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Updated: Mar 11, 2021

Photo by Glen Carrie

In 2019 the Business Roundtable, an American association of corporate CEOs, announced a revision to its statement on the purpose of corporations (press release). Signed by the CEOs of 181 major public companies with a combined market capitalization exceeding $13 trillion, it said they would commit to leading their companies “to the benefit of all stakeholders,” not only shareholders which had been the organisations previous position.

This was followed by a similar statement from the World Economic Forum, and a letter to CEOs from Larry Fink CEO of the world’s largest asset manager Blackrock. In the UK, the Financial Reporting Council had previously offered new guidance that was similar in tone and substance. Collectively these actions led many people to conclude that 2019 was a watershed year. A year in which the Friedman Doctrine, of maximising shareholder value being the only purpose of a business, would finally be laid to rest.

It was never going to be that easy of course. The actions merely poured more fuel on the heated shareholder v stakeholder debate which has raged since the 1930’s. And more fuel was added in 2020, the fiftieth anniversary of Milton Friedman’s letter to the New York Times in which he outlined his doctrine. It is in this context, and with the publication of the Business Round Table statement in particular, that Lucian A. Bebchuk, Roberto Tallarita, both professors at Harvard Law School began work on draft paper with the title, THE ILLUSORY PROMISE OF STAKEHOLDER GOVERNANCE.

The professors, both advocates of maximising shareholder value as the purpose of a business, are highly critical of the Business Roundtable’s statement, and of what they call “stakeholderism” in both of the two forms of it that they identify: “Instrumental stakeholderism” (Enlightened Stakeholderism as others call it) and “pluralist stakeholderism.”

This is the first of a series of articles that will explore the issues raised by professors Bebchuk and Tallarita. I have made their position on the Shareholder v Stakeholder debate very clear. And in previous articles I have made my position clear. I think the shareholder v stakeholder argument is based on an entirely false dichotomy and the right focus should be the long-term success of the business itself.

In an effort to make my case, and shift the narrative, the Enlightened Enterprise Academy, of which I am the Founder and CEO, will be hosting a series of four online conferences starting on MARCH 15th. BEYOND THE FALSE DICHOTOMY: ENDING THE SHAREHOLDER v STAKEHOLDER NONSENSE is the first theme. We have an excellent line-up of leading experts representing business, finance and investment, economics, academia and think tanks. DETAILS


In this first article exploring what professors Bebchuk and Tallarita say, I will explore the draft paper’s criticism of the Business Round Table Statement. It is scathing criticism. In the preamble they say it is, “largely a rhetorical public relations move rather than the harbinger of meaningful change” and point out “the statement’s ambiguity regarding the intention to provide stakeholders with any benefits beyond what would be useful for shareholder value.” They add, the “statement should not be expected, and was largely not intended by its signatories, to bring about major changes in the treatment of stakeholders”.

In the section of the document that deals specifically with the statement they repeat, “the BRT statement should be viewed largely as a PR move”, and stress it is “remarkably vague as to the nature and content of the commitment that is being made” offering, “non-specific and under defined commitments.” They then add that it, “fails to provide clarity on a critical question—which basic version of stakeholderism the BRT purports to endorse. Is it the instrumental approach [enlightened stakeholderism], which supports taking stakeholder interests into account only to the extent that doing so would contribute to shareholder value? Or is it the pluralistic approach, which allows or requires directors to treat stakeholder welfare as an end in itself?”

The ambiguity leads to confusion with “some aspects of the statement might encourage readers to infer that the CEOs plan to protect stakeholders beyond what shareholder value maximization would call for.” They also, “emphatically present the new statement as a radical change”, argue the professors, citing the press release which talks of “redefining the purpose of the corporation,” “superseding previous statements,” and “moving away from shareholder primacy.”

The professors note that the statement on the purpose of corporations being replaced, explicitly endorsed “taking into account the interests of the corporation’s other stakeholders” as an instrument for shareholder value maximization. “Thus, if the BRT statement were to be read as a significant move away from the earlier version, it would be difficult to interpret it as requiring merely instrumental stakeholderism [enlightened stakeholderism]”. However, the new statement on the purpose, “does not explicitly endorse benefitting stakeholders beyond what would be useful for shareholder value maximization.” Additionally, “it does not include any case that suggests that directors should put the interests of stakeholders above those of shareholders.”

