The board, society, and shareholders.

• Author: Millstein, Ira M.
• Position: Integrating societal needs with shareholder demands

Boards increasingly will be expected to ensure that management integrates societal needs with shareholder demands.

THE CORPORATION is a chameleon-like legal creation capable of adjusting to changing environments and responding to both competitive and social pressures. As surrogate for dispersed ownership, the board is at the center of corporate governance, responsible to shareholders and empowered to oversee the corporation's affairs, set its strategic course and, importantly, change its organization and management as necessary. This governance paradigm -- management accountable to the board and the board accountable to shareholders -- is at the core of our market economy, which in turn supports our democratic form of government.

Our free-market system relies on the corporation to integrate and coordinate financial, human, and natural resources for the production and distribution of goods and services. Society wants and needs corporations to prosper and profit by selling superior goods and services as compared with international competitors. In doing so, corporations not only benefit their shareholders but provide critical jobs and incomes. As the engine of our economy, the corporation's success drives the success of the free market and our democratic system.

Our national populist tendencies and general distaste for "government" however, lead us to rely on the corporation to help address a number of complex social concerns which in other developed nations are often remitted to government or ignored. Examples are bountiful: Corporations are being urged to train current workers and provide them with access to affordable health care, to be active in the education of the next generation of workers, to maintain drug-free workplaces, to provide equal opportunity and encourage diversity of race and gender at all levels of the organization, and ultimately to provide some part of retirement security.

I label all of these concerns "extrinsics," since many consider them outside the corporate goal of profit maximization. But, I contend that corporations are expected to integrate, wherever possible, extrinsics with the corporation's primary obligation to maximize shareholder value. To the extent corporations attempt to do so, they are viewed as credible and accountable and are likely to be less regulated. To the extent they don't meet expectations in addressing the extrinsics, there will be more governmental intervention and intrusion. The task is to...