THE BUSINESS ROUNDTABLE—an association of America’s leading CEOs—committed itself in 2019 to “modernizing its principles on the role of a corporation.” In the past, the group explained, it held that “corporations exist principally to serve their shareholders.” But “it has become clear that this language on corporate purpose does not accurately describe the ways in which we and our fellow CEOs endeavor every day to create value for all our stakeholders, whose long-term interests are inseparable.”
That term—stakeholder—represents a significant shift. But it did not emerge from nowhere. There is an entire historical and political apparatus underlying it that has led to results that are decidedly unfriendly to free markets.
Who are these stakeholders? The Business Roundtable statement invokes “customers, employees, suppliers, communities, and shareholders,” but that isn’t the only definition. One scholar identified no fewer than 593 different interpretations of who qualifies as a stakeholder. R. Edward Freeman, a prominent stakeholderism booster, has argued that stakeholders include “any group or individual who can affect or is affected by the achievements of the firm’s objectives.” Such all-embracing conceptions underpin what is called pluralistic stakeholderism: the theory that companies must consider the effects of their choices on potentially infinite numbers of stakeholders—even to the point of requiring businesses to consult with, if not receive approval from, such constituencies before making any significant decisions.
Shareholders and investors are thus effectively reduced to one of several entities to whom boards
