The corporation is a rent extraction vehicle for the shortest-term shareholders; by threatening interventions such as takeovers and hedge fund activism, they can hold all other stakeholders, including longer-term shareholders, to ransom, according to Colin Mayer in his book Firm Commitment: Why the Corporation is Failing Us and How to Restore Trust in It. The book describes why our erroneous ideas concerning corporations caused the global financial crisis, and why government interventions are making the problems worse and not better.
The idea that the primary duty of directors is to act in the interests of shareholders leads to a variety of problems, and actions which align the interests of directors with shareholders simply reinforce the problems rather than solving them. Directors are effectively forced to maximise the short-term value of shares by engaging in high-risk and untrustworthy behaviour, with the costs being borne by other stakeholders including employees, creditors, the environment and future generations. Corporate Social Responsibility programs confuse the issues without solving them.
Solutions proposed by the author include:
I found the book to be both entertaining and persuasive. In my opinion the author has identified and described in a clear manner a range of problems which most other authorities know exist but are unable to describe or explain. This is an important book and should be read both by those who lead corporations and by those responsible for regulating them.