Reconsidering Shareholder Value: Embracing Prosocial Perspectives
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It’s conventional wisdom in business circles today that corporate directors should “maximize shareholder value.” Corporations supposedly exist to serve shareholders’ interests, and not (or at least, not directly) those of executives, employees, customers, or the community. However, this shareholder-value dogma begs a fundamental question. What, exactly, do shareholders value?
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Most shareholder-value advocates assume that shareholders care only about their own wealth. But it is increasingly accepted that the homo economicus model of purely selfish behaviour doesn’t always apply. This possibility provides a challenge to the dominant business paradigm of “maximizing shareholder value:” the concept of the prosocial shareholder. The problem with the homo economicus theory is that the purely rational, purely selfish person is a functional psychopath. If Economic Man cares nothing for ethics or others’ welfare, he will lie, cheat, steal, even murder, whenever it serves his material interests. Not surprisingly, although homo economicus is alive and well in many economics departments, many experts today prefer to embrace behavioural economics, which relies on data from experiments to see how real people really behave. Behavioural economics confirms something both important and reassuring. Most of us are not conscienceless psychopaths.
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The vast majority of human beings are at least to some degree “prosocial.” In the right circumstances, we can be counted on to make modest personal sacrifices to follow ethical rules and avoid harming others. Of course, it’s easy to doubt pervasive pro-sociality when reading the daily news. We should remember, however, that cheating, corruption, and murder make the news because they are relatively rare. (No newspaper would run the headline: “Employee Doesn’t Steal, Even When No One’s Looking.”) As the phrase “common decency,” suggests, prosocial behaviour is so omnipresent we tend not to notice it.
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Prosociality is endemic. In a common experiment called the social dilemma, anonymous subjects choose between a “defection” strategy that maximizes their own personal payoffs, and a “cooperation” strategy that gains them slightly less, but gives other members of the group substantially more. Up to 97% of subjects choose cooperation in some social dilemmas. Not surprisingly, researchers have found that the incidence of such prosocial behaviours declines as the personal cost of acting prosocially rises. We are more likely to be nice when it only takes a little, not a lot, of skin off our noses. But the scientific evidence demonstrates the vast majority of people will make at least small sacrifices to follow their conscience and help others.
