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Is ‘Maximizing Shareholder Value’ No Longer the Goal?

By Miguel Padró, Aspen Institute Business and Society Program

Joe Nocera, an op-ed columnist with The New York Times, took a shot across the bow of conventional business wisdom in his article earlier this month entitled, "Down with Shareholder Value." The column notes the rise of prominent voices calling to question the wisdom of the shareholder wealth maximization norm as the operating principle of corporations, and Nocera is genuinely curious to see if the movement has legs.

That such topics might be discussed in academia isn't surprising, but we are starting to see the mainstream press catching on and revisiting the common belief that corporations exist to maximize the wealth of their shareholders. Some journalists, including Nocera and Pro Publica's Jesse Eisinger, even admit to changing their own thinking as proponents of shareholder wealth maximization to ... well, something else. The something else isn't quite clear yet.

Some of us see the limitations of this norm and, as a society, we are only beginning a much needed conversation about it. Yet the topic also leaves many uneasy because we have not yet developed the language to describe the role of corporations in a thriving modern society. Our current conception of the corporation emerged in response to conditions that no longer exist. We are left with many challenging questions but few answers or frameworks to tie the narrative together.

First, the Misconceptions

First, we can advance the conversation far more rapidly by clarifying two common misconceptions about corporate law. Many of us have heard that corporations are legally required to maximize shareholder value. Guess what, they are not. The law in the United States does not require management to maximize shareholder value (except under rare circumstances such as when the company gets put up for sale). This may surprise you because you've also probably also heard that shareholders own the corporation. That's not true either. The law is quite clear on this issue and shareholders do not own the corporation. The law is actually ambivalent about the purpose of the corporation, leaving society and business leaders the discretion to make choices. It's up to us to think critically about what purposes we want corporations to play in our society.

Toward a New Definition of the Corporation

The Aspen Institute Business and Society Program is working with leading scholars of business and law, and practitioners from public companies and institutional investors to rethink our current narrative of the corporation in society. There is no "natural law" of corporations so there is far more room for business leaders to choose the purpose(s) of their organizations. We also have far greater choice as a society to determine what role we want corporations to play. No doubt, it is a difficult task and one that will continue to evolve in response to the shifting needs of society, but it is also critically important for a society and for business leaders themselves to embrace this responsibility and channel the capacities of business towards the common good.

To learn more about our work on this topic, visit the Aspen Institute's new webpage on The Purpose of the Corporation.

Miguel Padró manages programs on The Purpose of the Corporation for the Aspen Institute Business and Society Program (BSP). His work focuses on the impacts of business practice and corporate governance on the broader political economy. Miguel has an MA in International Relations.