Here Is The Reason Why The Average Lifespan Of US Corporations Has Never Been Shorter

In his latest letter (link), GMO’s James Montier destroys the concept of shareholder value maximization or SVM, which, as defined by Friedman in 1970 is roughly as follows: ‘There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits…” As an aside, Montier is anything but a fan of Milton: ‘It is quite staggering just how many bad ideas in economics appear to stem from Milton Friedman. Not only is he culpable in the development of SVM, but also for the promotion of that most facile theory of inflation known as the quantity theory of money. Most egregiously of all, he is the father of the doctrine of the ‘instrumentalist’ view of economics, which includes the belief that a model should not be judged by its assumptions but by its predictions.”
And while the full letter covers many topics, not the least of which is corporate obsession with buybacks, which as we warned back in 2012 would soon be the only game in town thanks precisely to the same failed Federal Reserve policies that were meant to boost the economy but merely ended up benefiting the 1% and is therefore directly leading to the record wealth disparity and middle-class destruction which everyone – even the Fed – has finally noticed, there is one point that bears emphasis: the plunge in S&P500 corporate lifespans to record lows.
From Montier:
From the collected evidence on the psychology of incentives, it appears that when incentives get too high people tend to obsess about them directly, rather than on the task in hand that leads to the payout. Effectively, high incentives divert attention away from where it should be.
One of the other features that stands out as having changed significantly between the era of managerialism and the era of SVM is the lifespan of a company and the tenure of the CEO. Both have shortened significantly.

This post was published at Zero Hedge on 12/04/2014.