"Shareholder Primacy" is Contrary to Common Sense
and Common Good

In his 1/1/06 column, Charles Gusewelle traced the history of The Kansas City Star from an employee owned business through its sale first to Capital Cities Communications, then to the Walt Disney Co., and then to Knight Ridder. And now, though the newspaper yields a solid profit, Knight Ridder seeks to sell it. The buyer will surely be another corporation headquartered far from Kansas City.

In his column, Mr. Gusewelle noted a serious flaw in the structure of corporations. He observed that companies insist on doing business with their “first obligation…to the shareholders.” He expressed that properly a company’s “responsibility…is to the integrity of the product, the employees who create it and the customers who buy it.” I agree and think many local, independent businesses operate in keeping with his philosophy. Publicly-held corporations are preoccupied with immediate profits in order to impress present and potential shareholders. As a consequence, all too often their directors take short-sighted actions to increase the bottom-line at the expense of their products, employees, and customers and sometimes even the environment.

Most readers would agree with the people-friendly principles that Mr. Gusewelle advances, but case law does not agree. In 1919, in Dodge v. Ford Motor Company, the Michigan Supreme Court said, “A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end.” That court decision established “shareholder primacy” and still is the leading legal precedent on corporate purpose.

In the first decades of the United States, corporations were treated differently. Then, a corporation was granted a charter for a limited time and for an explicitly public purpose. Profit for shareholders was merely a means to achieve that public good. Charters often were revoked if the corporation exceeded its authority or caused harm. The founders of our nation clearly valued the common good over profits to corporations. I am puzzled that the United States Supreme Court has not ruled on the lower court’s doctrine of “shareholder primacy.” As I see it, “shareholder primacy” is contrary to the common good and to common sense.

See "Our Hidden History" at www.ReclaimDemocracy.org for more information about the rise of corporate dominance in America.