Opinion

The End of Shareholder Primacy?

A. Michael Spence

By A. Michael Spence

Although the transition to a multi-stakeholder model is necessary to make progress toward other social goals, it is not sufficient.

By A. Michael Spence

This month, the Business Roundtable, a group comprising the CEO’s of America’s largest and most powerful corporations, formally abandoned the view that maximizing shareholder value should be a company’s primary objective. The implication is that shareholders will no longer always take precedence over other stakeholders such as customers, employees, suppliers, and the communities in which firms operate. In its statement justifying the move, the organization cites the need to pay fair wages, provide more benefits, and invest in training to help employees navigate a rapidly changing economy.

Corporate governance has been moving in this direction for some time, owing to a growing awareness that private-sector engagement will be necessary to address society’s most difficult challenges. Customers, employees, and investors have reinforced this trend by increasingly voicing their concerns about social issues. This emerging consensus is crucial for reconciling the multi-stakeholder model with corporate investors’ longer-term financial interests.

A similar evolution has occurred in the asset-management sector. The share of investors embracing “environmental, social, and governance” (ESG) criteria has been growing over the past few years, with many top asset-management firms helping to lead the way.

Read the full Project Syndicate article.

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A. Michael Spence is a William R. Berkley Professor in Economics & Business.