Generating Knowledge for Sustainable Development: The Case against the Corporate Objective Function

Brent D. Beal

The purpose of this chapter is to convince you to think differently about how large corporations are managed. This is not an attempt to make the case that corporations need to do a better job of avoiding imposing harmful externalities on third parties, or that corporations need to be more thoughtful, or more caring, or that the most effective way to maximize shareholder value is to make sure that all stakeholders are treated fairly. This is not, in other words, another attempt to state what I believe to be obvious, that is, that “the modern business corporation should recognize that, in this day and age, it can no longer hungrily pursue the single goal of profits to the complete neglect of its table manners” (McGuire, 1963: 144). It is assumed that this question has been settled: Yes, even corporations that are single-mindedly focused on profits need to be polite about it and recognize that they need to work with other stakeholders to achieve this objective. This chapter is not about this kind of “enlightened” approach to shareholder value maximization.

This chapter goes deeper than that. You are being asked to suspend disbelief (or at least intellectual resistance) for long enough to process the arguments outlined below and then to take a few minutes to think about where this line of reasoning leads and how it relates to sustainable development. Sustainable development is defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (United Nations, 1987). Sustainability, as the term is used in this chapter, echoes common-sense notions of durability and longevity. Although the term implies a reluctance to despoil the natural environment in ways that may benefit us today, but impoverish future generations, it is also shorthand for efforts to find an internal systemic balance that contributes to the long-term health of our economic institutions and the social institutions in which they are embedded. The term “corporate objective function” in the title of this chapter is derived from an academic paper written by Michael C. Jensen in defense of the accepted notion that publicly traded corporations should be managed with the objective of maximizing shareholder value (or, as Jensen puts it, “firm value maximization,” where firm value is defined as shareholder equity, and where shareholder equity is, by definition, a static measure of firm profits over time; Jensen, 2002).

According to Jensen, maximizing profits is the only “principled criterion for decision-making” that will keep managers from making inefficient tradeoffs and/or pursuing their own interests, thereby destroying economic value and ultimately short-changing both shareholders and society (Jensen, 2002: 11). Firms must have a yardstick with which to measure performance and an unambiguous single decision criterion by which to judge strategic decisions. More complex approaches that attempt to address competing stakeholder interests are inferior to a shareholder focus because these approaches “fail to provide a complete specification of the corporate purpose or objective function” (Jensen, 2002: 9). Although the term may be awkward, the phrase is loosely derived from simplistic mathematical modeling involving single-variable functions. In this context, according to Jensen, it is a practical impossibility to simultaneously maximize more than one variable at time. Shareholder value maximization, according to Jensen, is not only an acceptable yardstick and decision criterion, it is “unambiguously the preferred goal among available alternatives” (Sundaram and Inkpen, 2004: 359).

Contrary to Jensen’s assertions, the purpose of this chapter is to explain why, in many contexts, the application of a single corporate objective function is likely to lead to inefficient tradeoffs and self-reinforcing systemic imbalances that have the potential to threaten our economic and social institutions. Although there is widespread acceptance of the notion that firms need to address the needs of all stakeholders—referred to above as “enlightened” shareholder value maximization—the reason often given for this acknowledgment is, ironically, that doing so is the most expedient route to maximizing shareholder value. A quick perusal of textbooks used in undergraduate and graduate strategic management courses unambiguously demonstrates that shareholder value maximization (and its associated narratives and justifications) is one of the foundational assumptions of the field of strategic management.1

If firms are to pursue a course of sustainable development, however, an “enlightened” approach to shareholder value maximization isn't good enough. To see why this is the case, the following three premises are offered: (1) The purpose of the modern organization is to create economic value; (2) economic value, once created, flows to one or more of three societal groups: capital, consumers, or labor; and (3) transferring value from one societal group to another is not the same as creating economic value. Using these premises, it is argued that the corporate objective function (i.e., shareholder value maximization) is fundamentally incompatible with the principles of sustainable development. At the end of the chapter, three reasons are offered for why this is the case. Before we get to that, however, each of these three premises needs to be addressed in more detail, and a possible exception to this conclusion needs to be acknowledged.

