Is The Shareholder Doctrine Dead?


Fifty years ago, Milton Friedman announced that the social responsibility of a business was to increase profits. So was born the shareholder value era. Friedman was pushing back on dominant movements of the day: the new deal and European models of social democracy. Global inequality issues trace back to this rise of shareholder value. A recent Article explores the topic and the resulting power of the stock market. The authors suggest that while the market and the wealthy soared, consideration of the interests of workers, the environment, and consumers declined. 

There was a time prior to the shareholder era when business served a broader set of stakeholders. As a result, benefits accrued to local communities, but concerns grew that there were too many masters to serve and no way to prioritize. Now, Purpose has become a buzzword and many brands have talked to this shift. In fact, the 2019 corporate purpose statement of the Business Roundtable, emphasized responsibility to stakeholders as well as shareholders. This emerging Stakeholder Capitalism introduces other interests beyond shareholders, notably, consumers, employees, and environment.

Purpose statements on their own achieve little. To move towards a true focus on purpose, the article above explores needed changes to corporate law and other mechanisms like the Public Benefit Corporation (PBC). However, there are structural changes to consider as well. With each stage of the industrial revolution, the Foundation of Business has shifted, and this fourth stage will shift the foundation again. Although this emerging shift includes a focus on purpose, can we overcome the inertia of 50 years of shareholder dominance? Two drivers may hold the key: a search for business growth and the rise of experience. Both intersect at Emerging Ecosystems, serving as an accelerant towards purpose.

Ultimately, our quest to create frictionless experiences culminates in seamless life experiences. Finding business growth increasingly depends upon the delivery of these seamless experiences – and no one company can deliver seamless life experiences. Those two factors (growth and experience) converge with ecosystems on a journey that starts with profit, but ends with purpose. As such, the shift from profit to purpose may have an accelerant that enables both outcomes.

2 thoughts on “Is The Shareholder Doctrine Dead?

  1. I think you are 100% right that, “the shift [back] from profit to purpose may have an accelerant that enables both outcomes.” because it all started as a system change by society to enable both purpose (allow those in society to take business risks without risking everything they had) and more investment and profit (if people can create a business to risk some of their money and create more profit, there will be more profit overall for the entire ecosystem). IMHO that purpose has been totally forgotten and lost now that corporate existence is taken for granted (in fact considered a “person” by some equivalent to a real human being).

    I believe Friedman’s “shareholder value era” was both a (self serving) lie and an aberration. First off, management professed to hold shareholder value above all else, but in reality they have been mainly enriching themselves (and perhaps the largest shareholders too) first with the side benefit that share holders also saw some enrichment. Second, when the purpose for society to allow corporations becomes profit alone, it is all just a mechanism to seeks profit for those who own corporations and return more broadly in any way the benefit conferred by society. Thus mutual benefit between society and corporation owners and the original ideal to create this legal entity and fictional person to improve society has been turned back and lost.

    One last thought on this is that if a corporation is a considered a full “person” by law, wouldn’t that mean that owning corporations is tantamount to slavery? Even if this is a stretch, aren’t those who own corporations and use their money and influence to change our political system and society akin to Southern slave owners who got 3/5ths of a person in political influence for every slave they owned?

    Liked by 1 person

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