Sacred Cow

What Is a Sacred Cow?

A sacred cow is a firmly held belief that is rarely questioned and is largely exempt from criticism or opposition. As such, tenets that are considered sacred cows are often held on to, even in the face of contradictory evidence.

Key Takeaways

  • A sacred cow is a closely-held belief that is not to be questioned or transgressed.
  • In finance and economics, sacred cows may refer to tenets such as free-market capitalism, fair wages, or universal healthcare (depending on who you are talking to).
  • Sometimes sacred cows are still held on to even if they are proven to be myths or misinformed.

Understanding Sacred Cows

Sacred cows are often widely held, but may also be a matter of opinion. A sacred cow may be considered based on time-tested wisdom. Ideas labeled as sacred cows can also reflect one's ideology. While some may apply the label of sacred cow to the "free market" or to "capitalist corporations", others put the "minimum wage" or "government programs" into this category.

In investing and elsewhere, the term is often used to dismiss any idea that an author is arguing against. Some examples of ideas that have been labeled sacred cows in finance include mutual funds, dividend investing, saving 15% of one's income for retirement, financial planning, and Morningstar's style box.

Ideas that are labeled sacred cows may also be referred to as "myths" by some, especially when a claim is contested. For instance, whether or not universal healthcare should be provided free to all citizens may be a sacred cow to one group, but considered ridiculous to an opposing group.

The term "sacred cow" is a reference to Hinduism, which reveres the cow as a holy animal.

Debunking a Sacred Cow? Shareholder Value Maximization

A firm's beholden duty to maximize shareholder value is a good example of a sacred cow. It is commonly understood that corporate directors and management have a duty to maximize shareholder value, especially for publicly traded companies. However, legal rulings suggest that this common wisdom is, in fact, a practical myth—there is actually no legal duty to maximize profits in the management of a corporation.

The idea can be traced in large part to the oversize effects of a single outdated and widely misunderstood ruling by the Michigan Supreme Court's 1919 decision in Dodge vs. Ford Motor Co., which was about the legal duty of a controlling majority shareholder with respect to a minority shareholder and not about maximizing shareholder value. Legal and organizational scholars such as Lynn Stout and Jean-Philippe Robé have elaborated on this myth at length. They conclude that shareholder maximization is not only a misinterpretation of a legal mandate but also confounds the purpose of a firm's goals vis-à-vis its broader set of stakeholders. In fact, they argue more strongly that putting shareholders; interest first harms investors, corporations, and the public.

While these papers were published in the early 2010s, a decade later the mantra of maximizing shareholder value remains a firmly held belief by many individuals and firm management. This makes it a sacred cow that is difficult to kill off.

Article Sources
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  1. Lynn Stout. The shareholder value myth: How putting shareholders first harms investors, corporations, and the public. Berrett-Koehler Publishers, 2012.

  2. Jeal-Phillipe Robé. "The legal structure of the firm." Accounting, Economics, and Law. Volume 1, Issue 1, 2011. Pages 1-88.

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