Premise 1: The purpose of the modern economic organization is to create economic value.

There is little disagreement about how economic value should be defined. Jensen, in his article on the corporate objective function, provides a workable definition: “. . . value is created—when I say ‘value’ I mean ‘social’ value—whenever a firm produces an output, or set of outputs, that is valued by its customers at more than the value of the inputs it consumes (as valued by their suppliers) in the production of the outputs” (Jensen, 2002: 11). A leading textbook on the economics of strategic management provides essentially the same definition: “Economic value is created when a producer combines inputs such as labor, capital, raw materials, and purchased components to make a product whose perceived benefit B exceeds the cost C incurred in making the product” (Besanko et al., 2010).

For present purposes, there is no need to complicate these relatively straightforward definitions. To determine if an organization has created economic value, first add up the subjective value of all the resources required to produce a given product or service. Include everything: intangible and tangible resources, the cost of capital, variable costs, fixed costs, entrepreneurial, physical and administrative labor, intellectual property, and so on. If it helps, imagine all these resources piled in a heap on the 50-yard line of a football stadium. Now, imagine meticulously assigning a value to each of these items and adding these values up to get a total. Once you have a number for the value of all inputs, do the same for all the products and/or services produced using these inputs. Again, if it helps, imagine all these products and/or services in a giant heap on the 50-yard line of a football field. Just as before, assign a value to each good and/or service and add all these values together to get a total. Subtract the former (the value of all inputs) from the latter (the value of all outputs); the difference is the economic value created by the firm. Note that the value of both inputs and outputs is subjective. In an exchange economy, in cases where the inputs and outputs represent private property, this value will be, more or less, the “market” price for the input or output in question. In many cases, however, particularly when public or collective goods are involved, the process of valuation becomes much more difficult.

The purpose and appropriate governance of the modern corporation has been debated in the United States for more than 150 years (Bradley et al., 1999; Sundaram and Inkpen, 2004). Regardless of the specifics of how corporations were formed (e.g., in the first part of the nineteenth century, it required a legislative act by state government), or the degree to which shareholder interests are privileged over the interests of other stakeholders (this has varied historically), the broad notion that corporations should create economic value has remained consistent. Acknowledgment of this reality, although relatively uncontroversial, represents an important premise that will anchor subsequent arguments.

Premise 2: Economic value, once created, flows to one or more of three societal groups: capital, consumers, or labor.

This premise can be conceptualized as a conservation rule, like the conservation of energy or the conversation of heat in the physical sciences, although a bit messier (given that social processes are involved). Economic value, once created, can be destroyed by organizations prior to distribution, through bad investments or so on, but an abundance of care is usually exercised to ensure that this doesn't happen. Organizations may also warehouse or store economic value for extended periods of time in the form of shareholder equity. To simplify things, the possibility of value destruction is assumed to be rare enough to be ignored for present purposes. Because corporations are legal fictions (and therefore cannot consume economic value), it is assumed that stored value will eventually flow to individuals.

Figure 3.1 is a circular flow diagram modeled after similar flow diagrams used in macroeconomics to conceptualize and track national accounts. In Figure 3.1, all firms (and all inter-firm exchanges, including all supplier and value-chain relationships) are represented by the box labeled “Firms.” This simplification reflects a decision to focus only on the exchanges between individuals and economic institutions, rather than on interorganizational exchanges (exchanges that are assumed to be zero-sum transactions with respect to economic value). Individuals are represented as being part of three different societal groups: (1) labor or employees, (2) capital or investors, and (3) consumers or customers. For present purposes, in the interest of simplification, only individuals in these three groups are assumed to engage in direct exchanges with firms.

