For decades, shareholder primacy has dictated corporate decision-making, driving businesses to prioritize short-term profits and disproportionate returns to shareholders over long-term sustainability and stakeholder value. This extractive model, where 50-80% of free cash flow is routinely funneled into dividends and stock buybacks, has led to widening inequalities, reduced innovation, and diminished investment in broader societal and environmental needs. But what if there’s a better way—one that generates even greater value for all stakeholders, shareholders included?
The Case Against Extractive Capitalism
The traditional model of shareholder capitalism captures an outsized proportion of profits, leaving limited resources for reinvestment in long-term growth and innovation. Consider:
Dividends and Buybacks: From 2015 to 2022, Fortune 500 companies spent $4.4 trillion on shareholder payouts, nearly double what they paid in federal taxes.
CEO Compensation: Average CEO pay has grown by over 1,200% since 1978, while worker wages have risen by just 15.3%.
Missed Opportunities: Companies with high shareholder extraction often underinvest in R&D, workforce development, and sustainability, limiting their capacity for innovation and resilience.
Value Distribution Imbalance: Estimates suggest that 50-80% of value returns are extracted by shareholders, leaving a mere fraction for reinvestment into systemic or long-term impact initiatives.
Dividends and Stock Buybacks:
- Global Trends: In 2022, the world’s top 1,200 companies distributed $1.39 trillion in dividends and spent a record $1.31 trillion on share buybacks, indicating a nearly equal split between these two methods of returning value to shareholders.
Source: Janus Henderson
- U.S. Corporations: Between 2000 and 2017, U.S. nonfinancial firms increased their share repurchases from 4.8% to 21.2% of operating income, while dividends remained relatively stable at around 14%. This shift highlights a growing preference for buybacks as a means of rewarding shareholders.
Source: National Bureau of Economic Research
- Shareholder Payouts vs. Taxes: From 2015 to 2022, 280 profitable Fortune 500 companies allocated $4.4 trillion to shareholders, with $2.7 trillion for stock buybacks and $1.7 trillion for dividends. Notably, these amounts were significantly higher than what these companies paid in federal income taxes during the same period.
Source: Americans for Tax Fairness
CEO Compensation:
- Growth Over Time: From 1978 to 2022, CEO compensation in the U.S. surged by 1,209.2%, far outpacing the 15.3% increase in typical worker compensation. This disparity has led to a substantial widening of the pay gap between executives and average employees.
Source: EPI
- Pay Ratios: In 2022, CEOs were compensated 344 times more than the typical worker, a significant increase from a 21-to-1 ratio in 1965.
Source: EPI
- Recent Figures: In 2023, the average total compensation for CEOs at S&P 500 companies rose to $17.7 million, marking a 6% increase from the previous year. This growth further widens the gap between executive pay and median worker wages.
Source: AFL-CIO
A New Paradigm: Growing the Pie
In his book “Grow the Pie,” Alex Edmans suggests that businesses can expand total value creation by pursuing both profit and purpose. However, this potential for growth faces a critical barrier: excessive value extraction by shareholders severely limits a company’s ability to create meaningful impact.
The solution lies in a more balanced approach to value distribution. When companies fairly share value among all stakeholders and intentionally reinvest in their business ecosystems, they create powerful networks of mutual benefit. This isn’t just about reducing negative externalities—it’s about harnessing collective momentum. By replacing value extraction with value circulation, businesses can accelerate their impact and achieve sustainable results far beyond what they could accomplish alone.
The key is recognizing that value shared is value multiplied. Each stakeholder becomes a catalyst for positive change, creating a compounding effect that benefits the entire system. This networked approach doesn’t just make impact possible—it makes it inevitable. We call this network effect the Shared Value Multiplier (SVM).
The Shared Value Multiplier can be activated by channeling value returns via shared value networks to optimize impact returns and grow the pie. By shifting from a mindset of competition over finite resources to one of collective growth, businesses harness the network effect to unlock exponential returns for all stakeholders. In doing so, they can achieve a balance that fosters innovation, strengthens resilience, and delivers enduring value for shareholders while simultaneously addressing societal and environmental challenges.
The Power of Shared Value Networks
Shared value networks transform how companies allocate free cash flow. By directing even a fraction of what is currently extracted by shareholders into initiatives that benefit all stakeholders, businesses can:
Amplify Impact: SVNs can multiply the effectiveness of investments by a factor of 2-4x through collaboration and resource sharing.
