The Cost Of Profit: Why Prioritising Shareholders Alone Fails The Modern Corporate Ecosystem

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Urvashi Bisani, O.P. Jindal Global University

ABSTRACT

Corporate governance has long been structured around the principle of shareholder primacy. The doctrine, famously articulated by Milton Friedman in 1970, that a corporation’s sole legitimate purpose is the maximisation of shareholder profit. This paper challenges that orthodoxy. Drawing on stakeholder theory, comparative corporate law, and the evolving regulatory landscape in India, it argues that an exclusive focus on shareholder returns produces structural incentives for short-termism, financial manipulation, and the systematic neglect of employees, creditors, and communities. The Satyam scandal and the IL&FS crisis are examined as case studies demonstrating the real-world consequences of shareholder primacy in the Indian context. The paper then evaluates how stakeholder theory, the UK's enlightened shareholder value model, the German codetermination framework, and the 2019 Business Roundtable Statement represent competing attempts to reorient corporate purpose. Against this global backdrop, the paper critically analyses India's existing reform mechanisms including the Companies Act 2013, the Insolvency and Bankruptcy Code 2016, and SEBI's Business Responsibility and Sustainability Reporting framework identifying enforcement gaps that continue to leave stakeholders structurally unprotected. The paper concludes with concrete reform proposals aimed at embedding stakeholder governance into Indian corporate law in a way that is enforceable, not merely aspirational.

Keywords: shareholder primacy, stakeholder theory, corporate governance, India, CSR, ESG, BRSR, Companies Act 2013, directors duties, codetermination.

834. THE COST OF PROFIT- WHY PRIORITISING SHAREHOLDERS ALONE FAILS THE MODERN CORPORATE EC

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