Boxes representing societal groups are drawn with dotted lines that indicate that individuals often belong to all three of these different groups (e.g., they earn a paycheck, have retirement savings that is invested either directly or indirectly as capital, and routinely purchase different goods and services). Three arrows in Figure 3.1 (labeled #1, #2 and #3, respectively) represent exchange relationships with labor (or employees), capital (or investors), and consumers (or customers). The circular nature of these relationships should be evident. For example, firms exchange money (typically) for needed inputs (labor and capital), and this money circulates back to firms in their exchanges with consumers (i.e., consumers exchange money for goods and services produced by firms). From the consumer perspective, they exchange money for different goods and services, and this money circulates back to them in the form of payment for their labor.

Figure 3.1 Business and society value flows and influence relationships

If economic value is created by the organization, it is passed to these groups via these same exchange relationships. Understanding what it means (or what it “looks like”) to distribute economic value via these exchange relationships is critical to subsequent arguments and, therefore, merits additional clarification. Imagine a scenario in which an organization creates no economic value, but no societal groups experience any loss in their respective exchanges with the organization (i.e., each group “breaks even”). By definition, in this scenario the value of all inputs is precisely equal to the value of all outputs. Let's break this down by societal group. In the case of capital or investors, this implies that the return on investment is exactly equal to the minimum they would have accepted at the outset. If, for example, suppliers of capital would have insisted on a 3 percent return, or they would have declined to provide it, then in this scenario they realize precisely a 3 percent return. Visualizing a break-even exchange relationship for consumers is more counterintuitive, but follows the same basic pattern. Consumers neither lose nor benefit from engaging in exchanges with the organization. If the organization produces TVs or t-shirts, for example, then these items are priced at precisely the value that consumers place on them. If, for example, an individual consumer believes a TV produced by the company is worth $300 dollars, then it is assumed that this consumer pays exactly $300 for it. If this consumer were to pay less for the TV, then the consumer would realize a net gain in the exchange in the form of consumer surplus (defined as the difference between the value placed on a good or service by a buyer and the value this same buyer gives up in exchange for this good or service). As is the case with capital and consumers, labor neither loses nor benefits from its exchanges with the organization. This implies that employees are paid the minimum they will accept in exchange for their labor; if they were paid any less, they would cease to work.

Although this is an odd scenario that doesn't occur often, if ever, in the real world, considering it in a hypothetical sense is instructive. In this scenario, there is no economic reason this organization should exist. Because no societal group benefits from its exchanges with the organization, this organization could disappear and no one would be worse off in an economic sense. Now let’s imagine that this same company changes the way it does business. Because of improvements in the way human resources are organized, or because of more efficient resource configuration, for example, this company is now able to produce a small amount of value. To make things concrete, let's assume that this company now utilizes $10,000 in resources to produce output with a total value of $10,100. According to the perfect competition market model (Beal, 2014), competition should push marginal revenue down to marginal costs. If this were the case—in other words, if this company operated in a competitive context that approximated the perfect competition market model—where would this $100 of economic value go? Which societal group—capital, consumer, or labor—would get it? Two related questions also come to mind: (1) Which group (or groups) “should” get it, and (2) in the real world, which group actually gets it? We’ll come back to these questions.

There are two additional relationships depicted in Figure 3.1, labeled #4 and #5, respectively. These relationships represent the relationship between (1) firms and governmental and institutional laws and policies, and (2) firms and norms, narratives, and expectations regarding the product role and conduct of business activities (Stone, 1975). It is important to note that these relationships are mutually defining and circular in the sense that firms collectively shape the laws, policies, and norms that subsequently circumscribe their behavior. Although only mentioned in passing in this chapter, laws and policies, and norms, narratives, and expectations constitute the legal and social context, respectively, that defines the structure and character of the direct exchange relationship between firms and societal groups. These moderating relationships are represented by gray arrows extending from these two boxes to the first three direct-exchange relationships (see Figure 3.1). Three additional gray arrows represent the direct relationship between society and (1) laws and policies; (2) norms, narratives, and expectations; and (3) firms themselves.2

Premise 3: Transferring value from one societal group to another is not the same as creating economic value.

Taking value from one group and transferring it to another can be distinguished—in theory, at least—from creating economic value. For example, a TV manufacturer raises its prices by $10 per unit, but despite this price increase, sells the same number of TVs. It then uses the additional revenue from this price increase to raise its annual dividend payment to shareholders. In this case, because the increase in economic value delivered to shareholders is offset by an equivalent decrease in economic value delivered to consumers in the form of consumer surplus, it should be clear that no additional economic value has been created. Other possible value-neutral transfers between societal groups could easily be envisioned. For example, a firm might negotiate a decrease in pay with its employees and then use the cost savings to lower the price of its products. In this case, economic value would be transferred from employees (or labor) to consumers (in the form of an increase in consumer surplus). Or increased competition may force a company to lower its prices, and this price decrease may be offset by a combination of lower wages and lower payments to capital.

Circles and Ellipses

There is, at least in theory, if not in practice, a set of special circumstances under which the adoption of shareholder value maximization as the corporate objective function could be compatible with sustainable development. If all firm transactions were to take place in the context of perfectly competitive markets—that is, in markets that satisfy a number of important conditions, including fully informed participants, homogeneous products, the absence of bargaining power, costless entry and exit, no third-party effects or externalities, and so on—then it is possible to make a case that maximizing shareholder value may be compatible with sustainable development (although there may still be inherent problems with equity and the distribution of economic wealth; Walters, 1993). We need to put this in perspective, however. Economic markets that meet these basic criteria represent relatively rare and tenuous conditions under which the “knowledgeable voluntary exchange of alienable commodities” driven by self-interest are likely to produce good collective results—just as “only some ellipses are circles” (Schelling, 1978: 33).

The author of the defense of shareholder value maximization cited above acknowledges that there are “circumstances when the value-maximizing criterion does not maximize social welfare—notably, when there are monopolies or externalities” (Jensen, 2002: 11). This list needs to be expanded considerably. First, it is important to recognize that social welfare maximization (an outcome is currently treated, tentatively, as compatible with sustainable development) requires that all exchanges with capital, consumers, and labor take place in perfect or near-perfect economic markets, not just its exchanges with consumers. In other words, firms must engage with capital, consumers, and labor, in market contexts involving large numbers of participants on both sides of the exchange, and all these participants must act independently. No participant can have the ability to effect prices; in every case, there must be sufficient uniformity or homogeneity to eliminate switching costs, and entry and exit into each of these markets must be costless (i.e., no entry or exit barriers). There can be no artificial constraints on prices, each participant must be perfectly (and costlessly) informed, and there cannot be any information problems or problems with natural monopolies. There cannot be network externalities or interdependencies related to product formats or standards, and so on (this is not an exhaustive list; Bator, 1957; Beal, 2014; Lindblom, 2001; Walters, 1993). Although there are some consumer markets for some products and services that come close to meeting these conditions (e.g., commodity markets), an honest assessment of labor “markets” should demonstrate how far this hypothetical ideal is from reality.

