Companies Should Maximize Shareholder Welfare Not Market Value

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2017-09-05

Posted by Oliver D. Hart, Harvard University, on Tuesday, September 5, 2017
Editor's Note: Oliver D. Hart is Andrew E. Furer Professor of Economics at Harvard University. This post is based on a recent paper authored by Professor Hart and Luigi Zingales, Robert C. Mccormack Distinguished Service Professor of Entrepreneurship and Finance at University of Chicago Booth School of Business.

There is a big debate in Washington about the attempt in many states to restrict people’s ability to vote in political elections. Yet, there is almost complete silence about a more imminent and no less important form of vote suppression: the attempt to limit shareholder votes introduced in the Financial Choice Act, approved by the House in June. As in all forms of vote suppression, it takes a very technical and even benign form: the Financial Choice Act increases from the current level of $2,000 to 1% the ownership threshold for submitting shareholder proposals to be included in corporate ballots. While $2,000 might be too low to filter out purely frivolous proposals, 1% becomes prohibitive for all but a handful of institutional investors: for example, to make a proposal in Apple you would need over $7 billion in holdings.