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The dangerous MYTH of Shareholder Value Maximization as a goal and Valeant

What do you think of the following excerpts? The board of directors is influential in setting the tone and culture of an organization, of course, not to mention compensation packages for executives. Pearson, who also served as Valeant’s chairman, has said that the company’s responsibility is to maximize shareholder value. (“The underpinning strategy is creating value for shareholders,” he told Canadian Business last year. “That’s who owns us.”) In the absence of a strong, independent board, however, that philosophy can cause an organization to unravel. A company shouldn’t be solely focused on its share price, says governance expert Hugh Arnold, a professor of organizational behaviour at the Rotman School of Management. The board should have reined in Pearson, he argues. “The objective of directors is to act in the best interest of the corporation,” Arnold says. “There is no legal document anywhere that the duty of the corporation is to maximize shareholder wealth. That’s an interpretation by management, and some boards have bought into the notion that the stakeholder group they need to concern themselves with is shareholders.” My bottom line take is this.... Increasing shareholder value/wealth is a RESULT or a BY-PRODUCT not a GOAL. I am sure that this will be contrary to what we as Finance people have been taught in school. Most of us still have the shareholder value maximization goal mindset.


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