The Era of Shareholder Primacy is Over

The news these days seems to feature an ongoing parade of company destruction in the name of shareholder value. And behind each gutting is a very human story.

In 2024, Siete Foods, founded by the Garza family in 2014 and known for their grain-free “heritage-inspired” tortillas and chips, was purchased by Pepsi for $1.2 billion. The Garzas departed when the deal closed; in under a year, Pepsi began adding preservatives and low-quality ingredients to Siete products, alienating loyal customers and spurring an outpouring of anger. ("I’m so sick of these big companies buying all these smaller and family-owned companies and ruining everything,") 

Missoni, a multi-generational family company, founded in Italy in 1953 and known for its vibrantly colored patterns and global influence, took on private equity investment in 2018 in order to stabilize the company. By this fall, Missoni was entirely owned by outside investors who pushed out the family and have yet to put the brand on a better path. 

Sprinkles cupcakes, started “with a KitchenAid mixer and a big idea” in 2005, sold to private equity in 2012 to gain a partner with operational expertise as it scaled. Earlier this year, it shut down abruptly. “It’s not how I imagined the story would unfold,” its founder (who had since left the company) agonized. 

Finally, in Syracuse, New York, an apartment complex sought after since it went up in the 1970s deteriorated so dramatically after it was sold to private equity in 2018 that a deadly fire ensued. “‘This is emblematic of private equity ownership of housing,” as one observer put it. “From the beginning, the ownership group had limited skin in the game…They never had much to lose. Most of the risk falls on residents and the broader public.’” 

Extraction Primacy

Tortillas. Fashion. Cupcakes. Housing. The organizations above appear to have nothing in common. But they share a feature that led each to its demise: none of them were built to protect the source of their value. And so, each was corrupted by an outside player looking to capitalize on that source by destroying it. 

We’ve long called this way of operating shareholder primacy, and have insisted that maximizing returns for shareholders would discipline management and allocate capital efficiently. By now it seems more than obvious that this theory has collapsed under its own weight. 

Company lifespans on the S&P 500 have shrunk from sixty-one years in 1958 to eighteen today. Average stock holding periods have fallen from eight years to under six months. CEO tenure shrinks with each decade. We entered an age of temporary operators managing temporary organizations on behalf of temporary owners. They are locked into a prisoner's dilemma: if you don't strip the value now, someone else will strip it next quarter. 

This is worse than shareholder primacy, it's more like extraction primacy.

As I've been traveling the country bringing my new book, Incorruptible, to audiences, I hear over and over again from younger people how bereft they feel by this state of affairs. Many have given up entirely on the idea that a for-profit company could ever do anything but betray its promises.

It's no wonder the next generation feels this way. They have lived their entire lives governed by this experiment. They have known little else but institutional failure.

Shareholder primacy has collapsed under its own weight. This is true both intellectually and generationally. Rather than debating the question of whether shareholder primacy is good or bad, we should accept that it's time to move on. 

The real question is what should come next. I suggest mission primacy instead.

Mission Primacy

Research has found that mission-­protected companies outperformed single-­class peers in both the short and the long term. In one study, purpose-­driven companies outperformed the S&P 500 market index over fifteen years —­ 1,681% compared to 118%. Another showed mission-­driven companies grow three times faster than competitors, and yet more research found purpose-­aligned companies outperformed the general market over a twenty-­year period.

A growing body of studies also shows that so-called “poorly governed” companies (according to proxy advisors) provide better returns. Since 2008, they have outperformed those rated “well governed.” As one of these studies concludes, “It is not clear that the recommendations of [these] firms are correct and generally lead to better outcomes for companies and their shareholders.”

Fortunately, there are many ways to install mission protection mechanisms in a company, either from the ground up or further down the road. Foundation ownership, Perpetual Purpose Trusts (and other kinds of trusts) and employee ownership are already ensuring many familiar companies from Costco to Patagonia to Bob’s Red Mill will never stray from their intentions even as they continue to create value. Companies that have it have shown over the long-term that it creates robust results. 

Foundation-owned firms have a 30% survival rate beyond forty years compared to only 10% for other structures. They also show more stable ownership, lower management turnover, more conservative capital structures (higher equity ratios), and higher scores on a long-­termism index covering finance, investment, and employment. 

Similarly, a meta-­analysis of 102 studies covering 56,000 employee-owned firms concluded that such organizations “significantly outperform” conventional ones. Even more striking is that the greater the percentage of employee ownership, the higher the profitability. Over a thirteen-­year period, employee-­owned companies were only half as likely to go bankrupt or shut down compared to conventional firms. They grow sales at a compounding 3.4% faster annual rate and see immediate productivity boosts upon conversion.

Foundation Ownership at Novo Nordisk

For nearly a century, Danish pharmaceutical giant Novo Nordisk has been owned by a non-profit foundation. The company has hundreds of thousands of external shareholders globally, trading more than a billion shares per year on the NYSE alone. Today, major shareholders include BlackRock, Vanguard, and Danish pension funds, yet none can override the foundation’s 77% voting control via an unbreakable dual-­class structure.

Back in 2004, though, the operating company’s executive team and board wanted to merge with another drugmaker called Serono. But the foundation’s board members alone possessed veto power, and they used it. The company’s charter demanded they ask one question: “Is this merger necessary?” Their answer was “No,” and no amount of temptation, or inducement could sway them.

Meanwhile, hidden in Novo Nordisk’s research labs, Dr. Lotte Bjerre Knudsen was thirteen years into a research and development program that showed so little promise that management had repeatedly threatened to shut it down. Had Novo been absorbed by Serono in 2004, her project would almost certainly have been among the first casualties of consolidation. In fact, just two years later, Serono itself was sold to Merck for €10.6 billion, absorbed into Merck’s structure, and today is nothing but a discontinued brand, its research programs long gone. Imagine how easy it would have been to cancel Knudsen’s fruitless research.

But because Novo Nordisk is structured for mission primacy, it stayed independent and kept funding her research, which ultimately more than paid the company back for its investment. Knudsen’s thirty-­year journey produced one blockbuster therapy after another: first Victoza, then Ozempic, then Wegovy, each bigger than the last. By 2023, Novo had become Europe’s most valuable company, its market cap exceeding Denmark’s entire GDP. When it peaked north of $600 billion in 2024, its non-­profit trustees had created more than half a trillion dollars in shareholder value.

The fact that Serono’s fate after its acquisition by Merck isn’t possible at companies like Patagonia and Costco is why customers, employees, and investors have trusted them so steadfastly for so long. These companies and their many mission-protected peers show another path is possible: one that leads to institutional longevity and investor outperformance.

NOW ENROLLING: A PROGRAM FOR EARLY STAGE FOUNDERS

The best time to protect your mission is before anyone tests it. That's why I'm bringing together a second cohort of early stage founders to put Incorruptible protections in place now.

My team and I are running a 6-week program to apply the Incorruptible Blueprint. Our first live session is Thursday, October 22.

If you're curious, you can learn more here. And feel free to reply to this email with any questions.

Eric