Last week, Massachusetts Senator Elizabeth Warren announced that she’s about to propose the most significant change in U.S. corporate governance in 100 years. We don’t yet have the full details, but one reading of her piece is that she’s going to propose requiring every company with more than $1 billion in revenue to become a “benefit corporation” — a corporation whose fiduciary duty is not only to its shareholders but to all its major “stakeholders.”
What Would It Take to Get Businesses to Focus Less on Shareholder Value?
The first dean of Harvard Business School said that the purpose of business is to “make a decent profit, decently” — not to maximize profits at any costs — and that is where U.S. business needs to go. But why do businesses focus so much on shareholder value? And would Senator Elizabeth Warren’s proposal around corporate governance rules change that? Requiring firms to adopt a new charter with obligations to a broader set of stakeholders would have the great benefit of reminding business leaders (and their lawyers!) that they have more discretion than they often think they have, but it’s not clear that it would change behavior unless there were corresponding changes in how managers and investors think about their roles and the incentives they face.