Two views: Shareholders vs. Stakeholders: The Role of Corporate Directors

In the midst of economic calamity and the pandemic, capitalism is under fire. Present important debates over inequality of opportunity and outcomes, reinvigorating communities and addressing challenges from globalization to climate change to broader social justice come together in questions about our economic system: What should businesses and their leaders be doing? For whom should the corporation be run? The shareholder primacy viewpoint — espoused by Milton Freidman exactly 50 years ago in The New York Times Sunday Magazine — argues for maximizing the company’s long-term value, while conforming with the laws of the land.

Last year, the Business Roundtable embraced a new paradigm for corporate objectives — stakeholder corporate governance that proposes a commitment to customers, employees, suppliers, communities in which the corporation operates and long-term shareholder value. The stakeholder paradigm suffers from internal inconsistencies. Recently, GM closed several auto plants manufacturing gasoline/diesel vehicles in Michigan and Ohio, laying off thousands of workers. These plants were later retrofitted to manufacture electric vehicles but employed many fewer workers. How should General Motors (GM) managers consider the trade-off between jobs and environment-friendly vehicles, if not for the underlying discipline of long-term shareholder value?

Already a subscriber? Sign In

About the Author(s)

Related Articles

Navigate the Boardroom

Sign up for the Directors & Boards weekly newsletter for the latest news, trends and analysis impacting public company boardrooms.