What is shareholder capitalism?
Shareholder capitalism is an economic model and business philosophy where the primary objective of companies is to maximise shareholder value. This means that business strategies, investments, and decision-making processes are primarily aimed at increasing market value and distributing profits to shareholders via dividends or share price appreciation.
In a shareholder capitalist economy, short-term profit is often central, with companies focusing mainly on quarterly figures and achieving financial goals to satisfy shareholders. This can lead to decisions that are not always in the interest of other stakeholders, such as employees, customers, communities, or the environment.
Characteristics of Shareholder Capitalism:
- Short-term thinking: Companies strive to achieve short-term profit, often on a quarterly basis.
- Shareholder interest above all: Decisions are primarily made with a view to the return for shareholders.
- Cost savings and redundancies: To increase profits, companies may take measures such as restructuring or redundancies, often without sufficient consideration of the broader impact on employees or society.
- Executive remuneration: The remuneration policy for top executives is often linked to share performance, thereby incentivising executives to increase shareholder value.
Example: A company that dismisses a large number of employees to cut costs and thus increase short-term profit, thereby boosting the share price, is a classic example of shareholder capitalism.
This business philosophy has led to increasing criticism and a call for a more sustainable and inclusive form of capitalism, which also takes into account the interests of employees, customers, communities, and the environment – which is also referred to as stakeholder capitalism.