[THE VIEW] Losing Stakeholders Means Losing Shareholders Too

Media, Government, and Market Oversight: Essential for Corporate Survival
Sustainable Growth Requires Coexistence

At the center of the debate over the purpose and role of corporations lie shareholder capitalism and stakeholder capitalism. Shareholder capitalism is often misunderstood as a ruthless system that pursues only short-term profits and is built on the sacrifices of other stakeholders.

However, this perception stems from a misunderstanding of capitalism itself, overlooking the true nature of shareholder capitalism. Desirable shareholder capitalism is not fundamentally different from the goals pursued by stakeholder capitalism, and an autonomous market-based system of checks and balances is essential for this.

Shareholder capitalism is a structure in which a company distributes a fair share of its profits to all stakeholders?including employees, business partners, and the government?and then returns the remaining profits to shareholders. Maximizing the profits that go to shareholders is considered a sound decision. So, how can these profits be maximized?

One way is to enhance the efficiency of resource allocation within the company and to expand overall profits through innovation. Such corporate efforts become the driving force behind increasing the wealth of society as a whole. On the other hand, there are other ways to increase short-term profits, such as harming stakeholders through environmental pollution, labor exploitation, or unfair trade practices. However, within a healthy capitalist system, these methods ultimately harm shareholders as well.

The profits received by shareholders consist of dividend income and increases in asset value through rising stock prices. Since, in general, the increase in stock price outweighs dividend yields, long-term profits cannot be ignored if shareholder profits are to be maximized. In other words, shareholder capitalism is far from being a system that seeks only short-term gains. As a result, desirable shareholder capitalism finds common ground with stakeholder capitalism.

If a company provides a good working environment for its employees, it can attract talent; if it earns trust from consumers as a "good company," it can secure a foundation for long-term profits. Conversely, companies that focus solely on short-term gains by violating environmental regulations or infringing on labor rights will suffer substantial losses due to lawsuits, boycotts, and government sanctions.

However, for desirable shareholder capitalism to function properly, penalties through the capital market must be immediate and effective when a company harms stakeholders. The roles of the media and government are also important in this regard. The media can provide information to the market and exert pressure on companies by exposing opaque practices or ethical issues.

German automaker Volkswagen saw its stock price plummet when the Dieselgate scandal involving emissions manipulation was uncovered in 2015, resulting in fines and recall costs amounting to tens of trillions of won and damage to its brand image. This ultimately led to massive losses for shareholders. Photo by AP

Furthermore, the capital market itself must function as a powerful check. When a company causes large-scale harm by polluting the environment or neglecting product safety, the consequences should not end with simple compensation for damages. There must be immediate penalties, such as a sharp decline in stock price, loss of investor trust, and difficulties in raising capital.

A representative case is the Dieselgate scandal involving the German automobile company Volkswagen. As soon as the company’s unethical act of manipulating emissions data was revealed, Volkswagen’s stock price plummeted, and it had to pay tens of trillions of won in fines and recall costs, as well as suffer a damaged brand image. This ultimately resulted in enormous losses for shareholders as well. To prompt swift responses from the capital market, the government may consider institutional measures such as punitive damages or various restrictions on corporate activities.

In conclusion, shareholder capitalism seeks corporate efficiency through the clear goal of "maximizing shareholder profit." However, this must never be premised on the sacrifice of other stakeholders. To be precise, it should not be allowed to happen.

Guiding companies to respect stakeholders and practice responsible management through media oversight and a fair penalty mechanism in the capital market is the way to maximize the positive aspects of shareholder capitalism and build a sustainable economic system that benefits everyone.

Park Sungkyu, Professor at Willamette University, USA