Here are two quick tests of whether firms operate in a context that is sufficiently market-like to justify the assertion that shareholder value maximization will maximize social welfare. This is a critical point because the primary justification for the corporate objective function is that it is the best path to collective prosperity. Here’s the first test. Near the end of our discussion of Premise 2 above, a scenario was proposed in which a company created a certain amount of economic value. To make things concrete, it was suggested that this company was able to generate outputs with a total value of $10,100 utilizing $10,000 in resources, and then this question was posed: If this company operated in a competitive context that approximated the perfect competition market model, where would this $100 of economic value go? To answer this question, think carefully about how ideal markets are supposed to function. In a perfectly competitive capital market, investors will compete with each other to supply capital to firms, and this competition will drive down the rate of return until the return demanded represents the minimum acceptable return, taking into the account the time value of money and the risk involved. Neither the firm nor the suppliers of capital will be able to exert any control over pricing in this exchange. The same process will occur in the consumer market, and firms, as suppliers to this market, will be forced to lower their prices until revenue is equal to marginal cost. Likewise, this same process will occur in the labor market, with potential employees competing to supply labor to the organization until the price of this labor has fallen to the minimum acceptable level. Under these conditions, based on current accounting standards, the firm will earn an accounting profit, but this profit will only be sufficient to compensate the suppliers of capital for the time value of invested resources and the accompanying risk. It will not earn any economic profit (in other words, it will not earn any abnormal return). What this means—to answer the question posed above—is that under perfect market conditions, the $100 economic value created by this hypothetical firms will go to consumers in the form of consumer surplus. In general, in properly functioning economic markets, consumers will get all the economic value created by economic organizations. One test of whether or not firms operate in properly functioning or ideal markets, therefore, is to ask this question: Are shareholders, different classes of employees (e.g., CEOs, executives, top managers), or other stakeholders able to extract economic value, defined as anything above the minimum return or payment sufficient to induce continued participation, from the firm? If the answer to this question is “yes,” then the market, as a governance mechanism, is not working properly, and there is no guarantee that shareholder maximization will lead to welfare maximization (in fact, the opposite is likely true).

A second test—a test that overlaps the first test in several ways—is to ask this question: Do firms have any bargaining power in their exchange relationships with different societal groups? Asking about bargaining power exposes an irony that deserves comment. The entire field of strategic management is built on the assumption that firms can—and should—work to achieve some degree of pricing power in consumer markets. This can be achieved, according to the tenets of strategic management, in several different ways (e.g., low-cost leadership, differentiation, etc.), but the goal is the same: a sustainable competitive advantage as evidenced by the realization of abnormal shareholder returns. In other words, the entire field of strategic management is premised on an assumption that invalidates the assertion that shareholder maximization will lead to the maximization of social welfare. It is impossible, if economic theory is applied in a coherent and consistent manner, to simultaneously assert that firms can (and do) develop sustainable competitive advantages—an outcome that violates a number of necessary conditions for proper market functioning—and that shareholder value maximization will also lead to welfare maximization. The existence of the field of strategic management, in other words, is enough to undermine its claim that profit maximization by individual firms will lead to welfare maximization.

Although rarely discussed in the context of strategic management, it is also clear that firms expend a great deal of time and energy working to develop and maintain bargaining power in the labor market as well as in the consumer market. This is achieved through shaping public policy and influencing the evolution of labor market norms (see Figure 3.1, arrows #4 & #5). In practice, these efforts take the form of political lobbying, the use of temporary labor, part-time labor, off-shoring, outsourcing, different internal initiatives and practices (e.g., reengineering), and various efforts to prevent unionization (Mishel, Schmitt, and Shierholz, 2014; Morgan and Cha, 2007). In addition to these mechanisms, capital has become increasingly mobile (in a geographic sense) and particularly adept at exploiting the fact that labor's bargaining position is often undermined by biological necessity (i.e., individuals often have to work in order to secure food and shelter; Harvey, 2014). These efforts and other factors have skewed the bargaining balance between firms and labor decidedly in favor of the former (Morgan and Cha, 2007; Piketty, 2014).

The point of this section is this: We live in a world of ellipses, not circles, and understanding this reality is essential to understanding why shareholder value maximization is problematic. If markets are assumed to function perfectly—an assumption that involves a number of interrelated assertions often collectively referred to as the perfect competition market model (PCMM; Beal, 2014; Beal and Neesham, 2012), American corporate capitalism (George, 2014; Kasser et al., 2007), or neoliberalism— then firms cannot, by definition, control the flow of the economic value they create. Under perfect market conditions, competition will bring revenue in line with total cost in the consumer market, and the same will happen on the supply side for both the capital and labor markets. This implies that firms have no freedom to transfer economic value from one societal group to another. The “market” makes this decision, and the verdict is that all economic value created by an organization goes to consumers in the form of consumer surplus. When it is asserted that we live in a world of ellipses, not circles, what is meant is that firms, in reality, do have the capacity to make allocation decisions with regard to the economic value they create, and they exercise this capacity on a daily basis. This implies that managers of modern economic organizations play two roles: (1) They are tasked with the responsibility of organizing and directing the productive activities of their organizations in order to create as much economic value as possible and (2) they make decisions that influence how the economic value they create is distributed across the three societal groups depicted in Figure 3.1.

