Your argument is silly, David.
I'm guessing you've been reading Steven Pearlstein's columns touting the work of Lynn Stout and William Lazonick. They're silly, too, and I've written to him saying so.
The problems are that (1) you fundamentally miss the point of the shareholder value argument, (2) you ignore the conclusions of literally thousands of empirical studies of corporate behavior, and (3) you misrepresent the lesson of the 1970s.
(1) The argument in favor of shareholder value is not that corporate managers should maximize shareholder value even if it's bad for the corporation and the broader society/economy: it's that truly maximizing shareholder value means taking actions that are BEST for the corporation AND the broader society/economy. That's why Lynn Stout's work on the legal basis for maximizing shareholder value is silly: she writes that maximizing shareholder value comes at the expense of "aggregate shareholder wealth over the long term"--but those are exactly the same thing.
(2) Lazonick's thinking is equally silly, because he assumes that corporate managers would make investments to benefit the corporation if only the money weren't diverted to pay dividends. There are two problems with this argument:
(a) What's going on now is that corporate managers don't believe that genuinely good investments are available, so they have come to the conclusion that the only use of the cash that benefits the corporation is to do stock repurchases. If they're wrong, then the problem is that corporations are being run by people who don't see the good investments available to them. But the presumption should be that they are in the best position to understand the value of each possible investment--especially to the extent that their actions are subject to capital market discipline--so you and Lazonick need to start providing some evidence that they're wrong. And simply claiming "there’s little doubt that capital used to fund many buybacks over the past decade has been diverted from more worthwhile investments" does not count as providing evidence!
(b) Michael Jensen's seminal 1986 article "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers" has now been cited more than 16,000 times according to Google Scholar. The basic finding, which has been supported again and again empirically, is that corporate managers tend to waste available cash by spending it on projects that benefit themselves but that are poor investments. What we as society want is to take cash out of the hands of those people. Jensen talked about doing it through dividend payments, and that's a good idea; the problem is that corporate tax law provides an incentive for doing it through stock repurchases instead--but the point is that both ways accomplish the main task, which is to get cash away from people who are likely to do stupid things with it.
(3) What happened in the 1970s was that corporations hadn't distributed cash--through either dividend payments or stock repurchases--and instead had made exactly the kind of bad investments that Jensen warned about, building unwieldy conglomerates that served mainly to increase the pay of CEOs because their compensation was tied to the size of the corporation rather than its performance. The LBO boom was about taking apart those stupidly constructed conglomerates so that each piece could be run by someone capable of running it well, with each piece subject to more effective capital market discipline. We don't want to go back to those days.
There's nothing wrong with saying that corporate CEOs are doing a bad job (witness, for example, the decision by IAC to put Chelsea Clinton on its Board of Directors--a favor to Barry Diller, but not in the interests of good corporate governance); there's also nothing wrong with saying that LBO managers are doing a bad job; and there's nothing wrong with saying that activist investors want to make money with short-term actions at the expense of long-term investors. But it's silly to argue that one of the actions taken to maximize shareholder value--getting rid of cash because the only available investments are stupid ones--is bad for corporations or society.