The Companies Work for Themselves
Common ownership, endless shrimp, Scarlett Johansson and private stock valuation.
One theory is that, because most of the shareholders of most US public companies are diversified investors in lots of companies, each company’s managers should work, not to maximize the value of their company, but to maximize the value of all the companies. If the chief executive officer of a company can do a thing that reduces the value of her company by $1, but increases the value of her competitors (or suppliers, or customers, or neighbors, or any other publicly traded companies) by $2, then she should do that. Her shareholders will lose money on her stock but make money on their other stocks, and they will be happy and grateful to her. Maximizing the value of her company’s stock, at the expense of the other companies, harms her shareholders. She has fiduciary duties to those shareholders, and the way to fulfill those duties is by maximizing the value of their overall portfolio, which is, roughly speaking, the stock market.
This theory: