What most distinguishes America’s brand of capitalism is the widely held belief that the first duty of every business is to maximize value for shareholders.
The benign version of this credo is that there is no way to deliver maximum value to shareholders over the long term without also satisfying the needs of customers, employees and the society at large. But in its more corrosive application — the one that is inculcated in business schools, enforced by corporate lawyers and demanded by activist investors and Wall Street analysts — maximizing shareholder value has meant doing whatever is necessary to boost the share price this quarter and the next. Over the years, it has been used to justify bamboozling customers, squeezing workers and suppliers, avoiding taxes and lavishing stock options on executives. Most of what people find so distasteful about American capitalism — the ruthlessness, the greed, the inequality — has its roots in this misguided notion about what business is all about.
Which is why today’s statement by the Business Roundtable disavowing shareholder primacy is so significant and so welcome. In the Roundtable’s new formulation of corporate purpose, delivering value to customers, investing in employees, dealing fairly and honestly with suppliers, supporting communities and protecting the environment all have equal billing with generating long-term value for shareholders. The statement rejects the whole idea of “maximizing” one value to the exclusion of all the others. Instead, it acknowledges the need for balance and compromise in serving all of a company’s stakeholders.
