Lenore Palladino in Boston Review, with responses from William Lazonick, Julius Krein, Lauren Jacobs, Michael Lind, Isabelle Ferreras, James Galbraith and Katharina Pistor:
Who owns a corporation, after all? Friedman referred to the shareholders as the owners. According to this way of thinking, a business corporation is nothing but a collection of shares, so whoever owns the shares owns the corporation—and thus should be able to decide how to govern it.
In reality, however—as well as in law—corporations own themselves. Corporations are legal entities that require state government approval. Once incorporated, they have tremendous privileges to operate apart from the people who form them and run them: they have perpetual existence, limited liability, and the ability to take out debt in their own name. Corporations are different from other forms of businesses, such as sole proprietorships or LLCs, where there is no formal legal separation between the founders that profit from and run a business and the business itself. The very purpose of incorporating a business is to create an entity that lives on its own; it exists in perpetuity and is not just an extension of those who provide its capital.
Despite this fundamental separation, the delusion that shareholders are the exclusive owners of business corporations in the United States has persisted, causing most corporations to then govern themselves by the theory of shareholder primacy. But it does not have to be this way. New policies could ensure that all the stakeholders who collectively generate a corporation’s prosperity then benefit from its wealth.