The two previous issues of the Economist magazine cover different aspects of the functioning of companies and the impact they have on shareholder value and other aspects of society.
One set of issues (discussed here and here) deals with the increase in activism among shareholders. While activist shareholders are making their impact felt in companies around the world, there is a question regarding the identity and motivations of such investors and whether their activities will engender short-termist behavior at the cost of long-term prospects of companies. Professor Stephen Bainbridge, who is a key proponent of the director primacy model, takes issue with the shareholder primacy approach that considers shareholders as owners of the corporations whose paramount nature drives the analysis of corporate organization and functioning.
Closely linked to these issues is Economist’s Schumpeter column that reviews a new book titled “Firm Commitment” by Professor Colin Mayer which reconsiders the nature and purpose of a company. The question again relates to whether the goal of shareholder value promoters short-termism, and whether this can be mitigated. The solution proposed in the book is the creation of a new class of companies – trust companies – that would go beyond mere shareholder interest and also balance the interests of other stakeholders.