In corporate boardrooms and leading business schools, the question of for whom a publicly traded company is supposed to work has a simple answer: its shareholders. But a single-minded focus on maximizing shareholder value at almost any cost is responsible for much of what is wrong with our current economy, from the wealthy disproportionately benefitting from a rising stock market to companies colluding with politicians to evade regulations that serve the public. It is harming not just workers but businesses too, as they neglect the long term and the health of the community in the search for a quick profit.
In a recent article for Harvard Business Review, Rebecca Henderson, renowned Harvard professor and expert in corporate sustainability, sought to diagnose these problems while prescribing solutions to reinvent the corporation – and capitalism itself – for a more equitable and inclusive economy.
A New Approach to Corporate Governance
Building on proposals made by Senator Elizabeth Warren in a recent Wall Street Journal op-ed, Henderson, whose research overwhelmingly shows that a more sustainable, inclusive approach will benefit business, recommends policy changes that shift incentives from appeasing shareholders in the short term to investing in employee pay and benefits, as well as a general commitment to social responsibility. She suggests that a number of companies – including Traders Joe’s and Costco — are already reaping the benefits of this approach and that the widespread embrace of non-financial metrics could help make it mainstream.
Businesses have a vital role to play in remaking the economy and should not leave this transformation solely in the hands of the government. As public pressure mounts on policymakers to change things, the burden will increasingly fall on corporations to demonstrate their socially responsible credentials. The outcome can – and should – be a new perspective for corporate responsibility that works to everyone’s benefit. The insights of Rebecca Henderson will be instrumental in providing the framework for making this transition.