Rethinking the Purpose of the Corporation

Document Type

Editorial

Publication Date

6-14-2018

Abstract

In 1976 two economists (Jensen and Meckling) introduced the concept of agency costs – the costs of aligning the incentives of different corporate actors. This characterization of the mission of corporate law has led to a 40 plus year search for an organizational Holy Grail – how to align the interests of shareholders and managers (and of controlling and minority shareholders) through a series of techniques, including regulatory standards, independent directors, take-overs and activist shareholders. The advent of the efficient market hypothesis reinforced the focus on market pricing as the arbiter of corporate performance (and of short-term shareholder value as the purpose of the corporation).

Publication Title

Corporate Knights

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