I'm among the economic illiterate here. I'd been convinced that CEO's did have an obligation to maximize stockholder returns. It's great to know that was wrong.
For at least the past two decades, Americans have been duped into believing that the sole purpose of a corporation is to maximize value for its shareholders. That belief, first promoted in business schools, has been absorbed in the media, in academic circles, and in the political realm -- even progressives like Al Franken have repeated it as if it were indisputable fact. But in reality, it has no basis in the law or American precedent. The maniacal quest to raise share price is bad for everyone -- even shareholders themselves.[emphasis mine]
After months of investigation, the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling concluded the Macondo blowout could be traced to multiple decisions by BP employees and contractors to ignore standard safety procedures in the attempt to cut costs. In trying to save $1 million a day by skimping on safety procedures at the Macondo well, BP cost its shareholders alone a hundred thousand times more, nearly $100 billion. Even if following proper safety procedures had delayed the development of the Macondo well for a full year, BP would have done much better.
This book argues that the Deepwater Horizon disaster is only one example of a larger problem that ... might be called shareholder value thinking. [emphasis mine]
I haven't read the book, but based on the two paragraphs you wrote, it looks like they just made a bad calculation. I agree that the BP spill hurt the environment, the shareholders and I'm sure many other things, but what they did was a calculated risk to save money which backfired badly.
I remember when I worked in retail, there are OSHA safety standards that require the replacement of extension cords after six months of use in a retail establishment. Regardless of wear and tear, just replace them because they might be worn. If a company were to replace those as regularly as they were supposed to, they might make no profit, and if they don't they may cause a fire and someone or everyone dies.
I understand completely the need for the standards, because without them, companies will do anything to save a buck. Rivers catching fire because they were so polluted in the 1970's from industrial waste comes to mind.
I guarantee you that every business that you frequent, from the morning coffee place to giants like G.E. are always looking to cut something that is an extra expense so they can either take more money home for themselves, buy more equipment, or higher more people. Only the government can do things without looking at what might be wasteful spending because they don't make a profit and use our money. Real business' have to find ways to cut costs because the point of being in business is to make a profit. Whether it is for shareholders or just to get extra presents for your kids birthday if it is a small store.
Profit is how we all get paid, and profit is made by companies cutting expenses. Sometimes those expenses are cut through innovation and sometimes through cheating and stupidity, but the corners being cut create the paychecks. Even the tax dollars that government workers are paid with come from the profits made by cutting expenses to make a profit.
Basically, unless you live in a world without money, where all items have zero value and are given away for free I don't understand how trying to make a profit for shareholders or yourself is bad. Maybe the way some people go about getting the profit is bad, but the idea of getting profit for shareholders is sound.
Oh dear! "I don't understand how trying to make a profit for shareholders or yourself is bad."
That is not the point at all. Profits keep the machinery of commerce oiled. There is nothing bad about profit, per se. But there are other considerations to keep in mind.
We have an incredibly lovely winery in Spokane, an old mansion on top of a volcanic bluff overlooking the city and river. It was full of antiques from the days of mining, lumbering and milling wealth that made the city a very prosperous one. A frayed electric cord in the office cause a fire that destroyed irreplaceable things. Thankfully, the structure was rebuilt, but nothing can replace those old Victorian pieces of a grander time in Spokane.
And of course there are the effects on owners and employees who loved and treasured the place, lost time and money in rebuilding the structure, and loss of the many scheduled events. Profit is a necessary part but not the only one.
That summary explanation from the author makes sense and shows me what the book means and why Joan posted it. Thank you both, now I might get the book where the cover didn't do it for me.