SHAREHOLDER PRIMACY

As usual, let’s start with definitions. Shareholder Primacy is a corporate philosophy stating that a company’s primary focus should be maximizing wealth and returns for its shareholders above any other stakeholders, including employees, customers, or community interests.

This idea was popularized by philosopher Milton Friedman. It states that management has the task of solely increasing profit. This is a pretty bold philosophy, as many of the philosophies we have discussed before have often taken the stance that companies should prioritize the wellbeing of their employees.

Shareholders are otherwise known as stockholders; they are individuals who own one share or more of a company’s stock. They make this investment in hopes of financial returns, but are also susceptible to the risk of financial deductions.

The justification for shareholder primacy is that the risk that shareholders bear justifies the priority they receive. Because shareholders own part of the company and they face the ultimate risk of the companies’ successes and failures.

Now, let’s apply shareholder primacy to real-world situations and assess the impacts of the philosophy on communities. In Situation A, a company misses earning expectations. Using shareholder primacy logic, the company would have to reduce costs to maximize shareholder value. This would likely lead to mass layoffs of employees in order to satisfy investor interests. In the eyes of the shareholders, they are not extremely negatively affected by the company’s struggles, as they are the company’s number one priority. The employees, on the other hand, lose income, health insurance, experience poverty, and much more.

This scenario shows a clear tension in shareholder primacy. When prioritizing shareholders, the employees and more disadvantaged individuals in the company are neglected and forced to face immoral conditions such as poverty, homelessness, and lack of healthcare. Thus, the question arises: should shareholder primacy be applied in the real world?