Lynn Parramore wrote an article for Evonomics titled Business Schools Should Start Teaching How to Create Value, Not Extract It! The article addresses  executive pay, inequality, and short-termism.

« In 1965, a typical CEO took in about 20 times what an average employee earned, while the latest figures from the AFL-CIO put current CEO pay at 373 times what the average worker makes. (Amazingly, according to a forthcoming paper for the Institute for New Economic Thinking (INET) by Matt Hopkins and William Lazonick, even that ratio is grossly underestimated because it is based on grant-date fair value estimates of what stock options and stock awards might be worth, rather than how much CEOs actually take home when they exercise stock options and when stock awards vest). »

« Inequality holds back the growth of the entire economy… »

« William Lazonick, professor of economics at the University of Massachusetts Lowell, where he directs the Center for Industrial Competitiveness… notes that in 1985, for example, Harvard Business School hired economist Michael Jensen. Jensen, a former University of Chicago student of Milton Friedman, co-authored a famous and often-cited business paper, “Theory of the Firm,” in which he argued that the single goal of a company should be to maximize the return to shareholders. He became one of the most highly visible proponents of shareholder value ideology. Jensen and supporters of this theory believed that it would cause executives to focus on the actual performance of the firm and increase shareholder value over time. They were dead wrong: instead, executives turned their attention to the short-term goal of boosting stock value over the long-term prospects of the company and executive pay shot into the stratosphere.  »

The article quotes for General Electric chairman and CEO Jack Welch: « “Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal. … Short-term profits should be allied with an increase in the long-term value of a company.” »

The article was originally published at the Institute for New Economic Thinking, an organization co-founded by George Soros.

 

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