Shareholder Value is No Longer Everything

Abstract

The topic of this article was borrowed from the statement issued by the Business Roundtable of the USA, in 2019, emphasizing that companies must invest in their employees, protect the environment and deal fairly and ethically with their suppliers. They stated that the focus on advancing only shareholder interest needed to be changed. Last year (2020), marked the celebration of the fiftieth anniversary of Milton Friedman’s statement regarding the role of a corporate. In terms of his statement, the social responsibility of business is to increase its profits and managers are supposed to conduct their businesses in accordance with the owners’ ideas. This proposition presented by Milton Friedman is very similar to the Agency theory which advocates shareholder supremacy. The Agency theory has received prominent attention in discussions pertaining to the theoretical frameworks of corporate governance regimes. After half a century since Milton Friedman’s proposition, there are now arguments, as mentioned above, that this narrow ‘stockholder-centered theory’ has led to severe costs to society. There is a growing consensus for the redirection of corporate objectives towards more purpose-driven principles that will protect the interests of all stakeholders. These opinions are applicable to all body corporates irrespective of the nature of their businesses. In the said context, this article will emphasize the importance of redefining the institutional purpose of financial entities, which is being seen as increasingly significant in rapidly evolving corporate orthodoxy.