Delve into the debate of prioritizing shareholder value vs. broader stakeholder interests. Explore government intervention, societal impact, and CEO compensation. Learn how corporations can leverage their strengths for the greater good.
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Shareholder Capitalism Is Long-Term
Shareholder capitalism focuses on maximizing firm value to shareholders, emphasizing long-term value rather than just short-term profits.
Investor holding periods don't change that stock prices reflect the present value of all future profits, aligning shareholder capitalism with long-term value creation.
insights INSIGHT
Vague Stakeholder Definitions
Stakeholder capitalism includes employees, customers, suppliers, neighbors, and society broadly as interests of the firm.
The definition of stakeholders is vague, making their equal representation in decisions unclear and complex.
question_answer ANECDOTE
Fishing Example Shows Externalities
A fishing firm owned by local shareholders overfishes a lake, reducing birds, a negative externality harming non-shareholders.
This illustrates the conflict between profit-maximizing shareholders and stakeholders affected by externalities.
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For the end of the year, Jules and Jonathan are taking some well-deserved time off, and wanted to rerun a past episode they love for the new audience who has joined since then.
Imagine being able to see through all the layers of corporate decision-making to uncover whether businesses should prioritize profits for shareholders or the well-being of a wider community. In this episode, hosts and finance professors Jonathan Berk and Jules van Binsbergen are joined by Alex Edmans, professor of finance at the London Business School, as they wade through the murky waters of balancing diverse interests, addressing externalities such as environmental impacts, and whether government intervention or corporate ethics should lead the charge. It's an exploration of the potential for businesses to harness their unique strengths for the greater good, while navigating the delicate balance of power between corporate and governmental roles in shaping society.