology is different from reason, but ideology has its place even in the life of educated, highly reflective people. Professor Stout, however, trivializes the notion of ideology and considers the very use of the appellation "ideological" to be derogatory.
In this Review I challenge the basic assumption that the idea of shareholder primacy is bad simply because it is, at least in part, ideological in nature. Shareholder primacy, for all of its ideological baggage, is also efficient and sensible.
I also defend the idea that shareholder primacy serves valuable salutary functions in corporate governance. I also make what, at least to me, is the rather obvious point that if the myth of shareholder primacy were to be eradicated completely from the intellectual landscape, some other ideology would of necessity emerge to fill the void. And on reading this book, I cannot avoid the conclusion that whatever new ideology might emerge will be far more pernicious and destructive than the extant, thoroughly benign myth of shareholder primacy.
This Book Review is divided into three parts, each of which contains what I consider to be a serious challenge to the ideas propounded in The Shareholder Value Myth. First, the book is an attempt to dislodge shareholders once and for all from their mythical, privileged role as the primary, and to some degree exclusive, beneficiaries of the efforts of corporate directors and senior managers. Unfortunately, Professor Stout does not provide any clues as to where, if at all, shareholders would be moved in her preferred ranking. Surely, shareholders should have some place in the corporation. After all, shareholders' money is required to capitalize the corporation. If Professor Stout and her fellow travelers succeed in dislodging shareholders from their current, albeit mythical, position of primacy, where would these scholars place them within the panoply of corporate constituencies such as managers, creditors, employees, suppliers, customers, and local communities? …