I’ve got an essay up on CNNMoney.com, which will eventually find its way into the paper pages of Fortune. It begins:
There was a time (the 1990s, to be precise) when the concept of shareholder value made a bit of sense: Corporations focused on keeping shareholders happy, and their stock prices rose through the roof.
Things haven’t worked that way in a while. Even with the stock market’s recent bounceback, the total return on the S&P 500 since the turn of the millennium has been negative. The disasters early this decade at Enron and WorldCom (and lots of lesser debacles at other companies) grew out of a rabid desire to keep shareholders happy.
More recently, several of our leading financial institutions imploded from what executives were convinced was the pursuit of higher returns for shareholders. It has gotten so bad that a couple of months ago even Jack Welch, whose tenure at General Electric (GE, Fortune 500) epitomized the pursuit of shareholder value, declared it to be the “dumbest idea in the world.” Read more.