The Fall of Shareholder Primacy and the Search for a Solution

Author: Micaela Cervantes | UC Berkeley School of Law | J.D. Candidate 2020 | Posted October 3rd, 2018 | Download PDF.

The perception of a corporation’s role in society shifted after Milton Friedman established his shareholder primacy theory in 1970.[1] Friedman wrote that the corporation’s primary purpose is to maximize shareholder profits.[2] Although, Friedman’s theory prevailed for many years, it has recently received criticism from both lawyers and politicians.[3] Opponents of Friedman’s theory voice concern that shareholder primacy is not sustainable and has negative effects on the stakeholders and on the community.[4] In lieu of shareholder primacy, critics emphasize the need for stakeholder theory. Stakeholder theory states that “managing for stakeholders is about creating as much value as possible for stakeholders, without resorting to tradeoffs.”[5] Critics agree that shareholder primacy theory has lasting negative effects on society and that stakeholder theory is more sustainable. However, they disagree about the appropriate way to implement change through stakeholder theory. Some suggest a legislative solution and others suggest a private solution.   (more…)

Making Corporations Great Again

Elizabeth Warren’s Plan for Corporate Accountability and Reform

Author: Erin Lachaal | UC Berkeley School of Law | J.D. Candidate 2020 | Posted: September 8th, 2018 | Download PDF.

“I want to make sure we’ve got a set of rules that lets everybody who’s got a good, competitive idea get in the game,” Senator Elizabeth Warren said in a recent interview with Franklin Foer of The Atlantic.[1] She was discussing her recently proposed legislation that would fundamentally change how corporations in the United States are created and function day-to-day. She is aiming to return corporations back to what they once were: socially conscious entities looking to fill a supply gap in society’s needs.

Most people might describe corporations as inescapable. We are often unable to go more than a few minutes without some interaction with products from one of these large entities, but this was not always the case. The original purpose of a corporation was to allow the government a mechanism to outsource the building of fundamental public infrastructure that was necessary in a world of scarce capital and unpredictable public revenue.[2] (more…)