Almost every story on the origins of corporate American’s shareholder-centric approach includes a history lesson on economist Milton Friedman and his role in bolstering the concept that many believe has led to a short-term approach to company success, undermining innovation and employees.
Friedman’s theory, however, was propelled by corporate raiders such as T. Boone Pickens, who died last month at the age of 91.
A few obituaries about the “aw-shucks” billionaire’s corporate legacy included a few lines about how Pickens — who founded the United Shareholders Association in 1986 — espoused the mantra that companies need to focus on the interest of the stockholders above all else.
By Robert Rock
By Kristin Bresnahan
By Charles Elson
By David Ciepley
Pickens, a Wall Street Journal op-ed reported, “became one of the leaders of the 1980s in advocating for the primacy of shareholder value as a benchmark for corporate management. As he pointed out, companies that don’t serve the interests of their owners — the shareholders — are often serving the interests of managers who don’t have the same stake in long-term success.”
Alas, the “long-term success” he sought led to success for some, but not for so many others.
In a paper titled “The Toxic Side Effects of Shareholder Primacy,” by Lynn Stout — the former professor of corporate and business law at Cornell Law School who died last year at age 60 — she wrote:
… By the mid-1980s, many shareholders in public companies had become disillusioned. Some shareholders, such as corporate raiders Carl Icahn, T. Boone Pickens, and Ronald Perelman, saw opportunities to profit from buying stock in conglomerate firms and then pressuring their boards to break them up and sell off their pieces. This set the stage for the ascent of shareholder primacy, as academic shareholder-primacy advocates in the ivory towers gained a powerful ally in the form of shareholders (especially “activist” shareholders) themselves.
There is a growing movement to move away from the shareholder-above-all-else approach as witnessed by the recent “purpose” statement from The Business Roundtable.
At Directors & Boards magazine, we decided to dive into the purpose vs. profit debate in the stories listed to the right. Top corporate governance thought leaders share their “purpose” take on where we need to go now, and where we’ve been.
We also look at whether appointing employees as directors could bolster more equity in Corporate America; the role directors can play when it comes to driving a more inclusive culture, and the barriers faced when trying to boost the diversity imperative.
During a 1989 annual meeting of the United Shareholders Association, disbanded in 1993, Pickens said, before founding of the group:
“You didn’t hear much about the role of shareholders in America. It was a management-controlled debate. We’re starting to get the ball away from them now.” The shift, he added, “means higher productivity and a more competitive America. We’ve changed the terms of the debate.”
Time will tell where today’s changing debate will lead.