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In the aftermath of the Great Recession, when almost everyone in the world has been hurt by questionable corporate practices or their consequences, the voices of critics, especially those proposing revolutionary paradigms, begin to sound more and more like prophets. In the wake of corporate scandals, revelations about executive arrogance and selfishness and regulatory failures, some critics of the current practices of corporate capitalism are suggesting that the appropriate alternative is to emphasize social responsibility. Other management experts have observed that a system that preferentially rewards shareholders and executives who manipulate the stock price but slights other stakeholders is irredeemably flawed because it fosters destructive tactical gamesmanship at the expense of long-term strategic thinking. Still other management thinkers believe that management needs to be reinvented to address the demands of modern high-speed marketplace where customers and the most valuable employees have more information, alternatives and clout than ever before. Implicit in this approach, and that of social responsibility, is the need to articulate a new purpose for the firm that is more legitimate than maximizing financial returns for shareholders.
These various perspectives for proposed change can be grouped into three categories:
- Modify the shareholder value strategy.
- Become socially responsible.
- Adopt radical management practices.
Modify the shareholder value strategy
Shareholder value is now the core purpose of the modern corporation - and required by legislation in many states. The basic thesis is that the only legitimate raison d'être for the corporation is to enhance the wealth of the shareholder. But critics rightly note that the shareholder-value system is inherently flawed. It doesn't distinguish between the interests of investors and short-term shareholders. It doesn't reward long-term strategies and investment in innovation. By viewing the corporation as a financial opportunity rather than a living social activity, it puts the long-term competitiveness of the corporation in jeopardy.
Furthermore, the shareholder-value system has been gamed. It's easy, for example, to play tricks to boost stock valuation at the expense of long-term strategic advantage. As another kind of gamesmanship, some firms invested heavily in lobbying and tax manipulation and turned their tax law departments into profit centers. GE recently reported with pride that "We expect to have a small US income tax liability for 2010." In fact, the...