Why companies maximize profits


Future generations will wonder in disbelief how an economist could promote the idea that the “social responsibility of business is to increase profits”.

That’s like a doctor advertising cigarettes.

Tomorrow’s economists will describe shareholder primacy as the deadliest of ideas. Their students taught that at the start of the 21st century, despite all evidence of the damage it was causing to society and the environment, generations were taught that it was right to maximize profits.

And like the risks of smoking, they will learn that there is more to self harm than simple ignorance. Behind the ubiquitous idea that the purpose of a corporation was to maximise shareholder value was an obscenely successful twelve step marketing campaign.

Through reverse engineering, the talking points of profit maximization can be deconstructed to reveal the design and architecture of the strategy hidden in plain sight:

Get Them Young

Teach business students that the goal of business is to maximise shareholder value.

Marketing Shareholder Primacy : 1 - Get them Young

Stay On Message

Mould public opinion by repeating the three core messages of shareholder value consistently throughout the media and across all platforms:

shareholders are owners | directors are agents | profits are good for society

These supporting messages reinforce the central soundbite of shareholder primacy - maximize shareholder value.

Marketing Shareholder Primacy: 2 - Stay on Message

The Economist Promotes Shareholder Primacy: It Must Be Spring in the Northern Hemisphere

Win Their Hearts

Associate shareholder value with broader societal values - democracy, property rights and accountability.

Marketing Shareholder Primacy: 3 - Win Their Hearts

Do Company Directors Know Right from Wrong

Play Mind Games

Use psychological techniques to promote the goal of maximising shareholder value and suppress discussion of alternatives.

Marketing Shareholder Primacy 4: Play Mind Games

Shareholder Primacy: Paradigm or Groupthink

Lose Their Minds

Activate shareholder friendly scholarship. Exploit blind spots in academic literature and ethics.

Do Scholars Have a Duty to Maximise Shareholder Value? *

Three Contradictions in Australian Director Education

An Open Letter to Corporate Governance Scholars

Exploit a Little Truth

Imply that investors bankroll capitalism when nothing could stretch the grain of truth further.

Argue that because shareholders own something that means they own everything.

Duty Before Virtue : The Real Ethical Dilemma Facing Corporate Governance

How Shareholder Value Tied the Invisible Hand : And Why Unilever Wants it Back

Make it Personal

Create the impression that shareholders are human when the overwhelming number are corporations that buy and sell shares as a way to make profits.

“mum and dad investor” is code for very large corporation.

What do turtles and shareholders have in common?

Change the Law

Change the law to give the investment industry a competitive advantage over other industry segments

Re-frame the Problem

Engage in rhetorical re-framing. Position shareholder value as the solution to the problem caused by profit maximisation. The long-term value discourse is one example of reframing the problem. 

Likewise, Michael’s Porter’s idea of shared value smells a lot like those cigarettes that were advertised as “light”, or “mild” to give the impression of a healthier alternative.

Social Purpose without Social Responsibility : Rethinking the Corporation

Divide and Conquer

Pit managers and directors against each other. A central device in profit maximisation is to keep the Board and management separate.

Reframing the Relationship Between the Board and Management

Open New Markets

Encourage investment industry serving "good governance" in new and emerging markets throughout the world.

Use Fear as a Last Resort

Create fear that if companies act in anyone but the shareholders' best interest, capitalism will collapse.

Sadly, smoking and maximizing profits have more in common than just an effective marketing campaign. Shareholder primacy is the cause of the corporate equivalents of cancer and mental illness- decapitalisation and cotard’s syndrome. But, unlike the doctor who promoted smoking in the 1940’s, the economists not only promoted the idea that the social purpose of the corporation was to increase profits, they manufactured it and groomed generations of business leaders.

Towards a New Science of the Corporation