Corporate Sustainability

CHAPTER 3

Shareholder Primacy and Capitalism Model

Executive Summary

The classic profit-maximizing model of publicly traded companies has shaped the role and responsibilities of business organizations in creating value for shareholders. According to this model, a public firm’s shareholders elect the board of directors and the board then appoints managers to maximize the firm’s profits, and thus maximize the firm’s value and shareholders’ wealth. The trends emerging in the past few decades, including the focus on protecting the interests of all stakeholders, have raised questions about whether the classic model is still applicable and relevant. According to the shareholder primacy and capitalism model, the primary function of business entities ...