Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    Rehabilitating Corporate Purpose
    01 May 2019Working Paper Summaries

    Rehabilitating Corporate Purpose

    by Malcolm S. Salter
    Shareholder value maximization has become the de facto expression of the institutional purpose guiding many managers’ decision making. The author proposes an alternative, justice-based guideline for corporate purpose based on established moral and organizational principles.
    LinkedIn
    Email

    Author Abstract

    In this paper, I address how the ascendance of the theory of shareholder value maximization into the central consciousness of public corporations and its canonization as the only legitimate expression of corporate purpose has contributed to both a widening breach between American-style capitalism and justice and increased alienation of the public from capitalism as a system of economic governance. Despite the vast academic literature and many management testimonials advocating a broader conception of corporate purpose—one that addresses the interests of firms’ multiple constituencies and the well-being of their employees, customers, and operating environment—shareholder value maximization remains the de facto expression of corporate purpose and guide for decision-making for most publicly owned firms in the United States (and the United Kingdom). I argue that narrowing the compatibility gap between capitalism and justice and reversing declining public trust in contemporary capitalism requires a very different conception of corporate purpose—one reflecting established moral and economic principles that challenge those underlying the shareholder value maximization doctrine. To this end, I start by discussing the vulnerability of contemporary capitalism, which is largely rooted in the social and moral disengagement of firms operating under this doctrine. I then explain how the emergence of the doctrine over the past four decades has led to this social and moral disengagement, what the theoretical underpinnings of the shareholder value maximization doctrine are, how this doctrine has become so deeply ingrained in our capitalist system, and the conceptual and practical problems presented by this doctrine and related theory of the firm. Next, I propose an alternate, principle-based guideline for corporate purpose that blends Aristotle’s theory of reciprocal justice with considerations of corporate purpose, along with Chester Barnard’s compatible theory of business organizations as cooperative systems. Aristotle stresses the ethicality of cooperation in transactional settings; Barnard stresses the efficiencies and adaptive benefits flowing from cooperation. Both see utility in truly reciprocal, cooperative relationships, which is not a priority in a shareholder value maximization regime. This alternative approach—referred to as ethical reciprocity—not only provides the basis for a rebuttal of the shareholder-primacy doctrine based on principles of justice and economic efficiency, but also offers a practical guideline for balancing the interests of shareholders and other corporate constituencies in the conduct of everyday business affairs. After presenting ethical reciprocity as a justice-sensitive guideline for corporate purpose, I turn to two practical questions related to its implementation: (a) whether “reciprocity practitioners” can compete in a world dominated by shareholder value maximizers, and (b) if so, what asset holders and asset managers, corporate directors, and educators can do—and, in some instances, are currently doing—to foster increased attention to both the principle and spirit of ethical reciprocity in the definition and pursuit of corporate purpose.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: April 2019
    • HBS Working Paper Number: HBS Working Paper #19-104
    • Faculty Unit(s):
      Trending
        • 14 Mar 2023
        • In Practice

        What Does the Failure of Silicon Valley Bank Say About the State of Finance?

        • 16 Mar 2023
        • Research & Ideas

        Why Business Travel Still Matters in a Zoom World

        • 13 Mar 2023
        • Op-Ed

        How Leaders Should Leave

        • 13 Mar 2023
        • Research & Ideas

        The Power of Personal Connections: How Shared Experiences Boost Performance

        • 25 Jan 2022
        • Research & Ideas

        More Proof That Money Can Buy Happiness (or a Life with Less Stress)

    Malcolm S. Salter
    Malcolm S. Salter
    James J. Hill Professor of Business Administration, Emeritus
    Contact
    Send an email
    → More Articles
    Find Related Articles
    • Ethics
    • Business Ventures
    • Mission and Purpose
    • Corporate Social Responsibility and Impact
    • Economic Systems

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Accessibility
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College