The idea that corporations need a single purpose is based not in law, but in economists’ arguments that unless we have a single, objective, easily-observed metric to judge how well directors and executives are running firms, corporate “agents” will run amok. As the Harvard Business School’s Michael Jensen put the argument in a 2002 article, “Any organization must have a single-valued objective as a precursor to purposeful or rational behavior. . . It is logically impossible to maximize in more than one dimension at the same time . . . telling a manager to maximize current profits, market share, future growth profits, and anything else one pleases will leave that manager with no way to make a reasoned decision. In effect it leaves the manager with no objective.”
Why Do Corporations Need A Single Purpose?
The idea that corporations need a single purpose is based not in law, but in economists’ arguments that unless we have a single, objective, easily-observed metric to judge how well directors and executives are running firms, corporate “agents” will run amok. As the Harvard Business School’s Michael Jensen put the argument in a 2002 article, […]
May 29, 2012
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New!
HBR Learning
Finance Essentials Course
Accelerate your career with Harvard ManageMentor®. HBR Learning’s online leadership training helps you hone your skills with courses like Finance Essentials. Earn badges to share on LinkedIn and your resume. Access more than 40 courses trusted by Fortune 500 companies.
Strengthen your fluency in financial statements.