What is the purpose of the corporation?

7 03 2017

Is it simply to maximize shareholder value? No, according to the Modern Corporation Project, which has produced an excellent video that explains the problems with shareholder value ideology in simple terms that would be accessible to a first-year undergraduate.

I’m sharing the video here in case it is useful to any of my readers in their teaching work.

Incidentally, some of the people behind the video have submitted a response to the UK Government’s Green Paper on Corporate Governance reform. Their paper, which was produced by a team of authors based at Cass Business School, Frank Bold and Sheffield Institute of Corporate and Commercial Law, can be downloaded here.

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2 responses

7 03 2017
((Jonathan Weisman)) (@JJWeisman)

It brings to mind an interesting recent article on the “wisdom of Bezos”. That article suggested that Bezos cleverly wants to avoid ever turning a profit, because growth which is reflected in share price (and the options in which he is paid) is more tax-efficient than the distribution of profits through dividends or share buybacks.

Obviously the questions of share pricing and tax policy are complicated, but any discussion of “generating shareholder value” should consider the shift to retained earnings and maximizing share price a/o to distribution.

Sustainability defined as “sustainability” makes me want to face palm that person’s face. May as well ask whether CEOs think that their firm’s “value proposition” is key to future success.

Also need to find a way to distinguish between corporations used by small businesses primarily as a shield against personal liability and the kind of large, usually publicly-traded, entity for which “corporate purpose” is a meaningful question. Perhaps reviewing the histories of individual corporations’ growth from point A to point B might yield insights into this question of “purpose”?

8 03 2017
andrewdsmith

You are certainly right that tax needs to be integrated into our understanding of how firms make trade-offs between the interests of shareholders and non-shareholder stakeholders. Sadly, I don’t know of much research in this area.

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