Shareholder capitalism is blamed for many of society's problems, from inequality to short-termism. This book argues that the critics have it backwards: the pursuit of shareholder value promotes the common good. The argument differs from Milton Friedman's familiar defense, which focused on the responsibilities of corporate managers.
Shareholders are residual claimants—they are paid only after customers, employees, suppliers, lenders, and governments have received their shares. Creating shareholder value, therefore, requires creating value for others first. More broadly, profits and losses direct scarce resources toward their highest-valued uses, and the prospect of profit drives the innovation behind two centuries of rising living standards.
The book takes on the main criticisms of shareholder capitalism—short-termism, share buybacks, and the treatment of stakeholders—and contrasts it with the frameworks vying to replace it, such as ESG. It asks when corporate efforts to address social problems are justified, and when they instead substitute the judgments of corporate managers for decisions better made through democratic institutions.
The book is nontechnical—no business or finance background needed.
Here is a 15-minute talk summarizing some of the main themes in the book. You can also watch me discuss the book at a book forum hosted by the Cato Institute. You can order a copy of the book here.
Endorsements
“Shareholder capitalism is accused of being the cause of all the world’s problems. This eye-opening book highlights that shareholder capitalism involves mutually beneficial trade, pursuing bold innovations that address society’s challenges, and creating long-term value for stakeholders. It’s based on sound economic principles, not ideology, yet is highly readable and brimming with real-world examples. Read it—it will change the way you think.”
-Alex Edmans, author of Grow the Pie: How Great Companies Deliver Both Purpose and Profit and professor of finance at the London Business School
“This book is a must-read for anyone who wants to understand what shareholder capitalism is and what it is not. David McLean offers a full-throated defense of shareholder capitalism by drawing on historical insights from notable economists such as Adam Smith, Joseph Schumpeter, Milton Friedman, and Thomas Sowell and linking them to current real-world examples. This highly readable book compares and contrasts the shareholder capitalism approach to the stakeholder capitalism approach to dispel common misinformation, misconceptions, and fallacies about both.”
-Michael Piwowar, former commissioner of the U.S. Securities and Exchange Commission and former member of the President’s Council of Economic Advisers
“Few ideas are more salient than the shareholder wealth maximization principle for continued growth and survival of humanity. David McLean not only blunts the serious assaults leveled against it but presents the shareholder wealth maximization principle in a lucid, accessible narrative that is sprinkled with historical anecdotes. The book has the potential to set straight those who have misguided concerns about the shareholder model and arm the believers with cogent arguments extolling the virtues of maximizing shareholder wealth.”
-S. P. Kothari, professor of accounting and finance at MIT and former chief economist and director at the U.S. Securities and Exchange Commission