Shareholders vs Stakeholder

More than a century ago, Dodge v. Ford established the principle of shareholder primacy, holding that corporations have a legal obligation to act in the best interests of their investors. With shareholders in the driver’s seat, the U.S. economy took off.

Shareholder capitalism’s rewards for innovation produced the modern world’s greatest inventions, including assembly lines, airplanes, air conditioning, computers, supermarkets, cell phones, and the internet. Shareholder capitalism built the companies that built America.

Then, 50 years ago, the debate over corporate purpose was reignited. University of Chicago Economist Milton Friedman convinced America to rededicate itself to shareholder capitalism while most European countries diverged and implemented stakeholder capitalism.

Historical Data Shows Shareholder Capitalism Outperforms

America and Europe not only experienced a significant divergence in ideas, but they also experienced a significant divergence in outcomes. Over the past 35+ years, American shareholder capitalism has outperformed European stakeholder capitalism by 3.45% annualized, as exemplified in the graph.