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Joe Nocera

Toppling the Idol of 'Shareholder Value'

Once it was a good idea to link CEO pay to the stock price. But the practice has gone too far.
The prophet.

The prophet.

Photographer: Alex Wong/Getty Images

"Maximizing shareholder value" is one of those concepts that falls under the adage, "Be careful what you wish for." I know this because, a long time ago, I was one of those wishing for it.

It seemed like such a good idea at the time, back in the late 1970s and 1980s. For too long, the compensation of top executives was disconnected from any performance criteria, including whether they made money for shareholders. CEOs did pretty much whatever they wanted, with no fear of consequences. Thus, companies that needed to slim down, wouldn't. Companies that needed to deploy capital more intelligently, didn't. Executives who should have been fired, weren't.