One of the core purposes of corporate governance is to maximize shareholder value through the elimination and reduction of conflicts of interest between management, the board of directors, and the shareholders. It follows from this principle that management should consider the interests of shareholders first. While shareholder maximization theory has its advantages, the downsides associated with this model are rarely discussed.
Last September, a successful businessman spoke to my business fraternity about the millenial generation, which refers to individuals with birth dates ranging from the mid-1970s to the mid-1990s. In two years, Millennials will account for nearly half the employees in the world. He characterized us as instant communicators familiar with social networking. We are more tolerant, expressive, and less religiously observant than our predecessors. We search for meaning through our professions, viewing work as an inherent part of life, not something we do strictly in exchange for income.
It will be intriguing to observe how entrenched business practices react as Generation Y climbs the corporate ladder. The environment, meaningful work, and long-term thinking might conflict with the theory of appeasing grubby shareholders in the short run. This viewpoint has validity--would you work to maximize value for thousands of remote and impersonal individuals you’ve never met? Furthermore, what are the implicit costs of shareholder maximization?
Generation Y has resoundingly expressed that the success of a business should not be measured exclusively by profits. Innovation and societal development are equally as important as the bottom line. Businesses that serve society profitably are likely to thrive in a business world run by Generation Y. An observant person would predict to see a fundamental change how top executives perceive the purpose of business. Time shall tell.
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