Example: Companies like Nestlé use shared value principles to align farmer livelihoods, community development, and supply chain efficiency, creating value for both stakeholders and shareholders.
Accelerate Time-to-Impact: The compounding effect of SVNs reduces the timeline for achieving measurable results by 50-75%, enabling quicker returns on investments in sustainability, innovation, and social impact.
Example: Renewable energy cooperatives demonstrate faster scalability and adoption rates when supported by collaborative networks.
Enhance Resilience: By investing in stakeholder ecosystems, businesses build goodwill, loyalty, and adaptability—key advantages in an increasingly volatile market.
The Business Case: Shareholders Benefit Too
By reducing and postponing shareholder extraction, thereby allowing the company to reinvest in creating shared value (CSV) does not mean sacrificing shareholder returns; it means optimizing them over time. Here’s how:
Higher Long-Term Returns: Companies with strong stakeholder relationships and sustainability initiatives consistently outperform their peers in financial metrics.
Risk Mitigation: Investing in societal and environmental resilience reduces exposure to regulatory, reputational, and market risks.
Expanded Markets: By addressing stakeholder needs, businesses create new demand and opportunities for growth.
Extractive versue Regenerative Investing
We’ve developed a formula that illustrates the importance of moving beyond early value extraction. It emphasizes the necessity of setting the record straight: ensuring that all stakeholders receive an equitable share of the value created within the Profit & Purpose Cycle.
The Vicious Cycle: Extractive Investing
First, let’s examine what is often referred to as ‘extractive capitalism,’ where shareholders disproportionately extract value from the Profit Cycle, leaving only minimal returns for other stakeholders.
Total Extractive Value = [(ValRet – ValExt) × (1/Cr)] × (ImpRet – ImpExt)
| ValRet | Value Returns | ImpRet | Impact Returns |
| ValExt | Value Extraction | ImpExt | Impact Extraction |
| ValCre | Value Creation | ImpCre | Impact Creation |
| Cr | Cycle Ratio | Ct1 | Profit Cycle Time |
| SVM | Shared Value Multiplier | Ct2 | Purpose Cycle Time |
When we set Value Returns at 100%, and shareholders extract 50-80% of the value, only 20-50% remains available for reinvestment to strengthen the firm’s ecosystem. If 75% of the value is withdrawn through mechanisms like share buybacks or dividends, it extends the timeline for generating impact returns by a factor of four.
If impact-making takes eight times longer to manifest than profit-making, a quarterly Profit Cycle would delay the Purpose Cycle’s ability to generate meaningful impact—stretching it to 8 years instead of 2.
For example: If Value Returns amount to 25M, and a staggering 75%—equivalent to 18.75M—is siphoned off for shareholder compensation, what’s left for everyone else? Just 6.25M—barely a fraction—is left for reinvestment. How can a company thrive, innovate, or sustain its ecosystem when scraps are all that remain for its future?
The Virtuous Cycle: Regenerative Investing
Now, consider an alternative scenario: generative investing.
Total Regenerative Value = [(ValRet – ValExt) × SVM × (1/Cr)] × (ImpRet – ImpExt)
By setting Value Returns again at 100% and channeling the full amount via Shared Value Networks, we can amplify impact and mitigate adverse effects through effective collaboration. This approach has the potential to create a multiplier effect (SVM) of 2-4 times or more. Not only would this bring impact realization closer, but it would also significantly amplify its magnitude. Once impact returns are generated, shareholders can be compensated generously, benefiting from a much larger pie.
For example: When Value Returns reach 25M and we leverage this to create a SVN-multiplier effect of 4, we have the potential to generate an impressive 100M in impact. By establishing an equitable share for shareholders—let’s say 20%—they can receive a substantial return of 20M. This approach leaves 80M (!) to benefit other stakeholders.
A Call to Action
It’s time for business leaders, investors, and policymakers to recognize that extractive capitalism is not just harmful but suboptimal. By reinvesting value returns into shared value networks, businesses can grow the pie for all stakeholders—including shareholders. This is not just a moral imperative; it’s a strategic advantage.
Let’s move beyond shareholder primacy to embrace a model where capital becomes a lever for systemic, sustainable value creation. The path forward is clear: grow the pie, share the benefits, and thrive together.
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