Business School

Unrealized Potential: Misconceptions About Corporate Purpose and New Opportunities for Business Education

May 1, 2014  • Miguel PadrĂ³ & Business and Society Program

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The dominant conception of the corporation today is that firms exist to maximize value for shareholders. Unfortunately, a narrow understanding of this paradigm causes many business leaders to believe that they are legally and morally obligated to maximize stock price for their investors. This conventional wisdom unnecessarily constrains thinking about the role of corporations in the long-term health of society. In doing so, it may also be an impediment to building the skills that companies, investors, and society are demanding from corporate leaders. We clarify the widespread assumption that shareholders own the corporation, then explore the implications for what is being taught to business students about value creation, risk, accountability, good management, and good governance. Business education is uniquely positioned to develop business leaders and investors who exercise sound judgment, resist the allure of the short term, and thus help realize the full potential of the corporate form.