Focusing solely on maximizing value for shareholders can boost stock prices in the short term, but it’s also a pathway to long-term disaster, according to an Academy of Management Perspectives article.
“Every quarter, you have to meet your numbers. It’s not strategy. It’s not something that helps the corporation long-term,” said Richard L. Priem of Texas Christian University.
“To maximize for-profit firms’ vitality, longevity, and contributions to society, managers must focus their attention on competing for essential stakeholder groups,” Priem wrote with coauthors Ryan Krause of Texas Christian University, Caterina Tantalo of York University, and M. Ann McFadyen of the University of Texas at Arlington. “That doesn’t mean top managers should ignore shareholders. Instead, it means top managers should explicitly recognize that the satisfaction and willing participation of all essential stakeholders is necessary for a firm to be successful in the long term. Top managers must resist activist shareholders’ pressures for high current financial performance, because that is inconsistent with long-term vitality.”