Shareholder primacy has been a basic premise of corporate governance since the creation of the concept. Corporations have always been obligated to serve the interests of their shareholders above any other stakeholder. Of course, corporate governance evolved over the last couple of hundred years, but the basic premise has been: keep it legal and make as much as you can for shareholders.
As companies become larger and more complex, (the last couple of years have seen the first trillion-dollar valuations) it has become clear that governance has become less straightforward. It’s blatantly obvious that businesses have many stakeholders, and their interests are all connected. Sometimes in not very obvious ways. It is worth pointing out that the B corp., seems to be a move in this direction, and the social entrepreneurship movement could be characterized as aligned to this new realization that business is about a lot more than just making money.
What is interesting is that large corporations are waking up to this reality. Earlier this week it was reported that a group of CEOs from 192 large companies got together and declared that maximizing shareholder profits no longer can be the primary goal of corporations. If this comes to pass, perhaps practices such as quarterly earning reporting and other practices that focus on short-term gains might be reconsidered.
We often talk about the difference between rules and norms. Most people think that organizations run on rules and regulations, but in fact, it is norms and incentives that drive most behavior. This is the beginning of new norms being created, and it will be interesting to see how it all plays out.
Business is evolving, as it should and this is culture in action.
