Rethinking 'Shareholder Value' and the Purpose of the Firm

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Author: The Aspen Institute CVSG
Source: The Aspen Institute Center for Business Education
Year: 2011

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Abstract:

It is hard to single out a more consequential idea today than the following: the purpose of the business corporation is to maximize profits. While this assertion is first and foremost only an idea, it is clearly an idea with legs. In fact, for decades the "shareholder-centric" model of the firm has been the organizing principle of Anglo-Saxon style capitalism.

In the early days of the American republic, legal corporations were created to limit liability of investors and make it easier to amass capital for public purposes like building the railroads. Today, the idea that corporations exist to serve the public interest seems almost quaint.

With the future of capital markets—and capitalism itself—on the minds of so many, we have a remarkable opportunity to take a fresh look at this central idea. A growing number of critics—including academics who helped to promulgate the dominant theory and anchor it in practice—now observe the mantra of profit maximization to be out of sync with board rooms and executive suites of public companies, and equally at odds with the public debate and global realities.

This collection contains suggested readings for the Aspen-UCLA Roundtable, Rethinking 'Shareholder Value' and the Purpose of the Firm. Several of these selections are drafts of upcoming papers from roundtable participants. We have also provided full versions of some of the excerpted articles contained in our pre-meeting reading document emailed to our roundtable participants. This is by no means an exhaustive reading list, but rather a collection we hope you find interesting and provocative.

If you would like to recommend other articles to be included here, please email a copy or link to miguel.padro@aspeninstitute.org.