Second, management and board compensation should be reformed to focus on creating and sustaining long-term shareholder value. First, antitrust policies should be vigorously enforced to maintain and enhance competition in product markets and labor markets.

To strengthen the prospects for success of long-term shareholder value maximization, we suggest steps to align shareholder wealth maximization with stakeholder interests. But such public policy interventions are a complement to, not a substitute for, long-term shareholder value maximization. When these markets are not competitive, differential time horizons and differential risk exposures of various stakeholders could lead to differing corporate policies these are bright lines justifying public policy interventions. But importantly, if labor markets and product markets are competitive, the shareholder primacy and stakeholder paradigms would lead to identical corporate policies. Recently, the Business Roundtable’s Statement on the Purpose of a Corporation commits the board to other stakeholders as well - including customers, employees, suppliers, and communities the company operates in. We argue that it is more or less still correct. After years of dominance as a governance idea, shareholder primacy is once again controversial. Fifty years ago this year, Milton Friedman, later to be a Nobel laureate in economics, famously argued that corporate governance should focus solely on shareholder value maximization, while conforming to applicable laws and regulations.

Shareholder maximization conflicts