Beyond Shareholder Primacy

Our current form of capitalism, focused on shareholder primacy, isn’t going to cut it anymore, says Stuart Hart, professor in residence at the Erb Institute and professor emeritus at Cornell University’s Johnson School of Management. In his new book, Beyond Shareholder Primacy: Remaking Capitalism for a Sustainable Future, he explains how a radically sustainable and just form of capitalism is possible—and necessary.

In 1992, Hart started up the University of Michigan’s Corporate Environmental Management Program (CEMP), which later became part of the Erb Institute. He is also cofounder and former director of the Sustainable Innovation MBA program at the University of Vermont’s Grossman School of Business.

Part of the book is historical: looking at how capitalism has evolved since the 15th century, and showing that capitalism has been reformed twice before, and it can be reformed again. While Milton Friedman–style capitalism has been the norm since the 1980s, “we’re not going to be able to achieve the world outcomes that are necessary unless the ground rules for capitalism itself change,” Hart says. “And that’s what motivated me to write the book.”

The book is intended for businesspeople, business students and faculty—but also NGO and government leaders, as well as educated laypeople. In speaking to people about the book, Hart says he’s found that “people’s energy level goes up when you talk about it, because they get a sense that maybe things could be different—that we could actually run business in a different way.”

Hart says, “I think the truth is: People in the business world have known and kind of felt this in their gut for a while now, that the way that the system is running, sort of the dictates of shareholder primacy, the quarterly earnings report model . . . people in public companies are kind of worn out by that, and they know it’s broken, and they know it needs to change.”

Beyond Shareholder Primacy lays out how it can change, including a framework to help companies build “connective tissue” between their corporate purpose and sustainability goals—which often lack connection. For example, many companies have set 2050 net zero goals, but without any clear pathway to how they might achieve them, Hart says.

Companies’ foundational sustainability goals, including emissions, waste reduction, sustainable procurement, and DEI, are “crucially important, but they don’t change what the company does out in the world in a fundamental way,” Hart says. Beyond that, companies need what he calls “sustainability-driven business aspirations,” to include a company’s full upstream and downstream. And, at an even higher level, they need corporate quest—meaning that “companies need to step up to the plate to identify those system-level challenges out in the world that they need to take on in order to enable them to accelerate their business aspirations.” It’s a way to accelerate corporate transformation.

The last part of the book focuses on the systems change and institutional redesign that are needed. “Yes, companies need to be invested and engaged in specific sustainability issues and challenges, but it can’t stop there, because that can become like whack-a-mole. . . . You’re constantly looking, and then another one pops up,” Hart says.

Instead, “the more stable and long-term way to get after that is what Paul Polman and Andrew Winston call being a net positive advocate. If you think of it like a tree, the issues and problems are like the canopy of the tree, with the fruit constantly growing and sprouting new things. The trunk is more enduring, and so you get after the policy agenda—that has a big effect on how the canopy grows,” Hart says. Those two levels are crucial, but there’s a third level—the tree’s roots, which determine how it grows. “The roots of the tree are the institutions that support, define and enable capitalism and business itself.” These multiple roots include public equity markets and business education.

“As long as MBA programs and business education continue to perpetrate shareholder primacy on its students and graduates, they will be projected out into the world and continue that way of thinking and managing,” Hart says.

Beyond Shareholder Primacy is a call to action, and it shows how a better form of capitalism is possible.