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70 Geo. Wash. L. Rev. 890 (2002)
Why is Corporate Management Obsessed with Quarterly Earnings and What Should Be Done about It

handle is hein.journals/gwlr70 and id is 902 raw text is: Why Is Corporate Management Obsessed with Quarterly Earnings and What Should Be Done About It? David Millon* Professor Mitchell's new book presents a sustained and powerful cri- tique of what he calls the ethic of stock price maximization. He succinctly summarizes the problem and its causes: Maximize stockholder profit. This is the watchword of our corpo- rate faith. It is a dictate that arises from the legal structure of the American corporation and the rules of corporate law. But it is an imperative that is as destructive as it is simple. It is a message that keeps managers' and stockholders' focus on the short term. And short term management is irresponsible management: it leads to layoffs, plant closings, alienated workers, unsafe products, and a polluted environment, all in the name of today's profit; it leads to underinvestment in worker training and research and development; it has dangerously increased stock market volatility and turned our capital markets into unstable casinos of unimaginable proportions which threaten the long-term economic well-being of our society.' For Mitchell, American corporate law's long-standing injunction to privi- lege shareholder interests over those of nonshareholders is only part of the problem. The real heart of the matter is the way today's corporate managers translate that principle into practice. They do so by focusing single-mindedly on short-term results, which translates into an obsession with quarter-to- quarter earnings so as to maximize current share prices.2 This in turn leads to undue emphasis on current cash and noncash revenue and reduction of im- mediate expenses wherever possible, leading to the kinds of results Mitchell itemizes in the quoted passage. What is lost is a more patient approach to management emphasizing the long-term well being of the corporation and all its stakeholders. Sacrificed are potentially more lucrative payoffs that re- quire immediate expenditures but yield their fruits only over the long haul. According to Mitchell, this fixation on short-term results at the expense of the corporation's longer-term prosperity is the product of the substantive rules and governance structure established by corporate law. His prescrip- tion follows from his diagnosis. He argues that we should free corporate * Associate Dean for Academic Affairs and J.B. Stombock Professor of Law, Washington and Lee University School of Law. 1 LAWRENCE E. MITCHELL, CORPORATE IRRESPONSIBILITY: AMERICA'S NEWEST Ex- PORT 4-5 (2001). 2 Id. at 52 (discussing obsession with short-term profit); id. at 223 (discussing obsession with share price). October/December 2002 Vol. 70 No. 5/6

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