23 February 2012

The objective of corporations

I see that Andrew Keay, of the University of Leeds in the UK, has written a book on The Corporate Objective, discussing as that title indicates the much-debated question: for whose benefit should a corporation act?

One classical answer, offered in a notorious essay by Milton Friedman, is that corporations exist solely to serve the interests of their shareholders, that these interests are measured by the profit-or-loss bottom line, and that any deviation from that goal on the part of corporate managers is malfeasance.

Another classical answer is the "stakeholder" theory -- the view that equity ownerships is only one of a variety of stakes one can have in the decisions of a corporation, and that corporations must be responsive to the whole range of stakes.

My understanding is that Keay rejects both views. He believes that the former gives dangerous guidance and the latter gives no guidance at all. His own suggestion is what he calls "entity maximization and sustainability," or the EMS model.

Some reviewers are enthusiastic. Harry Rajak, of the University of Sussex, writes, "Professor Keay takes the debate ... by the scruff of its neck and skilfully navigates between the Scylla and Charybdis of the shareholder/stakeholder debate." Mixing our metaphors are we a bit, Rajak?

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Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.