Distinguished Senior Fellow
The End of the Corporation? It’s time to make the profit-maximising, shareholder-controlled corporation obsolete.
Imagine your town is crisscrossed by giant trains that travel insanely fast, because the train owners pay their drivers based on speed. The town establishes speed limits, installs flashing lights, brings out police to keep pedestrians off the tracks. Inevitably, the trains continue to crash into people and cars, causing injury and death. How does the town council respond? By repairing crossings and fences.
This is how society now attempts to regulate corporate behaviour. We wrap regulations around massive corporations, leaving their profit-maximising mandate in the driving seat. When corporations crash through intricately wrought regulations – think mega-banks in 2008 nearly crashing the entire global economy – our response is to repair the regulatory fences.
It’s time to make the profit-maximising, shareholder-controlled corporation obsolete. In the perilous moment we face, with the crises of the climate emergency and spiralling inequality, the time is up on corporations acting as though serving financial shareholders is their highest duty.
That much has been conceded, at least rhetorically, even by CEOs of the largest US corporations, in an August 2019 Business Roundtable statement. The membership group indicated it realised the need to serve a broader set of stakeholders as the new corporate purpose. Similarly, at the January 2019 gathering of the financial elite at the World Economic Forum in Davos, a key topic was loss of faith with the economic status quo. Axios called it ‘a reckoning for capitalism’.
Missing from these conversations, however, is the more threatening truth that what must shift is ownership. As long as the structural forces of current corporate ownership remain in place – where only shareholders vote for the board, where shareholders are predominantly the wealthy, where companies define success as a rising share price and pay executives handsomely for achieving it – there is no amount of rhetoric or external regulation that can turn companies away from their existing mandate: to create more wealth for the wealthy, with all possible speed.
What must change is the structural design and ownership of the corporation itself. We need to envisage and create an entirely new concept of the company – a just firm – designed from the inside out for a new mandate: to serve broad wellbeing and the public good. The just firm is the only kind that should ultimately be permitted to exist. The time is coming when society must end the corporation as we know it.