Shareholders or Stakeholders - A Debate

Overview • History of Corporations and Society: Love, Hate, Appreciate, or Regulate? • Engaging the Debate: Shareholder Maximizing or Multiple Stakeholder Responsibilities? – Position A: Corporations best serve the interests of society by focusing solely on maximizing shareholder value – Position B: Corporations should be accountable to their shareholders, employees, customers, and communities Emergence of the Modern Corporation • Origins: Charters to public corporations issued by the King: Expected to serve the King • After the revolution: State legislatures issue charters – Corporations as public utilities – Expected to serve a “public purpose” – Innovators were private inventors: Eli Whitney, Elias Howe, Samuel Morse, Elisha Otis • Mid 1800s: Emergence of Stockholders – Need to amass large amounts of financial capital to build railroads and serve growing national markets – Need to protect investors: “limited liability” corporations Late 1800s-Turn of the Century: Era of Big Business Arrives • Corporate leaders become American Icons: J.P. Morgan, John D. Rockefeller, Andrew Carnegie… • 1900: 318 corporations controlled 40% of U.S. manufacturing assets • Anti-trust movement (1893 Sherman Act), Teddy Roosevelt’s “trust busters” – Reformers/ Progressives: Upton Sinclair’s The Jungle… – Woodrow Wilson: “I am for Big Business, and I am against the trusts.” • Roaring 20s: Calvin Coolidge: “The business of America is business.” • To Drop a Name…Alfred P. Sloan 1930s: New Deal Era Reforms • Berle & Means: Managers now in control • New Deal Model: Hold corporations accountable: – Regulations: Security & Exchange Commission – Minimum employment standards: Min. wages, overtime, etc. – Employee rights: Unions & collective bargaining – Use corporations to finance-administer benefits—social security, unemployment insurance, etc. 1960s: Corporate Social Responsibility? • Corporations should accept broader social responsibilities – – – – – Environmental movement Civil rights movement Anti-poverty movement Urban unrest and renewal efforts Students against Dow Chemical (Napalm for Vietnam) • Response by Milton Friedman: Corporation’s highest (sole) responsibility to society is to maximize profits – Shareholders should decide how to distribute their wealth – Democratic governments should decide the public interest 1980s: The Market for Corporate Control • Era of hostile takeovers & leveraged buyouts: Barbarians at the Gate • Stock options used to align executives’ interests with shareholders – Rise of CEO pay differentials (80:1 to 400:1) – Breakdown in the Social Contract – Rise in share of profits going to owners (versus employees or taxes) The Debate • Position A: Corporations best serve the interests of society by focusing solely on maximizing shareholder value • Position B: Corporations should be accountable to their shareholders, employees, customers, and communities • • • • Process: 10 minute team prep 2 minute statements 2 minute prep for response—with questions from moderator • 1 minute response from each team • 5 minutes of further team to team q & a • Class-wide discussion Next Class: Corporate Accountability in a Global Economy The Nike Case: Be prepared to discuss your answers to the set of questions posed at the end of the Nike reading—see how participants at the Sloan 50th anniversary discussed these questions and be ready to discuss your own answers ALSO: GO ON LINE AND SKIM THE NIKE CORPORATE