The Error at the Heart of Corporate Leadership

The Error at the Heart of Corporate Leadership

Author: 
Bower, Joseph L.
Publisher: 
Harvard Business School Press
Date published: 
2017
Record type: 
Responsibility: 
Paine, Lynn S., jt. author
Journal Title: 
Harvard Business Review
Source: 
Harvard Business Review, Vol. 95, No. 3, May-June 2017, pp. 50-60
Abstract: 

Agency theory, a new model of governance promulgated by academic economists in the 1970s, is behind the idea that corporate managers should make shareholder value their primary concern and that boards should ensure they do. The theory regards shareholders as owners of the corporation--but raises grave accountability problems: shareholders have no legal duty to protect or serve the companies whose shares they own; they are shielded by the doctrine of limited liability from legal responsibility for those companies' debts and misdeeds; they may buy and sell shares without restriction and are required to disclose their identities only in certain circumstances; and they tend to be physically and psychologically distant from the companies' activities. Joseph Bower and Lynn Paine examine the agency-based model's foundations and flaws and its implications for companies before proposing an alternative model that would have at its core the health of the enterprise rather than near-term returns to its shareholders. Their model would refocus companies' attention to innovation, strategic renewal, and investment in the future.

Language: 

CITATION: Bower, Joseph L.. The Error at the Heart of Corporate Leadership . : Harvard Business School Press , 2017. Harvard Business Review, Vol. 95, No. 3, May-June 2017, pp. 50-60 - Available at: http://library.au.int/error-heart-corporate-leadership