Shareholder Value Maximization and Sustainable Development

There are three primary reasons why the three premises presented above lead logically to the conclusion that shareholder value maximization is fundamentally incompatible with sustainable development. The following three reasons are presented as assertions with relatively little explanation; it is left to the reader to draw on the discussion to this point to supply supporting arguments.

First, from a shareholder maximization perspective, there is no distinction between creating profit (by creating economic value) and appropriating profit (by rerouting economic value flows away from other societal groups). Second, because no distinction is made between creating profit and appropriating it, there is no guarantee that firms won't focus on the latter rather than the former. And third, firms have a clear incentive to make inefficient tradeoffs between societal groups. For example, if a firm can take a million dollars from labor by lowering compensation (because of its bargaining position), and then deliver half-a-million dollars to shareholders in the form of increased profits, if it seeks to maximize profit instead of maximizing economic value, it will do so. In this case, the missing half million—the reason that lowering wages by a million dollars doesn't increase profits by the same amount—is due to decreased employee motivation and goodwill. In other words, although this hypothetical tradeoff increases profits by half-a-million dollars, it results in the loss of half-a-million dollars in economic value (and, in this sense, it is an inefficient tradeoff).

For those who have been engaged for some time in critiquing the corporate objective function (or the shareholder model, in general), these arguments here may seem tired, redundant, and even unnecessary. Although an attempt has been made to frame these arguments in a unique and compelling way, there is very little, if anything, in this chapter that hasn't already been stated in some form by a number of other scholars (see, for example, Alvesson and Willmott, 1992, 2012; Burawoy, 1979; Dyer et al., 2014; Harvey, 2014; Parker, 2002). Regardless of how obvious these conclusions may be to many, however, the logic and reasoning behind the corporate objective function remains an integral part of the dominant ideological business paradigm on display in nearly all strategic management textbooks from major publishers used in most capstone undergraduate and graduate business courses, particularly in the United States (e.g., McGraw-Hill, Pearson Prentice Hall, South-Western Cengage Learning, and Wiley, see footnote 1).

Even if you are now convinced that the logic and assumptions that undergird the corporate objective function are likely to lead to inefficient macro-level outcomes if implemented in contexts that fall short of the market ideal (i.e., in almost all cases), it should be clear that a critical follow-up question has been left unaddressed: What should firms do about it? If finding an answer to this question seems more important or more urgent than it did before reading this, then this chapter has served its purpose. In abstract, firms need to focus on maximizing economic value while simultaneously contributing to laws, policies, and norms that contribute to a distribution of that value that reflects widespread notions of equity, fairness, and social justice. Given the complexity of economic systems, however, and the need to maintain and align incentives that lead to desired outcomes, this is much easier said than done. The emergence of multistakeholder organizations dedicated to the implementation and regulation of corporate social responsibility programs, and ongoing efforts to acknowledge, measure, and reward the creation of economic value (rather than shareholder value), such as the UN Global Compact, the International Standards Organization 26,000 corporate social responsibility standards, and the Global Reporting Initiative’s sustainability reporting framework, all represent important steps in the right direction (Moon, 2014).

It can be assumed that the greater the deviation between actual and ideal market functioning, the greater the bargaining power firms are likely to possess, the greater the misspent resources dedicated to transferring or appropriating economic value instead of creating it, and the greater the potential inefficiencies of ill-advised tradeoffs motivated by a singular focus on maximizing shareholder value. It is easy to see how these deficiencies have the potential to become self-reinforcing and contribute to rising income inequality, wealth concentration, and other disruptive and potentially destabilizing trends. As an article in the Harvard Business Review observed: “We believe that if business does not lead the mitigation of the forces disrupting our market system, then we may well lose it” (Bower, Leonard, and Paine, 2011: 112). Another prominent management scholar put it this way: “Management theory needs to get back to management—to the understanding of how value gets created and traded—in all of its gory particularistic detail. Talking about how all value must get created, or the one and only best way to organize value creation, or the one and only stakeholder group whose prima facie rights must always win, are all intellectual moves that serve neither truth nor freedom” (Freeman, Wicks, and Parmar, 2004: 368).


