Shareholder capitalism is anything but good for shareholders

In February, Kraft Heinz’s new CEO, Steve Cahillane, did something unusual for an executive barely six weeks into the job. He paused the company’s planned breakup—the move, investors had been told, that would “unlock shareholder value.” He also announced $600 million of fresh spending on marketing, sales, and R&D. The same release reported a loss of nearly $6 billion for 2025, driven by goodwill impairments.

I’ve written previously about the rolling disaster that was a highly financialized Kraft-Heinz. In 2019, it took a $15.4 billion write-down for its Kraft and Oscar Mayer brands, slashed its dividend, and said the U.S. Securities and Exchange Commission was probing its accounting. Even Warren Buffett, no stranger to what is good for shareholders, said it was “a mistake.”

Astonishingly, we now have a CEO concluding that the most valuable thing he can do for owners is start investing in the future again. Perhaps this is the beginning of a turning point.

Maximizing Shareholder Value: A bargain that eats its own seed corn

In 1970, Milton Friedman wrote that managers should run their businesses in accordance with shareholders’ desires, “which generally will be to make as much money as possible while conforming to the basic rules of the society.” The goal is to make the share price go up as high as possible as fast as possible. 

The machinery is well understood. Missing quarterly guidance by a penny can knock billions off a firm’s market cap. Executive pay is tied to near-term share prices and earnings per share. Some 43% of CEOs report a planning horizon of three years or less. And when cash piles up, the default use is to hand it back: S&P 500 companies spent an astonishing $1 trillion in buybacks in 2025 alone! 

These practices are treated as though they’re some kind of law of nature. Given that, it’s useful to recall where all this came from.

A little-remembered prompt for Friedman’s tirade was the “Campaign GM” project. It was a citizen movement intended to provoke the company into taking “the public interest” seriously in such areas of concern as safety and pollution. Friedman and those allied with him called such ideas “pure and unadulterated socialism,” adding: “Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society.” 

Hence, GM was given a free pass to operate without having to answer irritating questions about its core purpose and impact on society. In a supremely ironic twist, European and Japanese carmakers decided instead to innovate, making safer and less-polluting cars. The consequences for GM? By 1980 it posted a catastrophic loss. From a U.S. market share of over 50% in the 1960s, by 1990 the company had slipped to around 33%. Today, it’s at a humbling 16.7%. Had it been forced to confront what stakeholders were concerned about, the story might have unfolded very differently.

What is overlooked in the whole shareholder-primacy debate is that stock-market investors, unlike, say, angels or venture capitalists, are not direct investors whose stakes are risky. As Lazonick and Jacobson point out, “The erroneous MSV assumption that public shareholders invest in the company’s productive assets is compounded by the fallacy that it is only public shareholders who make risky investments in the corporation’s productive assets, and hence that it is only shareholders who have a claim on the corporation’s profit, if and when it occurs.” 

Honestly, many investors simply don’t care about a company’s future. They’re speculatively allocating a part of their wealth to a sort of casino, a tradition as old as trading in stocks itself. Consider that from a holding period of around five years in the 1970s, the average time a shareholder hangs on to their stock today is a sobering 10 months. 

The seductive pull of “financial gravity”

I was recently at the National Association for Corporate Directors’ annual summit, and a big point of conversation was this: Even when we know and have evidence for what works in terms of long-run organizational performance (theoretically what Directors are supposed to be concerned about), what happens in real life is often anything but. This was emphasized in a deliberately provocative keynote by author Eric Ries. 

Three examples.

Fiduciary duty

In 2021, the board of Vectura, a U.K. maker of respiratory inhalers, backed Philip Morris International’s bid over a lower bid from the Carlyle Group. Under an MSV-based interpretation of fiduciary duty, they did what they were supposed to do, which was to get the best price for the firm. Yet it was utterly predictable that a cigarette company owning an asthma-medicine maker would face a backlash from doctors, regulators, and researchers. It did.

In 2024, PMI sold Vectura for roughly a third of what it paid, booking a loss of about $200 million, with its CEO citing the burden of criticism tied to its ownership. Vectura’s selling shareholders got their premium. PMI’s shareholders paid the price.

The ownership dividend

Decades of research on employee-owned firms have found that companies where workers hold meaningful stakes tend to grow faster, stay more productive, and survive downturns better than comparable conventionally owned firms. We have the evidence. We rarely design for it. One stellar exception: KKR’s acquisition and subsequent sale of C.H.I. Overhead Doors, making all employees owners and beneficiaries of the transaction. 

