Is shareholder value an outdated concept?

I was reading a finance article in the Sydney Morning Herald with the author proclaiming shareholder value is one of the dumbest ideas in finance and asking, is capitalism on its last legs? For those unfamiliar with the SMH, this was once the premier newsprint in Australia's largest city before the Fairfax family lost control of the newspaper; the editorial content is now very left wing and their articles tend to follow their political narrative and views. This got me thinking, is shareholder value an inherently outdated concept?

True to form, the socialist tendencies of the newspaper shone through with the comments section riddled with references to their number one enemy Rupert Murdoch, trickle down economics, shareholder dividends, the class debate including financial envy and CEO salaries - ok, I agree with their CEO salary ditribe. So, what is shareholder value? The definition of shareholder value relates to the value delivered to shareholders due to managerial ability to

Their premise of their argument is capitalism is on it's last legs is without foundation. Firstly, citing recent economic history, both the former USSR and the People's Republic of China have transformed from centrally planned economies based on communism to market based capitalist economies. China will eventually move to the world's largest economy in the not too distant future. The Chinese are embracing capitalism as their citizens are lifted out of poverty and into a burgeoning middle class. Russia went from pretty much bankrupt after the cold war ended to flush with petro-dollars and a superpower again.

Capitalism is evolving but that doesn't mean it is on it's last legs. The triple bottom line and corporate social responsibility are not new concepts.These ideals are driven by both shareholder and stakeholder values. Shareholders are members of the community and although the firm is not a living breathing entity, the shareholders who own the shares are and they are beginning to exert pressure on senior managers to adapt to new ideals.

The shareholders own the company, they are the ones who put up the capital and take the risk - they deserve to be remunerated accordingly. I don't subscribe to Friedman's argument of the one and only obligation of business is to mazimise profits whilst engaging in open and free competition without fraud or deception. As shareholder theory asserts shareholders advance capital to the management to invest in a manner that increases shareholder returns.

Stakeholder theory asserts shareholders advance capital to the management with a duty to both shareholders and stakeholders contributing voluntarily or involuntarily to the wealth creation capacity and are therefore potential risk takers or beneficiaries. As employees and staff members are remunerated already, as long as they are not subjected to workplace hazards and adhering to measurable standards of behaviour. Many corporations invest in the community providing facilities and support enriching the very people where they operate. 

Shareholder value is not the dumbest idea in business nor is it an outdated concept. As a shareholder in Australian firms, I endorse the shareholder value concept and I also endorse the stakeholder view as investing in stable communities increases value in the long-term. What I do not endorse is short-term views that are currently prevalent, capitalism is not an outdated concept and capitalism is in a constant state of change and evolution.