The question of whether a company should go beyond the core goal of “maximizing shareholder value” as its main reason for being (e.g. to also pursue broader social ends), has been argued for decades. This debate was supposedly resolved in 2000 when two reputable law professors, Henry Hansmann of Yale and Reinier Kraakman of Harvard, pronounced that the world’s legal systems should converge just on this shareholder value model.
Since then, several events have shaken the credibility of this model. Not long after their published article on corporate law, huge companies suddenly crashed – e.g. Enron, Arthur Andersen, and WorldCom. Then the collapse of Lehman Brothers in 2008 triggered the Great Recession. Perhaps the most unfortunate victims of this long recession were the Millennials, who were coming out of college and finding few job opportunities. Many companies took advantage of this “oversupply” of quality candidates, offering internships without pay or health benefits. It was not uncommon for ad agencies in New York, for example, to hire bright college grads and give them a title like “assistant account director” so they can charge clients more for their time. In reality however, they were glorified secretaries or “gofers” with duties like making copies or getting coffee for executives.
Does anyone wonder why these Millennials are so cynical about career prospects or loyalty at large companies? A Forbes study in 2014 found that the average job tenure for this younger group was just over 2 years. When I mentioned this to my grad students at NYU, they were surprised – surprised that it was that long! (I couldn’t believe this reaction!)
What is emerging now is a highly contested issue on whether a corporation should do more than just “maximize shareholder wealth,” or what the supply side economist Milton Friedman called “the rules of the game.” At the same time, there is a growing appreciation of the vast potential purchasing power of the 86 million Millennials, which has become a key driving force behind this debate.
On social matters, business leaders are becoming more sensitive to the expanding gap between the views of political and religious conservatives on the one side, and those of more liberal progressives which include these Millennials. Social branding is “hot” with this Generation Y segment. Edelman studies report that 76% of Millennials would recommend a brand that supports good causes and still make money, and 87% believe that companies should place equal weight on society’s interests and its business interests (e.g. shareholder value).
More business leaders are taking public positions on these social issues too, such as Tim Cook from Apple, Marc Benioff of Salesforce, and Howard Schultz of Starbucks. Here are some examples:
- Starbucks recently introduced their controversial “Race Together” campaign against racial discrimination.
- Tim Cook wrote in an article in the Washington Post in March that “discrimination, in all its forms, is bad for business. It isn’t a religious issue. This is about how we treat each other as human beings.”
- 379 companies including Apple, Amazon, eBay, PepsiCo, and Starbucks have signed a brief to the Supreme Court on a forthcoming gay marriage case, claiming that having different state laws “breeds unnecessary confusion, tension and diminished morale” internally, and also raises employers’ costs by $1 billion each year.
- Most companies take a liberal view on immigration mainly because they want to gain access to skilled labor.
- Noteworthy foreign companies such as Bosch, Carlsberg, Bertelsmann, and Tata are owed by foundations that are pledged to pursue the public good.
- The current mission of Unilever involves “making sustainable living commonplace.”
More companies are taking such a public stand simply because they believe in what they say, and they think their customers do too. In line with this thinking, they also realize that younger consumers with liberal social attitudes (e.g. Millennials) are a bigger and higher potential target market than religious conservatives. These courageous business leaders recognize these post 2000 trends, and are willing to change to ensure that today’s influential customers appreciate what their corporate brands stand for – recognition that just building shareholder wealth is not enough, but they can also do something good, credible and meaningful for society that will ultimately enhance their brand trust.
