Maximising shareholder profits isn’t good business in the long term
John Kay’s The Corporation in the 21st Century critiques the dominant tendency in business to prioritise short-term shareholder-value over long-term performance, which he claims damages both corporations themselves and the wider economy. Hans Despain finds Kay’s provocative, historically grounded study a brilliant and persuasive contribution to business studies and political economy.
The Corporation in the 21st Century: Why (Almost) Everything We Are Told About Business is Wrong. John Kay. Profile Books. 2025 (paperback); 2024 (hardback).
How corporations have evolved over time
What if the prevailing wisdom on what makes a successful and durable business is entirely wrong? John Kay’s The Corporation in the 21st Century makes exactly that claim, upending the apple cart of contemporary business strategy, and making a brilliant contribution to business economics, industrial organisation, political economy, and institutional economics in so doing. Drawing from the work of Margaret M. Blair and Lynn Stout, Kay demolishes the 40-year shareholder-value orthodoxy, by demonstrating that maximising short-term financial targets may enrich a small class of executives, but it causes a slow self-euthanasia of the corporation over decades. This ambitious book describes the emergence of a new economic institutional order, very much in the tradition of, and inspired by, Adam Smith’s The Wealth of Nation, Karl Polanyi’s The Great Transformation and John K. Galbraith’s The New Industrial State.
Although the dominant forms of “capital” used by the modern corporation have transformed, the language used to describe capital has not. In the 19th and 20th centuries, physical capital was dominant: textile mills and iron works, railways, steel mills assembly lines, etc. (59-70). But the 21st-century corporation is no longer defined by its physical capital (4), nor by the bourgeoise and proletariat class struggle. Instead, today’s dominant forms of capital are human (skills, experience, judgement of employees), social (trust, relationships, reputation), organisational (culture, routines, ways of working), and intellectual (knowledge, data, innovation) (335- 40). For example, Amazon requires warehouses, vehicles, and stocks of goods it rents rather than owns them (304). According to Kay the evolutions of the dominant forms of capital and modes of work have transformed capitalism into a post-capitalist economy, which he calls a “pluralist economy” (8; 351-3).
That the evolution of capital has transformed the mode production is debatable. From a global perspective it is not clear the importance of physical capital has diminished. G7 economies have simply exported physical capital from their shores to places like China, South Korea, Mexico, and a slew of small economies across the globe. The Smithian/Marxian class struggle is now more global than ever. Although the forms may have changed, international class struggles persist, as articulated in the massive increase in inequalities of income and wealth across all the G7 economies.
The consumer paradox and the rise of short-term thinking
In writing this book, Kay is motivated by a paradoxical observation: consumers love the products of big corporations but hate the producers (13-25). We love our smartphones, computers, search engines, automobiles, online shopping with fast deliver, retailers who provide cheap prices and budget airlines. But we view the corporations who sell these products and their executives as overly greedy, exploitive of their workers and suppliers, social irresponsible, often unethical, sometimes criminal, and corrosive of democratic processes by influencing politics. In the 21st century there is massive distrust of big business, and it is widespread across the G7 countries and most developed nations across the globe. Kay attributes this to an over-focus by corporations on short-term financial goals such as profit maximisation, cost minimisation, and shareholder value (178-85; 193-201).
The pursuit of short-term financial goals gained prominence in the 1980s and was entrenched by the 1990s
Milton Friedman’s notorious article from 1970, “The Social Responsibility of Business Is to Increase its Profits” became a paradigm expression of this short-termism. The pursuit of short-term financial goals gained prominence in the 1980s and was entrenched by the 1990s. By the 2000s, short-termism began to have adverse consequences for society and firms themselves. Not only does it damage public trust in big business, Kay maintains; it undermines the long-term performance and survival of businesses themselves (193-201).
The Fortune 500 annually lists the 500 biggest US firms by total revenue. Only 49 firms on the 2025 edition were also on the original 1955 list. Of these 49, they have tended to resist maximising shareholder-value. Instead, they have stayed committed to their core capacities and long-term purpose at the expense of short-term financial targets (87-92), including Bosch, Toyota, Bershire-Hathway, and Unilever. Boeing resisted short-termism until a culture shift in early 2000s generating an all-time high value for the company, with the share price reaching $400 in 2019. Then planes started falling out of the sky; so did Boeing’s stock price (236-8; 18-19).
