In whose interests should business operate?

Economic experts consider what the ideas around stakeholder capitalism might mean for business

Credit: Glen Gyssler

Dec 10, 2019

Sections Economics

Collections IGM Poll

In August, the Business Roundtable, which represents the CEOs of some of America’s largest companies, issued a statement addressing the purpose of a corporation. The statement indicated that, for the 181 chief executives who signed it, their businesses were bound by a “fundamental commitment” to all stakeholders, including shareholders but also customers, employees, suppliers, and the communities in which they operate. The statement appears to be a step away from the “shareholder primacy” model of corporate governance. But does operating a business for the explicit purpose of enriching shareholders create harm for other stakeholders? Would a “stakeholder primacy” model mean worse outcomes for shareholders? Chicago Booth’s Initiative on Global Markets consulted its economic experts panels in the United States and Europe to investigate what the ideas around stakeholder capitalism might mean for business.

Statement A: Having companies run to maximize shareholder value creates significant negative externalities for workers and communities.

Responses weighted by each panelist’s confidence

Daron Acemoglu, MIT
“Cutting wages or polluting increase shareholder value with considerable social cost. Competition will not necessarily drive them out.”
Response: Agree

Peter Neary, Oxford
“I agree with this statement, though maximizing shareholder value also encourages efficient profit making, which has social value.”
Response: Agree

Lubos Pastor, Chicago Booth
“True, but it creates not only negative but also positive externalities. The net effect varies across firms.”
Response: Uncertain

Statement B: Appropriately managed corporations could create significantly greater value than they currently do for a range of stakeholders—including workers, suppliers, customers, and community members—with negligible impacts on shareholder value.

Responses weighted by each panelist’s confidence

Darrell Duffie, Stanford
“Hard to know. But if true, this would imply almost no misalignment of incentives between shareholders and the others. That seems unlikely.”
Response: Uncertain

Oliver Hart, Harvard
“Companies are not usually managed inefficiently. They may be maximizing the wrong thing, but I don’t think there’s money ‘left on the table.’”
Response: Disagree

Hélène Rey, London Business School
“Some cost-cutting decisions are often very short term and destroy value in the long run. Example: fraud (diesel-emissions scandal).”
Response: Agree

Statement C: Effective mechanisms for boards of directors to ensure that CEOs act in ways that balance the interests of all stakeholders would be straightforward to introduce.

Responses weighted by each panelist’s confidence

David Autor, MIT
“Never straightforward. But still potentially worth it. Other country examples—Germany, Denmark—prove it’s feasible.”
Response: Disagree

Jean-Pierre Danthine, Paris School of Economics
“Regulation and legal mechanisms must be complemented by changes in investors’ convictions!”
Response: Uncertain

Christian Leuz, Chicago Booth
“It would clearly be difficult, but this does not imply that one should not try. There are many difficult governance problems.”
Response: Disagree