Lynn Paine, a Harvard Business School professor and governance expert, joins Mihir Desai, specializing in corporate finance, and Carola Frydman, a corporate historian at Kellogg, to discuss the evolution of shareholder value. They delve into its rise in the 1970s and the subsequent challenges it faced, including critiques of its impact on jobs and the environment. As stakeholder capitalism gains traction, they explore the need for companies to balance diverse interests and scrutinize the implications of integrating ESG metrics into governance.
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insights INSIGHT
Shareholder vs. Management Tension
The rise of large corporations needing capital led to a separation of ownership and control.
This dynamic created tension between shareholders and professional managers.
insights INSIGHT
Early Corporate Interest Debates
Early debates about corporate interests arose in the 1920s and 30s.
Scholars like Berle and Dodd discussed whether managers served shareholders or multiple constituencies.
insights INSIGHT
Pre-1970s Stakeholder Influence
Pre-1970s, companies sometimes acted in stakeholder interests due to external pressures, not solely moral reasons.
Unions and the threat of unionization influenced companies to offer welfare benefits, like company towns.
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Lynn Sharp Paine is a prominent figure in the field of corporate governance and leadership. Her work often explores how companies can balance ethical standards with financial performance. However, specific details about 'Directors, Myth and Reality' could not be found.
The 20th Century Capitalist Revolution
The 20th Century Capitalist Revolution
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Merrick Dodd
Adolph A. Berle Jr.
Strategic Management
A Stakeholder Approach
Edward Freeman
Strategic Management: A Stakeholder Approach, first published in 1984, is a landmark book that introduced stakeholder theory to the field of strategic management. It emphasizes that businesses should consider all stakeholders, including employees, customers, suppliers, and communities, to achieve long-term success. The book connects business and capitalism with ethics, providing a practical view of how companies operate.
The idea that maximizing shareholder value takes legal and practical precedence above all else first came to prominence in the 1970s. The person who arguably did the most to advance the idea was the business school professor Michael Jensen, who wrote in Harvard Business Review and elsewhere that CEOs pursue their own interests at the expense of shareholders’ interests. Among other things, he argued for stock-based incentives that would neatly align CEO and shareholder interests.
Shareholder primacy rapidly became business orthodoxy. It dramatically changed how and how much executives are compensated. And it arguably distorted capitalism for a generation or more. Critics have long charged that maximizing shareholder value ultimately just encourages CEOs and shareholders to feather their own nests at the expense of everything else: jobs, wages and benefits, communities, and the environment.
The past few years have seen a backlash against shareholder capitalism and the rise of so-called stakeholder capitalism. After reigning supreme for half a century, is shareholder value maximization on its way out?
4 Business Ideas That Changed the World is a special series from HBR IdeaCast. Each week, an HBR editor talks to world-class scholars and experts on the most influential ideas of HBR’s first 100 years, such as disruptive innovation, scientific management, and emotional intelligence.
Discussing shareholder value with HBR editor in chief Adi Ignatius are:
HBR IdeaCast 
