The principle of shareholder primacy in the U.S.

This article depicts the seismic impact shareholder preeminence has had on corporations, workers and the community which was contended against by former legal scholar Lynn stout she opposed to the principle that organizations must be run to maximize the wealth of shareholders, which she raised in her novel written in the year 2012 titled The Shareholder Value Myth, she therein elaborated on her arguments about the issues with “shareholder primacy”, explaining that “ it could and should be part of the mission of business to promote the wellbeing of workers and the community”(6).

For the majority of the American history, organizations were able to share their responsibly among their stakeholders which Included their workers, shareholders and overall society which was beneficial in the long run as it caused there to be an increase in their productivity, profit, and their wages, however, this was short-lived. In the 1970s economist Milton Friedman published an essay in The New York Times in which he argued that it was inappropriate for boards to focus on anything other than maximizing shareholder value, this set in motion the shareholder primacy, in the 1980s big companies began offering  a whopping 93% of their gross earnings to their shareholders and reinvesting the rest into the company ,therefore the corporate system  focused mainly on  making the high class richer as only the wealthiest of American household held most of the shares and in maximizing shareholder value they stand to gain tremendously, however leaving employees with high productivity but dormant  wages.

In August 2018 professor and US senator  Elizabeth warren introduced the accountable capitalism act which she believed would put an end to shareholder maximization and bring about broad growth in corporations that would not only benefits the shareholders but also the workers. In this act Warrens stated that corporation employees are to elect at least 40% of the board members which would enable the employees that have acquired a lot of stock to maximize beneficial strategies. Another act required that big American corporations obtain a federal charter as a “united states corporation”, which compels company directors to accumulate the interest of all corporate stakeholders such as the employees, shareholders, investors, customers and the community causing the directors to become liable therefore the stakeholders have grounds to sue if they believed the company to have violated their duties. Up until recently, the courts have had little to no involvement in business operations because they believe that as long its actions are carried out with sincerity of intention, decisions by the board are left to them. Senator Warren’s legislation would make large companies of federal concern, which would then dominate the present systems.

Both warren and stout argued against the principle that is shareholder primacy, they served as non-conformists as they noticed an issue within the corporate system that had ripple effects on the society and employees, sharing a similar goal which was “that it should be part of the mission of business to promote the wellbeing of workers and the community “(6). Furthermore by monitoring these large corporations and by doing more research we would then be able to tell the impact the legislation had on the stakeholders, corporations and then economy in comparison to the shareholder theory.

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