This chapter argues that privileging profit maximization (i.e., focusing on maximizing profit as the “objective function” of the corporation) is incompatible with the concept of sustainable development. This incompatibility derives from the fact that profit maximization is likely to lead to inefficient tradeoffs and self-reinforcing systemic imbalances that have the potential to threaten our economic and social institutions. It is asserted that (1) the purpose of the modern corporation is to create value; (2) economic value, once created, flows to capital, consumers, and/or labor; and (3) transferring value from one societal group to another is not the same as creating economic value. Shareholder maximization is incompatible with sustainable development because (1) there is no distinction between creating value or transferring (or appropriating) it; (2) because there is no distinction between creating and transferring value, firms may focus on the latter rather than the former; and (3) when engaging in value transfer, firms can (and often do) make inefficient tradeoffs between societal groups. Problems associated with these inefficient tradeoffs have the potential to become self-reinforcing and to contribute to rising income inequality, wealth concentration, and other disruptive and potentially destabilizing trends.


1. What is sustainable development?

2. According to an article cited in the chapter (Jensen, 2002), what is the corporate purpose or objective function?

3. According the chapter, what is the purpose of the modern corporation?

4. Once created, where does economic value go?

5. Provide an example of how a corporation might transfer economic value from one societal group to another.

6. In a perfectly competitive market, who gets the economic value created by corporations? Explain.

7. What does the author mean by the assertion that we live in a “world of ellipses, not circles”?

8. According to the chapter, what are three reasons sustainable development may be incompatible with shareholder maximization.


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1 For example, see the following popular textbooks: Barney, J. B., & Hesterley, W. S. (2012). Strategic management and competitive advantage: Concepts (4th ed.). Boston, MA: Pearson; Baye, M. R. (2009). Managerial economics and business strategy (6th ed.). New York: McGraw-Hill Irwin; David, F. R. (2013). Strategic management: A competitive advantage approach (14th ed.). Boston, MA: Pearson; Dess, G., Lumpkin, G. T., Eisner, A. B., & McNamara, G. (2012). Strategic management: Creating competitive advantages (6th ed.). New York: McGraw-Hill Irwin; Grant, R. M. (2013). Contemporary strategy analysis (8th ed.). Chichester, West Sussex, United Kingdom: John Wiley & Sons Ltd.; Hill, C. W. L., & Jones, G. R. (2013). Strategic management: An integrated approach (10th ed.). Mason, OH: South-Western Cengage Learning; Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2013). Strategic management concepts: Competitiveness and globalization (10th ed.). Mason, OH: South-Western Cengage Learning; Wheelen, T. L., & Hunger, J. D. (2012). Strategic management and business policy: Toward global sustainability (13th ed.). Boston, MA: Pearson; Pearce, J. A., & Robinson, R. B. (2011). Strategic management: Formulation, implementation, and control (12th ed.). New York: McGraw-Hill Irwin; Thompson, A. A., Peteraf, M., Gamble, J. E., & Strickland, A. J. (2012). Crafting and executing strategy: The quest for competitive advantage (18th ed.). New York: McGraw-Hill Irwin.

2 In order to simplify the model, Figure 1 focuses on for-profit firms and their creation (and distribution) of economic value. The creation of economic value through other mechanisms, such as collective action (e.g., government) and/or other forms of organization (nonprofits, civil society organizations, private-public partnerships, etc.), isn’t represented. This isn’t intended to imply that economic value can’t (or isn’t) created through these other mechanisms.

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