Reconsidering Stockholder Primacy in an Era of Corporate Purpose

Abstract

Corporate governance rules have an enormous impact on people’s lives. This is true whether the corporation is public or private, and regardless of its size, since the rules governing corporate behavior and director conduct apply regardless of the size of the corporation or the number of its stockholders. As corporations have gained increased freedom to impose their values on the company's employees and even on our political system, the issues surrounding corporate purpose have become more pronounced.

Yet even as corporate purpose has become a growing issue in recent years, the framework for any discussion over corporate purpose debate has been constrained by the dominance of stockholder primacy ideology. Stockholder primacy has been the dominant ideology since the early 1980s, and whenever new rules of governance have been considered they have been viewed under a single prism: how do these rules impact stockholder value? Even in recent years, when occasionally broader consideration of corporate purpose have been debated, the discussion has largely been limited to corporate managers, directors and stockholders; other stakeholders, who may have interests other than stockholder value, are typically not even invited to participate in this debate. As a result, their concerns are only addressed within the broader framework of how their issues may affect stockholder value.

The purpose of this short essay is two-fold: first, to show that ideology matters. Specifically, the dominance of stockholder ideology has determined who gets to participate in -- and who is excluded from -- the debate about corporate purpose. This has a huge effect on the lives of people (including the large numbers of working people who own no stock) because these people have no meaningful ability to participate in this debate. Second, the essay looks at some recent cracks in the stockholder primacy ideology, and in particular recent efforts to expand the definition of "corporate ownership" so that other stakeholders can have the opportunity to participate in the on-going debate over corporate purpose.

Keywords: corporate governance, corporate purpose, stockholder value, stockholder primacy

JEL Classification: N20, K20