The insidious case of buybacks

Open market share repurchases, or stock buybacks, were considered illegal stock price manipulation before an SEC rule change in 1982 permitted them. Changing that rule opened the floodgates to buybacks, to the point at which companies are spending substantial shares of their profits on buybacks, even taking on debt to pay for them. William Lazonick has been critiquing the buyback practice for years, arguing that the MSV logic fails because buybacks, unlike dividends, reward those who sell their shares, not those who hold them. 

The companies defying financial gravity

Some of our best-performing companies have spent decades ignoring the MSV playbook, and their investors have done very nicely, thank you.

Costco caps its markups, pays well above retail norms, and has held its hot dog and soda combo at $1.50 since the 1980s. Analysts regularly grumble that it is too generous to employees and customers. Its long-run shareholder returns have trounced the retailers that took that advice, and members renew at rates most subscription businesses would envy.

Patagonia went even further. In 2022, the Chouinard family transferred ownership to a trust and a nonprofit, declaring that Earth is now its only shareholder. Its brand trust, the asset that lets it charge a premium and sell repair as a feature, is a direct product of that consistency.

Wegmans, a privately held and family-run supermarket chain, has appeared on Fortune’s list of best companies to work for every year since the list began. It invests in training and scholarships the way rivals invest in self-checkout, and its customer loyalty is the stuff of grocery legend.

Lest this all sound too nutty crunchy, Nvidia spent years pouring money into Compute Unified Device Architecture (CUDA) and general-purpose computing on graphics processing units (GPGPU) when the payoff was invisible and investors questioned the spending. That patience built the platform the AI economy now runs on, and Nvidia today is one of the most valuable companies on earth.

Insurer Progressive has long refused to give earnings guidance. The company reports results monthly, and its own filings list as a risk factor “not managing to short-term earnings expectations” in pursuit of long-term value. It has steadily taken share in auto insurance anyway.

What these five have in common is clarity about what they are fundamentally about and a commitment to making decisions accordingly. Ries calls this “mission protection.” I use a similar idea that I call strategic centering. Clarity lets them say no to policies that would betray their future for the sake of the short term.

How strategic centering changes the incentives

In my recent work on strategic centering, I argue that as the economy dematerializes and old industry boundaries dissolve, firms are well served by committing to a coherent organizing principle. That center might be a mission, a customer, a technology, the erasure of friction, or an ecosystem. Patagonia is centered on its mission, Costco on its members, Nvidia on technology, Wegmans on its customers and the people who serve them, and Progressive on its capability to price risk more precisely than competitors.

Here’s why clearly articulating a center can help keep the long-term in focus.

It gives boards a test. Rather than “Does this raise earnings per share?” a center adds “Does this strengthen or erode what we are for?” A buyback funded by gutting the investments that sustain the center fails that test.

It creates the rationale for invisible investments. Accounting treats training, software, data, and brand building as costs. A clearly stated center lets leaders explain those outlays as investments in a specific future, which gives patient investors something to incorporate in a price.

It reinforces trustworthiness. Trust is, at bottom, predictability: Stakeholders can anticipate how you will behave when the unexpected happens. The Vectura episode shows the price of incoherence. A center that leaders honor creates essential stability, even in highly uncertain environments.

It attracts the right owners. Companies that are clear about their center tend to collect shareholders who believe in them. This can have significant strategic benefits. 

Centering is not some kind of magic shield. Activists can still show up, tax and pay rules still pull toward the short term, and a center can become a cage if the environment shifts. That’s why it is so important to continuously parse information from the external environment (what I call capturing early warnings) that tell you if your center itself needs to evolve. What a well understood center does is bound, without constraining, how investments are made. 

What boards can do now

Directors who want to escape the MSV tyranny can start here:

• Figure out the center, then use it as a screen. Before approving a buyback or special dividend, require management to show that the investments sustaining the center are fully funded.
• Drop quarterly guidance. Progressive has managed without it for decades, as have many other “gold standard” companies. The sky did not fall.
• Lengthen the pay horizon. Tie a meaningful share of executive equity to multiyear measures connected to the center, not to next year’s EPS.
• Report intangible investment as investment. Show owners what is being spent on people, R&D, and customers, and why.
• Broaden ownership. Employee ownership is one of the best-evidenced performance levers we have. Use it.

The irony is that the shareholders with the most at stake—pension funds, index holders, and ordinary savers—are exactly the investors who need companies to have a future.

Shareholder capitalism, as practiced, has been remarkably destructive. The good news is that we don’t have to invent an alternative from scratch. It’s already on the shelf at Costco.

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