Statement on Management
Background
The rise of modern corporations has been accompanied by an expansion of salaried executives who have replaced owner-managers. With this expansion, the new class of managers/executives came to regard themselves as stewards of large and complex corporations, and not principally or exclusively as agents for the owners. Emerging as a self- styled `profession’, there was a continuous debate around the necessity for the corporation to be responsible to the collective and to its stakeholders. During long parts of the twentieth century the professed intent was to balance and synthesize a plurality of interests in order to ensure the long term survival and success of the corporation, pursue national strategic interests, create employment, support networks of suppliers, develop new technology as well as create an adequate or satisfactory return for shareholders (Marens, 2012; O’Sullivan, 2001).
The rise of agency theory in the late 1970s and early 1980s challenged this understanding of management. Arguing that markets rather than managers provide an efficient allocation of scarce resources, it pushed an agenda in which the corporation had to pursue one single goal – the maximization of shareholder value (MSV) and that managers should be incentivised to respond to (financial) market forces. This idea gradually gained traction through teaching in US economics departments and business schools and has today become a highly influential doctrine which infuses senior executive thinking, investors thinking, corporate governance theory and public policy and regulatory decision making (Khurana, 2007; Harvey, 2009).
Impacts of MSV
1. Shareholders without commitment. The distancing of shareholders from the long- term prospects of the firm is enhanced through limited liability, the liquidity of their investment, and, more recently, high velocity trading. This means that the commitment of shareholders is no longer to firms, but to short-term profits only (Davis, 2009; Muzrichi, 2010; Mayer, 2013).
2. Senior management without commitment. The rise of MSV means CEOs find themselves in increasingly precarious positions with shorter tenure. As a result, senior executives rapidly move between firms which means that they have a shorter term decision making horizon, and rarely stay in a position long enough to deal with the problems that their initiatives aimed at increasing shareholder value creates (Useem, 1993, 1996; Dobbin and Zorn, 2005).
3. Poor quality management. The focus on MSV has led many companies to adopt generic management practices. The most obvious example of this is firms chasing so- called celebrity CEOs who tend to be highly paid but tend to fail in their assignments. Research suggests that firms tend to be more successful when they rely on firm or industry specific management rather than generic management practices (Khurana, 2004; Ghoshal, 2005).
4. Race to the bottom in employment conditions. Firms with a strong focus on maximizing shareholder value tend to concentrate upon squeezing costs to produce immediate returns, and so reduce the quality of employment (e.g. wages, pensions provision, and job security) when it is not outsourced, offshored, etc. This has a tendency to encourage regulatory dumping as different countries tend to create the conditions that will allow particular corporations to do this (Davis, 2009).
5. Increasing inequality within the firm. The focus on MSV has led to a rapid divergence between the rewards received by those at the top and those at the middle and the bottom of firms. As a result, the rewards from productivity gains during the past two decades have gone to top management and shareholders rather than to employees in the form of wages and benefits. This is reflected at the macro (societal) level with well documented increases in within-country inequalities in almost all Western countries over the past thirty years or so leading to a return towards increasingly rigidified class structures allowing for less and less mobility in many of those countries (McFall and Percheski, 2010).
6. Declining innovation. The focus on maximizing shareholder value has led many firms neglecting investing in areas like research and development in favour of ploughing money into measures which create immediate increases in shareholder value (such as paying dividends and share buy backs). The result is that future performance which comes from spending on innovation is effectively undermined (Lazonick and O’Sullivan, 2000).
7. Restructuring efforts. An emphasis on narrow financial performance encourages the use of corporate restructuring efforts, such as mergers, acquisitions, buyouts and demergers in order to impress financial markets (Krippner, 2010). The vast majority of organizational change efforts are motivated by the imperative to ‘create value’ for shareholders and fail to deliver long term productive capability. Such restructuring efforts tend to divert attention from the core business without receiving the benefits and result in lay offs and plant closures which have devastating effects on relations with stakeholders and thus destroy shareholder value in the longer term (Davis, 2009).
