Shareholder primacy is a theory in corporate governance holding that shareholder interests should be assigned first priority relative to all other stakeholders. A shareholder primacy approach often gives shareholders power to intercede directly and frequently in corporate decision-making, through such means as unilateral shareholder power to amend corporate charters, shareholder referendums on business decisions and regular corporate board election contests. The shareholder primacy norm was first used by courts to resolve disputes among majority and minority shareholders, and, over time, this use of the shareholder primacy norm evolved into the modern doctrine of minority shareholder oppression.
Shareholder primacy was first articulated in the decision of Dodge v. Ford Motor Co. in 1919. In the Michigan Supreme Court’s opinion, it stated that “There should be no confusion… A business corporation is organized and carried on primarily for the profit of the stockholders.”
In his 1962 book, Capitalism and Freedom, the economist Milton Friedman advanced the theory of shareholder primacy which says that “corporations have no higher purpose than maximizing profits for their shareholders.”
His article, “A Friedman Doctrine: The Social Responsibility of Business is to Increase Its Profits”, was published September 13, 1970, in The New York Times:
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In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires … the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation … and his primary responsibility is to them.
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