Financialisation and macroeconomic instability
According to Kay, focus on short-term financial targets significantly contributes to the historical process of “financialisation”, defined by Gerald Epstein in 2005 as “the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies.” Kay maintains financialisation generates macroeconomic instability. In two earlier books, The Long and the Short of It (2009) and Other People’s Money (2015) Kay argues the financial industry has become too large, too powerful and too misdirected in its activities. Worse, the financial institutions misdirect the activity of other businesses.
Short-term financial incentives give rise to asset bubbles and recessions, encourage excessive risk-taking, irresponsible speculation, and increase the trading of financial products that benefit financiers and bankers
Short-term financial incentives give rise to asset bubbles and recessions, encourage excessive risk-taking, irresponsible speculation (198-9), and increase the trading of financial products that benefit financiers and bankers themselves, rather than their more traditional behaviour of supporting productive businesses, savers, and the wider economy. Kay further underscores that financialisation has given rise to the “finance curse” (243-50) whereby resources get misdirected to the oversized financial sector, reducing real growth and widening inequality.
From shareholder ownership a stakeholder approach
Shareholder value maximisation presumes that shareholders are the “owners” of the company. But Kay insists that shareholders do not own the company but merely own shares therein. They cannot use the corporation’s assets and have no direct control of what the firm does. The shareholder ownership myth distorts the corporate purpose. Viewing shareholders as owners encourages excessive focus on short-term share price, which has had negative consequences for employees, customers, long-term value, and for company growth, even company survival itself.
Kay supports the “stakeholder” account of business (19-21) whereby the corporation brings together employees, managers, suppliers, investors, customers, and other community members who have no formal contract or formal transaction with the corporation. What binds these stakeholders is not contracts but invested interest in the activities of the corporation. Here, as elsewhere in the book, Kay uses a sports to illustrate how this works. He contends that superstar athletes such as footballer Lionel Messi become great, not merely through competing, but primarily through the cooperation and collective activities with teammates, coaches, trainers, supporting staff and the energy of fans (132-9).
Long-term successful businesses are shown to be more communitarian and socially engaged […] purpose-driven social institutions whose success depends on trust, collective activities, core capacities, and long-term stewardship.
The role of managers is to protect and balance the various stakeholders’ interests to generate trust, empathy, and fairness between them. By this logic, the most important assets are collective knowledge, collective intelligence, and collective action (101-15) including employee skills and experience, organisational routines, shared culture values and norms, and long-term relationships of trust. The corporation as a stakeholder-based social organisation is their collective activities. Collective activities are created through cooperation and trust over time and cannot be owned, traded, or replicated easily (113-5). When a sense of trust, empathy, and fairness is broken the corporation is in trouble (276-89).
Too often the stakeholder model of corporation is seen as largely normative, i.e., it prescribes how firms ought to behave and be managed. One of the greatest strengths of Kay’s argument is the evidence-based assertion that most long-term successful businesses do behave and are managed this way. Such businesses are shown to be more communitarian and socially engaged, e.g. John Lewis Partnership, Bosch, Toyota, IKEA, Mars, Patagonia, Ben & Jerry’s, and worker-owned models like Mondragon. These corporations are purpose-driven social institutions whose success depends on trust, collective activities, core capacities, and long-term stewardship.
The Corporation in the 21st Century is political economy at its best, and an essential critique of the mainstreaming of short-term financial goals in business. The book is impressive for its rich business history and full of anecdotal examples of the activities of individual businesses. Most of all, Kay’s sharp institutional analysis of how businesses succeed long-term, and how they fail by following the prevailing trend of short-term shareholder returns, is brilliant and urgently needed. It will surely make the book an instant – and long-term – classic.
Note: This review gives the views of the author and not the position of the LSE Review of Books blog, nor of the London School of Economics and Political Science.
Main image: SvetaZi on Shutterstock.
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