8. Increased systemic risks. The combination of MSV with limited liability leads to systemic moral hazard. the shareholders of corporations benefit from the short term value created by inconsiderate risk taking while being shielded from the medium/long term losses for the corporation and for society that may come from this kind of inconsiderate risk taking: “privatization of profits and socialization of costs” (Djelic, 2013). Some examples include banks which create toxic financial products in order to maximize returns to shareholders in the short term, but created huge problems for the wider financial system in the longer term. The cost of the failure has been born by other groups in society, particularly ordinary savers and public service and benefit recipients (Crouch, 2011).
Rethinking Management Practices
Backed by questionable notions of law and economics which have become embedded in corporate governance and accounting regulations, many managers now act on the basis of a folk wisdom that shareholders are the only important constituency, which leads them to deliver short-term strategic decisions, high executive remuneration, and offshoring strategies with regard to manufacturing and finance. This comes at the detriment of broader and longer- term perspectives on the purpose of the firm in modern societies and has created worse management and less competitive companies. It is ironic that the obsession with MSV has actually destroyed long-term shareholder value and that it has significantly decreased the average life span of corporations during the past 30 years (Davis, 2009).
The time has come to rethink the over-riding commitment to MSV. This involves revitalising a model in which companies are understood to have multiple and often competing goals – with producing returns to shareholders as only one of them.
References
Crouch, C. 2011, The Strange Non-Death of Neo-Liberalism, Polity, Cambridge, UK.
Davis, G.F. 2009, Managed by the Markets: How Finance Re-Shaped America, Oxford University Press, Oxford.
Djelic, M. & Bothello, J. 2013, “Limited liability and its moral hazard implications: the systemic inscription of instability in contemporary capitalism”, Theory and society, vol. 42, no. 6, pp. 589-615.
Dobbin, F. & Zorn, D. 2005, “Corporate malfeasance and the myth of shareholder value”, Political power and social theory, vol. 17, pp. 179-198.
Ghoshal, S. 2005, “Bad Management Theories are Destroying Good Management Practices”, Academy of Management Learning and Education, vol. 4, no. 1, pp. 75-91.
Harvey, D. 2009, A brief history of neoliberalism, Oxford University Press, USA, New York.
Khurana, R. 2007, From higher aims to hired hands: the social transformation of American business schools and the unfulfilled promise of management as a profession, Princeton University Press, Princeton.
Khurana, R. 2004, Searching for a corporate savior: The irrational quest for charismatic CEOs, Princeton University Press, Princeton.
Krippner, G.R. 2012, Capitalizing on crisis: The political origins of the rise of finance, Harvard University Press, Cambridge, MA.
Lazonick, W. & O’Sullivan, M. 2000, “Maximizing shareholder value: a new ideology for corporate governance”, Economy and Society, vol. 29, no. 1, pp. 13-35.
Marens, R. 2012, “Generous in victory? American managerial autonomy, labour relations and the invention of Corporate Social Responsibility”, Socio-Economic Review, vol. 10, no. 1, pp. 59-84.
Mayer, C. 2013, Firm Commitment: Why the corporation is failing us and how to restore trust in it , Oxford University Press, Oxford.
McCall, L. & Percheski, C. 2010, “Income inequality: New trends and research directions”, Annual Review of Sociology, vol. 36, pp. 329-347.
Mizruchi, M.S. 2010, “The American corporate elite and the historical roots of the financial crisis of 2008″, Research in the Sociology of Organizations, vol. 30, pp. 103-139.
Useem, M. 1996, Investor capitalism: How money managers are changing the face of corporate America, Basic Books, New York.
Useem, M. 1993, Executive defense: Shareholder power and corporate reorganization, Harvard University Press, Cambridge, MA.
