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Abstract
The purpose of this article is to highlight the sustainability imperatives of businesses against the backdrop of shareholder primacy vis-a-vis pressure on organizational leaders to maximize profit in the short-term for "owners". It is invigorating to learn that the CEOs of the Business Roundtable are committed to expanding the purpose of their organizations to support the wellbeing of communities, workers, consumers, and the environment, as opposed to the hitherto narrow focus of shareholder primacy propagated by Milton Friedman and his acolytes. Corporations were created to serve the interest of society, however, a framework of shareholder primacy may have contributed to the persistent and expansive problems of society including poverty, income inequality, and environmental pollution that causes unfavorable climatic conditions. In this article, the writer assessed the alignment between problems of society and problems faced by organizational leaders thus the need to reject shareholder primacy and adopt a stakeholder framework. In a vibrantly competitive market of today, the purpose of serving the interest of stakeholders as opposed to the purpose of shareholder primacy may be critical to innovative performance, strategic competitiveness, and sustainable growth of businesses.
Keywords: Sustainability, stakeholders, shareholder primacy, innovation, competition.
Introduction
Shareholder primacy, wherein the purpose of organizational leaders is to maximize profits for "owners" may be flawed as societal problems become chronic. As Lazonick (2013) pointed out, the theory of shareholder primacy is detrimental to the U.S economy. Smith (2003) identified that shareholder primacy may be blamed for corporate scandals, notably the activities of Enron and Lehman Brothers that led to the financial crisis of 2008. Businesses employ resources of society to create value needed to improve the wellbeing of consumers and community members at large. Suffices then that business leaders should seek the interest of stakeholders including consumers, employees, community members, the environment, etc., who are resources, consumers, and are affected by a business's production process and products and services.
One may argue that businesses are taxed by the government to provide social goods and services such as roads and hospitals, needed to improve wellbeing thus the purpose of shareholder primacy may not be flawed. However, taxes accrued by the government cannot be used to replenish natural resource bases depleted by corporations or solve problems such as environmental and...