The trouble with shareholder value

I wrote a mini-essay for Fortune "adapted" from my book, about shareholder value. The actual magazine in which it will appear hasn't been printed yet, but the piece went up online on Monday. It was mainly an excuse to call up my friend Al Rappaport, who coined the term "shareholder value" in a 1981 Harvard Business Review article but never embraced it in quite the way that some if his more fanatic academic peers did:

"I don't know how many times I kept saying long term, long term,
long term," explains Rappaport, who is now 77 and living in
semiretirement in Southern California, but still pens the occasional
Harvard Business Review article and has a new book in the works. "To
me, shareholder value was not about an immediate boost to stock price."

Yet
that is exactly what it came to be about in the 1990s. CEOs professing
to be disciples of shareholder value fell over themselves trying to
please the stock market. They obsessed over meeting quarterly earnings
targets. And in doing so they made their companies less valuable.

The piece got more attention than I expected. SmartBrief excerpted it.  Felix Salmon argued that most investors are too myopic to ever think about Rappaport's long-term—a point Rappaport himself made in a great 2005 Financial Analysts Journal article (pdf!). And Matthew Yglesias, citing Chapter 12 of Keynes's General Theory, wrote that:

The problem, to state it concisely, is that it doesn’t appear to be the
case that “investing for the long term” is the best way to make money
over the long term.

You know, somebody ought to write a book about this. Seriously.

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