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The Toxic Side Effects of Shareholder Primacy

In response to Barry E. Adler & Marcel Kahan, The Technology of Creditor Protection, 161 U. Pa. L. Rev. 1773 (2013), and Edward B. Rock, Adapting to the New Shareholder-Centric Reality, 161 U. Pa. L. Rev. 1907

The past two decades have seen a dramatic shift in the U.S. corporate landscape. Many and possibly most public companies now embrace a shareholder-centered vision of good corporate governance that emphasizes “maximizing shareholder value” over all other corporate goals. Recent Articles, one by Edward Rock and one by Marcel Kahan and Barry Adler, point out that increasing shareholders’ power and influence in public companies can lead managers to operate firms in ways that benefit shareholders by harming the interests of corporate creditors. This Response argues that the problems associated with changing corporate law and practice to encourage managers to focus on “maximizing shareholder value” may be much larger. There is reason to suspect that the modern embrace of shareholder value as the sole corporate objective may be threatening the health of public companies and harming not only creditors but also employees, consumers, taxpayers, and shareholders themselves.