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The paradox of the x-holder

This post considers to whom should the board and directors serve? Should it be the single ideal of shareholders, the wider concept of stakeholders or the most extensive and inclusive ideals of ecosystem health? The beauty of a single idea is the focus, the complexity of many parties participation is what to compromise on. Peak Paradox can help frame the discussion and create a flow about what priorities matter in your unique circumstance, without conflict.


Shareholder primacy has a singular and significant benefit, it is simple and really clear on the objective; maximise the return to the investor. Primacy has significant economic and structural problems and is probably in part to blame for the mess our global economy is in and there is definitely a link to our climate issues. However, we should not lose the fact that a single simple idea, that is easy to communicate, works for the creation of alignment and a drive to efficiency.

Stakeholder ideals emerged at the same time as shareholder primacy as many could rightly see the issues that a single focus would create. Whilst stakeholder doctrine sort to create balance, the compromise and complexity weakened companies in a competitive market. The concept of social contracts tried to level the playing field but the single simple concept won through, until a global financial crisis.

Ecosystem health should be the gold standard and the “Business Roundtable” report in Aug 2019 put it out there to redefine the purpose of a corporation to promote ‘An Economy That Serves All … Americans’. This was away from the maximisation of returns to shareholders and towards healthy eco-systems. The idea that the company purpose should be closer to ecosystem thinking has been gaining prevalence since the financial crisis in 2008 and the global climate crisis couple with ESG reporting is creating a perfect storm for acceptance but that does not make it easy to deliver. The thinking has major supporters such as Larry Fink, Blackrock’s founder and CEO who is a significant voice for ESG reporting and promotes changes to decision making criteria for better outcomes, something I align to.

However, shareholder primacy, through its legacy, the education system which continues to teach it and on-going early-stage venture capital; still has its claws deeply embedded in our system. The premiss of venture money and PE terms are highly orientated towards a simple metric of the return, showing that simple easy to follow ideas are easy to communicate and agree on. Whereas a compromise with many stakeholders, all of who have different values and purposes in full or peril and complexity. An obvious conflict today is that any venture-backed company coming to a public market needs to change everything as its purpose was to deliver the return to the investors and now has to behave very differently towards the ecosystem health. Venture ESG reporting appears to want to create two priorities when only one will win.

In my earlier opinion piece, I suggested that war and monopoly are the same thing and can exist outside the peak paradox framework but only for a time before they are brought back within the boundary. I am now thinking that shareholder primacy, due to its singular nature of focus sits outside the framework. Shareholder primacy is driven by an individual or team with a peak work rationale. This is shown in the figure below.

I believe that stakeholder ideals sit inside the boundary of the peak paradox framework, and it is obvious that it is full of compromises as it is pulled in every direction. It cannot be peak work, peak individual or peak society as each peak has to be compromised to create an accord. I am convinced of this because it is impossible to make decisions. In this post on decision making, I shared the idea of a small circle that represents the “peak paradox”. This is where “All parties can fully grasp the paradox in their own position, the result may be a weak decision because there are too many super cleaver people with strong well-reasoned opinions, mixed with too much data. It all results in endless discussion and some trying to be the brightest person in the room. We try to understand everyone too much, but everyone is playing the game. Parties will predict unintended consequences and know that everyone is compromised and that no one party can do better than another to create the fairest outcome. Probably the worst decision, and in the long run, will not create better outcomes, but everyone can live with it for now.” Indeed this would say to me that whilst Shareholder Primacy was dangerous, Stakeholder ideals, if it had won, would have been as bad.


This leaves us with ecosystem health thinking. It is definitely a shift towards more of a peak society purpose, the question is does it exist in two places as in the diagram below. Can it pretend to be something it is not? See the diagram below. This would be where a single party in the ecosystem has far more power and is able to direct the activities towards itself. Whilst the intent for ecosystem health is to create a better compromise for long term sustainability, can it exist here when competition rules and regulations are not supporting it or aligned to this position.

This suggests that plotting your companies position on the map in terms of the compromise it has reached for its own unique view of the ecosystem health can help determine if it has a long term sustainable view or is still biased towards a few power players. Plotting others in your ecosystem will also help determine who is acting where and how they are acting. Mixing this with the directors individual views they hold towards shareholder primacy and single focus will determine if the tensions are creative or destructive.

The paradox is created as we want the same outcome - a more sustainable future. The issue is that we cannot agree what that looks like from the data we have, we cannot agree on the economic model and that our incentives and rewards are based on different metrics. Much work has to be done, but we have to find ways of having simple clear conversations about complex topics that are built on our personal views and values. I am hoping that Peak Pardox enables this to start.




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