Shareholder Capitalism Cannot Solve Every Challenge  9
15 2018 Global Sustainable Investment Review, Global Sustainable Investment Alliance, 2018, www 
.gsi-alliance.org.
Investors seem to agree; one recent report found that global sustainable in-
vestment topped $30 trillion in 2018, rising 34 percent over the previous two 
years.15
Board members might also benefit from spending more time on their board 
activities, so they have a better understanding of the economics of the com-
panies they oversee and the strategic and short-term decisions managers are 
making. In a survey of 20 UK board members who had served on the boards 
of both exchange-listed companies and companies owned by private-equity 
firms, 15 of 20 respondents said that private-equity boards clearly added more 
value. Their answers suggested two key differences. First, private-equity di-
rectors spend on average nearly three times as many days on their roles as do 
those at listed companies. Second, listed-company directors are more focused 
on risk avoidance than value creation.16
Changes in CEO evaluation and compensation might help as well. The 
compensation of many CEOs and senior executives is still skewed to short-
term accounting profits, often by formula. Given the complexity of managing 
a large multinational company, we find it odd that so much weight is given 
to a single number.
Shareholder Capitalism Cannot Solve Every Challenge
Short-termism is a critical affliction, but it isn’t the only source of today’s crisis 
of trust in corporate capitalism. Imagine that short-termism were magically 
cured. Would other foundational problems suddenly disappear as well? Of 
course not. Managers struggle to make many trade-offs for which neither a 
shareholder nor a stakeholder approach offers a clear path forward. This is 
especially true when it comes to issues affecting people who aren’t immedi-
ately involved with the company—for example, a company’s carbon emis-
sions affecting parties that may be far away and not even know what the 
company is doing. These so-called externalities can be extremely challenging 
for corporate decision making, because there is no objective basis for making 
trade-offs among parties.
Consider how this applies to climate change. One natural place to look for 
a solution is to reduce coal production used to make electricity, among the 
largest human-made sources of carbon emissions.17 How might the managers 
of a coal-mining company assess the trade-offs needed to begin solving envi-
ronmental problems? If a long-term shareholder focus led them to anticipate 
16 V. Acharya, C. Kehoe, and M. Reyner, “The Voice of Experience: Public versus Private Equity,” 
McKinsey on Finance (Spring 2009): 16–21.
17 In 2011, coal accounted for 44 percent of the global CO2 emissions from energy production. CO2 Emis-
sions from Fuel Combustion online data service, International Energy Agency, 2013, www.iea.org.