Perhaps the most interesting thing to happen in political economy over the summer was the American Business Roundtable's declaration that it no longer believed in "shareholder primacy". "Shareholder primacy" is the doctrine that a corporation's managers have a twofold and only twofold duty: (1) obey the law, and (2) maximize the stock market value possessed by its shareholders. All other considerations are, according to "shareholder primacy" not the proper business of the corporation: rather, they are the business of the government officials who make the laws and write the regulations to enforce them, the politicians who compete to boss the government officials, and the voters who elect them. The alternative view was always that shareholders were just one of the groups of stakeholders, albeit one of the most important groups by virtue of their status as residual claimants and their powers to choose corporate officers, whose interests were to be advanced and balanced. Here my old teacher Mike Spence has smart things to say about the possible advantageous consequences that opening the door to the possibility of moving away from "shareholder primacy" might produce:

Michael Spence: The End of Shareholder Primacy? https://www.project-syndicate.org/commentary/shareholder-vs-multi-stakeholder-model-by-michael-spence-2019-08: "An even more exciting feature of the shift toward socially conscious corporate governance is that it opens the door for new, more creative business models.... Alibaba [was founded with the goal of expanding market access for small and medium-size companies... [and] remain[s] committed.... Mukesh Ambani... identified Reliance’s stakeholders as the 'Indian economy, Indian people, our customers, employees, and shareowners'.... Digital technologies tend to come with high fixed costs, but low to negligible variable costs. Once established, a firm like Alibaba or Jio can thus provide a platform for countless other business models built around social objectives. And this effect is especially powerful in potentially large markets like China, India, Indonesia, Brazil, and the United States. The Business Roundtable’s recent declaration represents a major step forward for the multi-stakeholder model. The example set by industry leaders matters. And it is no accident that some of today’s most successful global companies were explicitly conceived and built on the basis of multi-stakeholder values...


#noted #2019-10-19

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