Signatories
Hugh Willmott, Research Professor in Organisational Studies, Cardiff business School
Marie-Laure Djelic, Professor, ESSEC Business School
Andre Spicer, Professor of Organisational Behaviour, CASS Business School
Martin Parker, Professor of Organisation and Culture, University of Leicester
Charles Perrow, Emeritus Professor of Sociology, Yale University
Derek S. Pugh AcSS, Emeritus Professor of International Management, Open University Business School
John-Christopher Spender, Visiting Professor ESADE, Visiting Professor Lund University School of Economics & Management
Jean-Pascal Gond, Professor of Corporate Social Responsibility, Cass Business School, City University London
René ten Bos, Professor, Department of Management Sciences, Nijmegen
Armin Beverungen, Leuphana University Lüneburg
Marta B. Calás, Professor of Organization Studies and International Management, Isenberg School of Management, University of Massachusetts – Amherst
Grahame F. Thompson, Professor, Department of Business and Politics, Copenhagen Business School, Denmark.
Glenn Morgan, Professor, Cardiff business School
Stewart Clegg, Professor and Research Director Centre for Management and Organization Studies, University of Technology Sydney (UTS)
Brendan McSweeney, Professor of Management, Royal Holloway, University of London
Pasi Ahonen, Lecturer in Organisation Studies, Swansea University school of Management
Professor Philip Hancock, Essex Business School, University of Essex
Barbara Czarniawska, Professor of Management Studies, Gothenburg Research Institute, University of Gothenburg
Howard Gospel, Professor, Department of Management, King’s College, University of London, and Associate Fellow, Said Business School, University of Oxford
Tyrone S Pitsis, Reader in Strategic Design, Newcastle University
Scott Taylor, Reader in Leadership & Organization Studies, Birmingham Business School, University of Birmingham
Christopher Land, Reader in Work and Organization, Essex Business School
Stevphen Shukaitis, Lecturer in Work & Organization, Essex Business School, University of Essex
Ace Simpson, Lecturer in Organisational Behaviour, UTS Business School, Sydney
Tom Keenoy, Emeritus Professor, Cardiff Business School
Sheena Vachhani, Lecturer, University of Bristol
Laurent Taskin, Professor of Organization and human resource studies, Louvain School of Management, Belgium
George Cheney, Professor of Communication Studies, Kent State University, Kent, Ohio
Marja-Liisa Trux, Independent researcher, Helsinki
Nicolas Bencherki, Assistant Professor of Organizational Communication, State University of New York
Véronique Perret, Professor of Strategic Management, Dauphine University, Paris
Florence Allard-Poesi, Professor of Management, IRG, University of Paris-East Créteil, France
Florence Palpacuer, Professor in Management Studies, University of Montpellier, France
Juan Espinosa, Lecturer, School of Commerce, Pontificia Universidad Católica de Valparaíso, Chile
David Jacobs, Associate Professor of Labor and Sustainability, Graves School of Business and Management Morgan State University, Baltimore, Maryland
Jo Brewis, Professor of Organization and Consumption, University of Leicester School of Management
Daniel King, Senior Lecturer, Nottingham Trent University
Prem Sikka, Professor of Accounting, Essex Business School
Thomas Wainwright, Lecturer in Strategy & Innovation, Programme Director for Management with Entrepreneurship, Southampton Management School
Torkild Thanem, Professor of Management & Organization Studies, Stockholm University School of Business
Walter Jarvis, Lecturer in Management & Organisations, University of Technology, Sydney (UTS)
Casper Hoedemaekers, Lecturer in Work and Organisation, University of Essex
Jason Glynos, Political Theory Division, Department of Government, University of Essex
Ian Towers, Professor, SRH Hochschule Berlin
Samuel Mansell, Lecturer in Business Ethics, University of St Andrews
Laure Cabantous, Associate Professor, Cass Business School, City University London
