Tag: shareholder primacy theory

Business Roundtable says so long to shareholder primacy—commits to deliver value to all stakeholders

In a press release issued today, the Business Roundtable announced the adoption of a new Statement on the Purpose of a Corporation, signed by 181 well-known, high-powered CEOs.  What’s newsworthy here is that the Statement “moves away from shareholder primacy” as a guiding principle and outlines in its place a “modern standard for corporate responsibility” that makes a commitment to all stakeholders.  Yup, that Business Roundtable. According to the press release, the Business Roundtable has had a long-standing practice of issuing Principles of Corporate Governance. Since 1997, those Principles have advocated the theory of “shareholder primacy—that corporations exist principally to serve shareholders” — and relegated the interests of any other stakeholders to positions that were strictly  “derivative of the duty to stockholders.” The new Statement supersedes previous statements and “more accurately reflects [the Business Roundtable’s] commitment to a free market economy that serves all Americans. This statement represents only one element of Business Roundtable’s work to ensure more inclusive prosperity, and we are continuing to challenge ourselves to do more.” Fasten your seatbelts, disciples of Milton Friedman; it’s going to be a bumpy night.

It’s election day, and CEOs consider the role of business in society

It’s election day.  Don’t forget to vote!

And given that it’s election day, it’s a good time to step back and consider the big picture.  To that end, you might want to take a look at this DealBook column, which discusses CEOs’ perspectives on the role of business in politics and the impact of technology on society—all in one column no less.

Does the health of the economy depend on getting the role of shareholders right?

Are shareholders really the “owners” of corporations? Even though shareholders have no responsibilities to the corporations they “own”? Should corporations be managed for the sole purpose of maximizing shareholder value?  Are shareholders even unanimous in that objective? Is shareholder centricity really the right model for good governance of corporations? What changes in corporate governance have been fueled by the shareholder primacy model?  Do those changes make sense?  What has been the adverse fallout from the current fastidious devotion to shareholder preeminence?  These are just some of the issues addressed in this terrific piece by two Harvard Business School professors, Joseph L. Bower and Lynn S. Paine, in the Harvard Business Review. In their view, the “health of the economic system depends on getting the role of shareholders right.”  Highly recommend.