Maximizing Shareholder Value: What Are Shareholders' Interests?

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Maximizing Shareholder Value: What Are Shareholders' Interests?

Gordon, Roger. Do Publicly Traded Corporations Act in the Public Interest? Advances
in Economic Analysis and Policy. 2003.
This article provides the theoretical underpinnings for re-examining the interests
of shareholders. In characterizing the firm’s objective, we assume shareholders
unanimously want firms and managers to maximize share price. Because many
shareholders hold diversified portfolios, they take into account all externalities
that a firm’s action might have for the overall industry and economy, not just for
the profits of the individual firm.

Hall, Brian, Rakesh Khurana and Carleen Madigan. Al Dunlap at Sunbeam. Harvard
Business School Publishing, 1999.
This case engages the debate about multiple stakeholders versus shareholder
primacy. The question from the Featured Collection, of how a category killer can
hurt the portfolio performance of diversified shareholders, can be added to the
discussion of this case. Boards used to represent concentrated shareholders, in
which case the actions of Al Dunlap would have benefited shareholders. The
landscape looks different than it did in the 1970s, now that many investors have
heeded the advice to diversify their risk. This case also considers executive
compensation. Drawing upon the Gordon article, the additional question can be
raised: What if CEOs received compensation for industry-enhancing

Palepu, Krishna G. and Jonathan Barnett. Hewlett-Packard-Compaq: The Merger
Harvard Business School Publishing, 2004.
Additional discussion of shareholder interests can be added to this case. Consider
three groups of investors: 1. Mr Hewlett. (heir of co-founder), 2. Undiversified
individual shareholders (perhaps inherited stock from family), 3. Institutional
investors (mutual funds, pension plans), which represent 55%. How should
mutual fund managers think about voting their shares? Based on the likely
profitability of HP after the merger? Or based on the total value of the portfolio?
Individual investors might consider the former, mutual fund managers the latter.
Consolidation may be good for the PC industry, even as it reduces
competitiveness in the medium term.

Additional references from the business press:

Lim, Paul J. Can’t Find a Sure Bet? It May Be Time to Spread the Risk. The New York
Times. September 4, 2005.
This article indicates that present market conditions favor diversified over
concentrated investment strategies.

Morgenson, Gretchen. What Are Mergers Good For? The New York Times. June 5,
This article reviews past cases and academic research to address the question of
whether mergers provide lasting value for shareholders after the initial boost in
share price.


Mary C. Gentile and Maureen A. Scully. Corporate Governance and Accountability:
What Do We Know and What Do We Teach Future Business Leaders?
, 2004.
This Commentary piece situates the question of defining shareholder interests
within a series of reflections from faculty members on the limits of the maximize
shareholder value (MSV) model.