The Dumbest Idea In The World: Maximizing Shareholder Value
<p><pre><code>  There is only one valid definition of a business purpose:
  to create a customer.
</code></pre>
No. The one valid definition of a business purpose is this: <i>A business should do what the owners want it to do.</i> Otherwise, the notion of ownership loses meaning.<p>If the owners want to create lots of customers, they do that. If they would rather have a smaller number of highly profitable customers, they do that. If they want to create a nice side business so that they can surf in the summer and snowboard in the winter, they do that.<p>Scottish philosopher David Hume drew an essential distinction between factual matters—<i>is</i>—and moral matters—<i>ought</i>. Asking "What should a business do?" looks like a Humean <i>ought</i>, but it's actually a Humean <i>is</i>. A business <i>is</i> a vehicle for achieving the ends of its owners. How then can we make sense of the maxim "a business should maximize shareholder value"? In certain kinds of businesses—especialy those owned by a large number of shareholders—the interests of the owners may generally conflict, but they can usually agree on one thing: <i>maximize the value of the company</i>. This describes virtually all publicly traded companies and many family businesses as well. It doesn't describe, e.g., my present business (the <i>Ruby on Rails Tutorial</i>), which I created as a 4-Hour Work Week–style product company to let me relax for a while, travel the world in style, and have the financial freedom to develop longer-range plans for world domination. Its purpose is definitely <i>not</i> to maximize shareholder value; I'm the only shareholder, so it does whatever I damn well tell it to do.<p>Let the owners worry about what a company <i>ought</i> to do. Unless you're an owner, it's none of your business.