The professors therefore conclude, “despite the change in rhetoric, the BRT’s revision of its statement of corporate purpose does not seem to be a move from the shareholder primacy or enlightened shareholder value of its 1997 statement to pluralistic stakeholderism”.

In further criticism they argue “the language used by the BRT, in contrast, suggests that companies will generally face “win-win” outcomes when the statement says, “while we acknowledge that different stakeholders may have competing interests in the short term, it is important to recognize that the interests of all stakeholders are inseparable in the long term.”

Bebchuk and Tallarita argue “This is at best a naïve misunderstanding or, more realistically, a mischaracterization of economic reality. If companies faced only win-win situations, there would be no practical difference between stakeholderism and shareholder value maximization.” They suggest that in making this statement, “the BRT creates an inaccurate impression that signatories will nevertheless treat all stakeholders as well as possible.”

To try and determine if the statement was more than rhetoric the professors “reviewed the board approved corporate governance guidelines of the companies whose CEO sits on the board of the directors of the BRT.” They found, “none amended its corporate governance guidelines” but many “contain a strong endorsement of the shareholder primacy principle.”

In the case of JPMorgan Chase, whose CEO Jamie Dimon is Chairman of the BRT, the guidelines state “the Board as a whole is responsible for the oversight of management on behalf of the firm's shareholders.” And Johnson & Johnson, whose CEO Alex Gorsky serves as chairman of the BRT’s Corporate Governance Committee, has guidelines that state “[t]he business judgment of the Board must be exercised […] in the long-term interests of our shareholders.”

The professors conclude, “most of the companies in the BRT Board Sample have guidelines that are inconsistent with the intention of moving away from shareholder primacy. This pattern is instead consistent with the conclusion that the BRT statement was neither expected nor intended to produce major changes in the treatment of stakeholders.”

In a further major criticism, the professors say the statement demonstrates a “disregard of legal constraints” that stem from the fact “about 70% of the U.S. companies that joined the BRT statement are incorporated in Delaware” and “the law of corporations in Delaware reveals that, within the limits of their discretion, directors must make stockholder welfare their sole end,” and that Delaware corporations can consider stakeholder interests “only as a means of promoting stockholder welfare.””


Bebchuk and Tallarita perpetuate the shareholder v stakeholder debate, coming down firmly in favour of the primacy of shareholders and against stakeholderism. But we must be clear. As I already explained they identify two forms of stakeholderism: Instrumental Stakeholderism (Enlightened Stakeholderism] which supports taking stakeholder interests into account only to the extent that doing so would contribute to shareholder value, and Pluralistic Stakeholderism which allows or requires directors to treat stakeholder welfare as an end in itself.”

The professors provide arguments against both forms of stakeholderism, but their problem with the enlightened version is that “enlightened shareholder value is only a particular articulation of shareholder value,” not conceptually different from the “old-fashioned” shareholder value (i.e., shareholder primacy)”. It merely requires an “explicit reference to the interests of stakeholders”.

They go as far as saying, “It is undeniable that, to effectively serve the goal of enhancing long-term shareholder value, corporate leaders should take into account stakeholder effects—as they should consider any other relevant factors”.

They go on to argue, “Even Milton Friedman, the Nobel laureate who famously opposed Corporate social responsibility, acknowledged that shareholder value maximization may sometimes call for stakeholder-friendly decisions. As long as such decisions are taken to increase shareholder value, he did not view them as a deviation from the exclusive focus on shareholder value maximization he strongly advocated. Thus, Friedman would not have a problem with any choices made under enlightened shareholder value, as they would also be choices required by shareholder value.


My view is that the interests of all stakeholder groups, including shareholders, are best served if we move beyond the false dichotomy upon which the shareholder v stakeholder debate is based. And if the business is managed for its own long-term success.