Bill Cooke, Professor of Management and Society, Department of Organization, Work and Technology, Lancaster University Management School; Vice Chair Research and Publications, British Academy of Management
Richard Marens, Professor, Sacramento State University
Iain Munro, Professor of Leadership & Organizational Change, Newcastle University Business School
Oleg Komlik, Lecturer, Ben-Gurion University
Ken Weir, Lecturer, University of Leicester
Simon Lilley, Professor and Head of the School of Management, University of Leicester
Annie Blanchette, PhD Candidate, University of Exeter Business School
Ludovic Cailluet, Professor of strategic management and business history, University of the Littoral and CNRS (University of Toulouse, CRM)
Nihel Chabrak, Associate Professor, College of Business, United Arab Emirates University
Tony Huzzard, Professor, Department of Business Administration, Lund University School of Economics and Management
Ozan Nadir Alakavuklar (PhD), Lecturer, Massey University School of Management
Chris Mowles, Professor of Complexity and Management, Hertfordshire Business School
Jonathan Murphy, Senior Lecturer, International Management, Cardiff Business School
Joan Le Goff, Professor, Vallorem, Tours School of Management (IAE), Tours
Ruth Slater, Lecturer, Lancashire Business School, University of Central Lancashire
Maria-Carolina Cambre, assistant professor sociology, King’s University College, London ON Canada
Susana Velez-Castrillon, Assistant Professor of Management, University of West Georgia, GA United States
Djamel Eddine Laouisset, Professor, Alhosn University, Abu Dhabi, UAE
Marco Sachy, Ph.D Candidate, University of Leicester School of Management
Stuart M Schmidt, Professor, Fox School of Business, Temple University
Ismail Ertürk, Senior Lecturer in Banking, Manchester Business School, The University of Manchester
Alan Meyer, Emeritus Professor of Management, University of Oregon
Timothy Kuhn, Associate Professor, University of Colorado Boulder
Sebastien Carton, PhD candidate, HEC Montreal
Mahmood Shafeie Zargar, PhD Student, McGill University, Desautels Faculty of Management
Roohollah Honarvar, PhD Student, London School of Economics, Department of Management
Isabelle Huault, Professor of Organization Studies, Université Paris Dauphine
Hovig Tchalian, Visiting Assistant Professor of Management and Executive Director, Institute for the Practice of Management, Claremont Graduate University, Drucker-Ito School of Management
Thomas Clarke, Professor of Management and Director of the Centre for Corporate Governance, UTS Sydney
Isabelle Cassiers, Professor, Senior research associate FNRS
Jean-Pierre Chanteau, maître de conférences HDR, université Grenoble-Alpes
Patricia Saez, PhD candidate, University of Leicester
Julien Malaurent, Assistant Professor of Information Systems, ESSEC Business School
David J. Cooper, Professor of Accounting, University of Alberta
Dermot O’Reilly, Lecturer, Lancaster University
Michael Pirson, Associate Professor, Fordham University
Nidhi Srinivas, Associate Professor, The New School
Marton Racz, PhD candidate, University of Leicester
Duarte de Souza Rosa Filho, Adjunct Professor, Universidade Federal do Espírito Santo, Brazil
Alex Faria, Associate Professor, EBAPE/FGV
Robert F Coles, Doctoral Researcher, University of LeicesterRobert F Coles, Doctoral Researcher, University of Leicester
Raza Mir, Professor, William Paterson University, USA
Carolina Serrano Archimi, Associate Professor of OB, Aix-Marseille Graduate School of Management-IAE, Aix-Marseille Université
George Cairns, Professor, RMIT University
Kevin Tennent, Lecturer in Management, University of York
Daniel Doherty, Senior Lecturer, Leadership, Work and Organisation, Middlesex University Business School
Alessia Contu, Professor of Management, University of Massachusetts
Rick Wartzman, Executive Director, Drucker Institute, Claremont Graduate University
Pik Liew, Lecturer, University of Essex
Vlatka Hlupic, Professor, University of Westminster
Annick Ancelin-Bourguignon, Professor, ESSEC Business School
Joe O’Mahoney, Reader, University of Cardiff
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