IESE-ECGI CONFERENCE on Can Purpose Deliver Better Corporate Governance?

The inaugural dean of Oxford University’s Said Business School and academic director of the British Academy’s Future of the Corporation program begins by identifying four alternatives to Milton Friedman’s Shareholder Value doctrine: (1) enlightened shareholder value maximization; (2) stakeholder value; (3) shareholder welfare; and (4) corporate purpose. The pursuit of enlightened shareholder value is found wanting because of its difficulty of taking into account and responding to “externalities,” the social costs and benefits of corporate actions not reflected on their own cash flows and balance sheets. Stakeholder theory, while properly recognizing an intrinsic interest in non-investor corporate constituencies, provides management with no guidance for decision-making, particularly for evaluating tradeoffs among stakeholders. Shareholder welfare advocates, like this session’s discussant and his coauthor Oliver Hart, expect pension funds, sovereign wealth funds, and other “universal investors” to succeed in influencing management to temper long-run value maximization with investment addressing social problems like the environment and inequality.