As Donald Trump nears his second presidency, the rhetoric of economic nationalism and deregulation returns to the forefront.
His policies, coupled with cabinet picks drawn heavily from corporate leadership, renew the debate on the role and purpose of corporations in society. Central to this discussion is the doctrine of shareholder primacy—the belief that the primary obligation of corporations is to maximize shareholder returns. While this approach dominates boardrooms and economic policy, its shortcomings are more evident than ever. Two critical flaws undermine shareholder primacy: its lack of legitimacy and its practical inefficacy.
The problem of legitimacy
The lack of legitimacy fuels public mistrust and invites extensive regulation of corporate activity. As Sir James Black, Nobel Prize-winning pharmacologist and pioneer of the blockbuster drug concept, once remarked, “Goals are often best achieved indirectly.” This insight, which I term the principle of obliquity, underscores how the single-minded pursuit of profits often leads to suboptimal outcomes. By ignoring the broader social context in which corporations operate, shareholder primacy risks eroding the very foundations of business success.
If the primary purpose of corporations is to generate profits for shareholders, why should society accept this purpose? Why do we grant corporations privileges such as limited liability, perpetual existence, and access to public markets? The answer lies in the value they provide through products and employment. However, the assertion of financial returns as the ultimate goal fuels public mistrust.
This mistrust gives rise to what I call the “love the product, hate the producer” phenomenon, starkly illustrated by the public reaction to the murder of the CEO of UnitedHealthcare. While people rely on corporate innovations—be it a Boeing aircraft or an Amazon delivery—they increasingly view the companies behind these products with suspicion and disdain. The inevitable result is extensive, intrusive regulation. This is the modern history of industries such as pharmaceuticals, financial services, and Big Tech.
The notion that such regulation can be swept away is naive. A better approach is for businesses to internalize the objectives of regulation, as they once did. Retail financial service companies were once renowned for their rectitude, as exemplified by characters in Mary Poppins or It’s a Wonderful Life. For a decade, Merck was the most admired company in the United States, investing heavily in life-saving treatments and maintaining an ethos of public service. Today, however, pharmaceuticals rank as the lowest-reputation industry in a recent Gallup survey.
The principle of obliquity
As George Merck famously observed: “Medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been.”
The term “obliquity,” attributed to Sir James Black, describes how corporations achieve sustainable success by pursuing broader objectives than profit. Black, who created more shareholder value than anyone else in British history, did so by developing transformative drugs that catapulted companies like AstraZeneca and GSK to international leadership.
From George Merck to Sergey Brin, from Andrew Carnegie and J.P. Morgan to Steve Jobs and Elon Musk, the business leaders we admire—and who became very wealthy—are those who set out to create great businesses. As a former international cricketer reviewing my book aptly noted, quoting legendary football coach Bill Walsh: “The score takes care of itself.”
In contrast to shareholder primacy, the principle of obliquity emphasizes that sustainable success comes from broader goals. Yet the rise of financialization has steered many firms away from this approach, favoring short-term gains over long-term resilience.
Under Trump’s administration, shareholder primacy risks overshadowing obliquity. A cabinet filled with corporate executives embodies a worldview where profit trumps principle. Policies that dismantle environmental protections, weaken labor rights, and favor monopolistic practices may deliver immediate stock market gains but undermine the social fabric upon which sustainable capitalism depends.
A pluralistic vision for corporate governance
To move beyond shareholder primacy, we must redefine the purpose of corporations. This begins with recognizing them as public institutions with responsibilities to a broad array of stakeholders—employees, customers, suppliers, and communities. Legal reforms, such as increasing transparency in political contributions, can help align corporate practices with societal needs.
Equally important is fostering a cultural shift. Business schools must move away from teaching shareholder value maximization as a universal goal and instead emphasize the role of corporations in creating shared value. Executives should be rewarded not only for financial performance but also for advancing social and environmental objectives.
The next four years will test whether these ideas can gain traction in a political climate that prioritizes profit over principle. The stakes are high. Trump’s economic policies may provide short-term benefits for a select few but risk deepening inequality, accelerating environmental degradation, and undermining trust in capitalism itself. The urgency to redefine corporate governance has never been greater.
A new narrative for the 21st century
Corporations have the potential to be transformative forces for good. They can drive innovation, create wealth, and address pressing societal challenges. But this potential will remain unrealized as long as outdated narratives like shareholder primacy dominate the discourse.
By embracing a pluralistic vision of corporate governance, we can align business practices with the complexities of an interconnected world. This is not about abandoning capitalism but about ensuring its legitimacy and sustainability. As Trump’s presidency ushers in a new chapter of economic policy, it is imperative to confront these issues head-on. The time for action is now.
Adapted from The Corporation in the 21st Century: Why (Almost) Everything We Are Told About Business Is Wrong by John Kay. Copyright © 2024. Published by Yale University Press.
