Corporations today operate according to a model of corporate governance known as “shareholder primacy.” This theory claims that the purpose of a corporation is to generate returns for shareholders, and that decision-making should be focused on a singular goal: maximizing shareholder value. This single-minded focus—which often comes at the expense of investments in workers, innovation, and long-term growth—has contributed to today’s high-profit, low wage economy.
In Towards ‘Accountable Capitalism’: Remaking Corporate Law through Stakeholder Governance, Roosevelt Senior Economist and Policy Counsel Lenore Palladino and Program Associate Kristina Karlsson explore stakeholder corporate governance—which, as proposed by Senator Elizabeth Warren (D-MA) in the Accountable Capitalism Act, gives non-shareholders decision-making power over the allocation of the corporate profits that they helped to create—and the policy reforms needed to replace shareholder primacy.
Shareholders are not the only stakeholders who invest in corporations. Implementing a stakeholder governance model is necessary to foster accountable capitalism, which entails rebalancing power within firms to drive inclusive decision-making and ultimately incentivizes firms to act in ways that benefit the economy as a whole, not the select few. Overall, stakeholder governance is workable, popular, and a necessary step towards rewriting the rules of the economy—one that works for the many.