Such an approach would benefit all stakeholders including shareholders because, as Bebchuk and Tallarita state, “It is undeniable that, to effectively serve the goal of enhancing long-term shareholder value, corporate leaders should take into account stakeholder effects.” But I would go further and say, merely taking account of stakeholder effects is insufficient.

Instead, I would argue, it is undeniable that, to effectively serve the goal of enhancing long-term shareholder value, corporate leaders should treat all stakeholders, including shareholders, equitably - which is not the same as suggesting they should be treated equally. The concept of reciprocity is helpful. It would mean each stakeholder group receives the recognition it merits relative to its contribution to the long-term success of the business.

In an post yesterday, I talked of an article by George Dallas, Head of Policy at the International Corporate Governance Network (ICGN) who will be speaking the March 15th conference. In his article, “Shareholder primacy: Is this concept fit for purpose?”, he says, "It is unlikely that staunch advocates of either shareholder or stakeholder models of corporate governance will be persuaded to abandon one approach for the other." But he cites research suggesting a “company centric” view may offer a "compromise."

What I am advocating is a company centric view. But it is not a compromise. It is an alternative, a third way. It is the solution to the false dichotomy and explains why the dichotomy is false. I believe it is the solution enlightened enterprises will adopt, and it is the one the Enlightened Enterprise Academy will advocate.

The implications of this alternative to the shareholder v stakeholder debate which makes no sense will require radical reforms to the corporate governance and policy. It will also have massive implications for the way companies are run, with a focus on collaboration, cooperation and the cocreation of value, in the interests of all stakeholders, including long-term shareholders. The only losers will be short-term shareholders who should be seen as sharetraders or speculators not shareholders.

The article Dallas referred to, which introduced the “company centric” concept was titled “The Error at the Heart of Corporate Leadership.” By Joseph L. Bower and Lynn S. Paine, it appeared in the May/June issue of Harvard Business Review. The article notes that shareholders are not the owners of companies. They are the owners of shares. Companies are legal entities in their own right. And “The interests of the corporation are distinct from the interests of any particular shareholder or constituency group.”

Bower and Paine go on to say, “the company-centred model we envision tracks basic corporate law in holding that a corporation is an independent entity, that management’s authority comes from the corporation’s governing body and ultimately from the law, and that managers are fiduciaries (rather than agents) and are thus obliged to act in the best interests of the corporation and its shareholders (which is not the same as carrying out the wishes of even a majority of shareholders)”.

And they add, “This model recognizes the diversity of shareholders’ goals and the varied roles played by corporations in society. We believe that it aligns better than the agency-based model does with the realities of managing a corporation for success over time and is thus more consistent with corporations’ original purpose and unique potential as vehicles for projects involving large-scale, long-term investment.”

Importantly Bower and Paine also state, “A company-centred model of governance would not relieve corporations of the need to provide a return over time that reflected the cost of capital. But they would be open to a wider range of strategic positions and time horizons and would more easily attract investors who shared their goals.”

In saying “a return over time that reflected the cost of capital” they move away from the language of maximising shareholder returns, to providing what I would call “fair or equitable returns” that are propionate and reflect the reciprocal relationship I spoke of.

What I propose, and what Bower and Paine advocate, is akin to the spirit of the statements made in the Johnson & Johnson Credo which I would urge you to read in the context of what I have said. It details how it sees its responsibilities to stakeholders, including shareholders, plus what value it will create, who for, and how it will do so. Additionally, it states how profits will be used, and only offers shareholders a fair return.

How have long-term shareholders in Johnson & Johnson done based on being offered only a fair return? The answer is exceptionally well. Sure Dividend has the firm listed as one of the Dividend Aristocrats. In 2019 it was reported that the firm had raised its dividend for 57 years in a row and “it has one of the longest and most impressive histories of any dividend growth stock"


In the future articles in this series I will be discussing the other issues raised by Bebchuk and Tallarita in their paper. This provides a very useful way of introducing the issues to be explored in the series of four Beyond the False Dichotomy Conferences. Summaries will be published for open access. The full articles will only be available to delegates to the conference.

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