Stakeholder Primacy: Do Corporations Exist Primarily to Enrich Shareholders?

True statement. Stakeholder primacy, also known as a corporation’s “prime directive,” has been the prevailing business driver for large corporations for many years.

However, this interpretation of “prime directive” is now undergoing a radical shift. In August 2019, the Business Roundtable, a non-profit corporation made up of the CEOs of major US companies, created a new statement on the purpose of a corporation, also known as "stakeholder primacy." In a nutshell, this latest statement declares that all stakeholders come under the mantle of the Board. The Board can make decisions for the good of their employees, the environment, the economy, and the nation. That’s right; big business is now tasked to support all stakeholders, not just the shareholders. (Melissa C. Bender, Isabel K.R. Dische, Keith F. Higgins, Joshua A. Lichtenstein, Michael R. Littenberg, 2019) So… false.

The Business Roundtable members represent the association, not their individual business interests. These CEOs are from Pepsi, Walmart, Apple, Amazon, and more. The New York Times reported, “The shift comes at a moment of increasing distress in corporate America, as big companies face mounting global discontent over income inequality, harmful products, and poor working conditions.” (David Gelles, 2019)

bear shareholder market and money

A radical shift in the hierarchy of stakeholder needs

Harvard Law School Forum on Corporate Governance and Financial Regulation published an article in June of 2020 regarding stakeholder primacy by shifting how corporations should prioritize their stakeholders. The article describes how Maslow’s hierarchy of needs can be adapted to best meet the needs of all corporate stakeholders — customers, investors, suppliers, employees, and so on. This is a radical departure from “business as usual” triggered by the extraordinary circumstances and economic difficulties brought on by COVID-19.

stakeholder priorities from FCLT pie chart graphics

stakeholder priorities according to FCLT article

The article concludes with “A company’s stakeholders are important to the firm and its success in unique ways. When managed strategically, stakeholder [primacy] needs can be met without jeopardizing the future of the business, even when in the throes of a historic economic crisis. Companies that successfully navigate their own hierarchy will position themselves well to both weather the current storm and thrive in the long run.” (Sarah Keohane Williamson, FCLTGlobal)

What does this stakeholder shift mean for you and me?

Corporations need to take into account the viewpoints and values of their customers and employees. Stakeholders at all levels are becoming involved in changing the attitude that corporations have no heart for anything but money. Will this shift happen, or will it be just “lip service” as usual? Corporate clients and customers are cautious, having been taken in before.

As a small business owner or a solopreneur, our challenge is to differentiate our business from others. Some clients buy from us because we’re local. Some purchase because of what we stand for. We have a social purpose and champion our cause as an intrinsic part of our business brand or identity. Whatever their reason, we must live up to our pledge for our cause and keep reminding them, or they will move to our competition and their cause.

Patagonia, Columbia Sportswear, Whole Foods, and Zappos, to name a few, are excellent examples of large corporations with a great social purpose. As more large corporations move into the social purpose world, small businesses will need to adjust again. The best thing we can do is firmly entrench ourselves in our preferred social purpose.

It’s more about reaching Malcolm Gladwell’s “tipping point” – small businesses will need to double down on staying relevant to their customers. It means reminding our clients why they buy from us in the first place. How and where their money is making a difference. Information on how their dollars are cleaning up the environment, supporting diversity, and making the local area more livable.

Small business is currently at the forefront of this wave. Small business continuously leads the way with new, innovative approaches to business. We will do what we always do; create change and ignite new ways to reach our clients. After all, small business thrives when it provides value to its stakeholders.

More resources:

  • Lynn Stout’s book, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public
  • “Shareholders vs. Stakeholders -- Friedman vs. Freeman Debate - R. Edward Freeman” video

Robynne Davis


Robynne Davis is Executive Director at Xylina SPC, a woman owned, Washington Social Purpose Corporation with an emphasis on social justice and environmental responsibility. She also is the board Secretary for the Oregon Small Business Fair.

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