Sharehold Value

Back in the late 1970s I worked for an venerable research firm. BBN, a lot of smart folks doing interesting work. The firm was generally profitable. It never managed to make any big money.

That firm was wiped out in what Fligstein in Architecture of Markets describes as a shift in how we as a society conceptualized firms. In 1970s firms were measured by how effectively they leveraged their assets. In the late 1970s that model was thrown into chaos by high inflation rates.

Chaos often results in changes of self concept, and so it was with society’s model of firms. Two complementary ideas arose in the early 1980s. One was that the right measure of a firm was ‘shareholder value’; i.e. the amount of money a firm returns to it’s investors. The second was the creation of a siginificantly more fluid market for the control of firms (e.g. Regean era reductions anti-trust enforcement, and reduced corporate taxes).

BBN thrashed around for a while after that. Finally it got senior management that understood the new rules; even if the smart guys never did. Finally it sold out to a telecomm company. The shareholders made some money and the firm was destroyed.

Today in my inbox I have email from the alumni mailing list of BBN. One of the last remaining bits of the firm recently went bankrupt. Some of those smart folks are now losing thier health insurance. Cobra coverage is one of those pesky liablities a bankrupt firm can shed.

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