Rerun: Ep15 "Shareholder vs. Stakeholder Capitalism" with Alex Edmans
Jan 3, 2024
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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.
Shareholder capitalism prioritizes long-term profits for shareholders, focusing on future profitability and firm value.
Stakeholder capitalism addresses externalities like environmental impact, advocating for balancing shareholder profits with wider societal concerns.
Deep dives
Shareholder Capitalism Focuses on Long-Term Value Creation
Shareholder capitalism emphasizes maximizing firm value for shareholders, aiming for long-term profits. Contrary to the belief that it prioritizes short-term gains, examples like venture capital investments in startups highlight a focus on future profitability. This approach aligns with long-term value creation by ensuring stock prices reflect future profitability.
Stakeholder Capitalism Considers Multiple Interests and Externalities
Stakeholder capitalism acknowledges various stakeholders like employees, customers, and society, advocating for their equal representation. The model addresses externalities, such as environmental impact and social responsibility, often unaccounted for in shareholder-centric approaches. Stakeholder decisions become complex when balancing outcomes beneficial for both shareholders and wider societal interests.
Government Intervention Critical for Addressing Externalities and Accountability
Governments play a pivotal role in regulating externalities like pollution through taxation and governance. Stakeholder capitalism faces challenges in balancing shareholder profits with broader societal concerns, prompting the need for government intervention. Measures like CEO incentives linked to long-term impacts and shareholder mandates on non-financial objectives can enhance accountability and align business actions with societal benefits.
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.