Beyond Shareholder Primacy
Remaking Capitalism for a Sustainable Future
Stuart L. Hart



The Sustainable Business Movement Is Broken

Over the past three decades, I’ve worked with scores of companies as a “sustainability” consultant and advisor, and there has been real progress—my clients, and corporations in general, have evolved from an early focus on pollution prevention and eco-efficiency to broader goals for product and business sustainability. Unfortunately, one refrain from executives and business leaders has remained tragically consistent: “If sustainability initiatives prevent me from ‘making the numbers,’ then they will probably not happen.” Indeed, since the onset of the shareholder primacy era in the 1980s, business leaders have consistently bemoaned the fact that they have become slaves to quarterly earnings and short-term performance.

Business leaders and boards requiring proof of the “business case” for sustainability has been a subtle way of saying that any initiatives focused on broader stakeholders’ needs must not impede hitting the earnings growth targets needed to maximize shareholder value in the short term. Consequently, companies—particularly public corporations—are systematically disabled from realizing the transformational changes needed, so long as shareholder primacy dominates our collective business and investing culture. The good news is most business leaders I know recognize that we have reached the point of no return when it comes to this logic. They realize increasingly that until we free ourselves from the tyranny of shareholder primacy—by transforming the institutions and systems that define the priorities and rules of the game for capitalism—the state of the world will continue its precipitous march to oblivion.

Defining these new priorities—the new prime directive or objective function—and setting the new rules of the game—the “operating system” for a truly sustainable form of capitalism—are the primary objectives for this book. It is informed by the recognition that capitalism has run out of control before—at least twice in the last four centuries—and been pulled back from the brink. It is heartening to understand that the past four decades of what I call “shareholder capitalism” are not the norm at all: capitalism has been run with very different operating systems and objective functions before. Shareholder primacy is not preordained. We can learn from these two previous capitalist “reformations” when it comes to the corporate transformations and institutional redesigns needed to remake capitalism once again, in a way that reverses the extractive and inequitable nature of our current reality.

The Radicalization of a Business School Professor

Since the early 1990s, I’ve taught scores of courses on sustainable business and thousands of MBA students, some of whom have gone on to leadership roles in major corporations, ventures, investment firms, and NGOs. I’ve purposefully combined peer-reviewed research with a practitioner’s bent, publishing highly cited articles in both leading academic and business journals.1 I’ve also written books on the topic, perhaps the best-known being Capitalism at the Crossroads.2 I’ve built my own nonprofit consulting firm, Enterprise for a Sustainable World, and cofounded the Base of the Pyramid Global Network, dedicated to harnessing the power of business to serve the poor and underserved.3

I’ve also been an “academic entrepreneur,” having founded or cofounded several new academic programs focused on sustainable business at four different universities.4 Yet, as I take stock of all this work, I can only conclude that it has been almost entirely inadequate: my research and writing, which constituted some of the earliest work seeking to reconcile sustainability, strategy, and financial performance, has done little more than help rearrange the proverbial deck chairs on the Titanic, providing cover for accelerating climate change, species loss, and rising economic inequality.

The business-school-based programs and centers I have started, while important, have influenced only a small proportion of the enrolled students each year, with most business school graduates still believing in the gospel of shareholder primacy and market fundamentalism.5 As my colleague Sanjay Sharma and I have observed, most business school sustainability initiatives, like those of their corporate counterparts, can best be described as “saddlebags” in that they hang off the side of the existing organizational edifice and do not actually change the core—the “horse”—in any meaningful way.6

The prevailing “win-win” strategies—eco-efficiency, sustainable sourcing, circularity, green growth, sustainable innovation, and even business initiatives to serve the poor at the “base of the pyramid”—have done little more than build incremental awareness, slow the rate of damage, and spawn some new ventures and business models. The recent surge of “clean tech” and “impact investing” are indeed some of the more hopeful developments in recent years. Yet even the current boom in sustainable investing and “ESG” reporting have not changed the fundamental calculus for business in our current age of capitalism—shareholder primacy and market fundamentalism continue to reign supreme. Without more fundamental change to the institutions that define, support, and enable capitalism, the actions of individual companies and entrepreneurs will continue to fall short.

From Sustainable Business to Sustainable Capitalism

If earnings, share price, and financial markets incorporated the full costs of business and economic activity—including their unintended environmental and societal side effects—then shareholder-driven capitalism might indeed steer us toward a sustainable world. However, the positive effects of win-win “greening” strategies—the focus of most work in sustainable business over the past thirty years—have been swamped by the massive and unsustainable economic growth driven by what investment analyst Duncan Austin calls “externality-denying capitalism.”7

The World Bank, for example, reports that less than 4 percent of global carbon emissions are currently priced at levels consistent with the Paris Agreement’s temperature goals, providing clear evidence that few of today’s market transactions are fully costed.8 More broadly, the Force for Good Initiative concludes that at the midpoint of implementing the Sustainable Development Goals (2022), the world has little hope of achieving them by 2030, with a whopping $102–135 trillion gap in the investment required.9 As long as the measurement of growth and financial success is externality-denying, notes Austin, “then the growth that is meant to solve problems may simply create more of those problems along the way . . . [it constitutes] not the solution but the driver of social and environmental harms.”10

If I am honest with myself, most of the work I have done over the past thirty-plus years has resulted less in systemic transformation than in incremental improvement or, at best, a few new sustainable business experiments. For most existing companies, there remains a fundamental disconnect between sustainability and core strategy, let alone corporate purpose.11 Sustainability continues to be framed as a set of initiatives separate from the core business, requiring a “business case” before they can be pursued. The can has been kicked down the road such that we have now arrived at the point of no return—we must either transform rapidly or face unthinkable environmental and social consequences in the decades ahead. You will see this disconnect—and the need for a fundamental change in course—addressed directly both in Part II of this book, “Corporate Transformation,” and Part III, “Institutional Redesign.”

I also found myself driven to understand more deeply how and why we had come to this point of world crisis driven in large measure by shareholder primacy. I was curious to see if “capitalism” had ever faced similar circumstances before and was reassured when I uncovered many lessons from history useful in dealing with our present predicament. As noted above, capitalism had indeed run amok before—at least twice. Yet today’s challenges are also unprecedented in many ways: never before, for example, had capitalism threatened the basic life support system of the planet. Part I of this book, “The Past Is Prologue,” explores the relevant historical lessons and “rhymes” from the past as well as the unique challenges we face looking forward.

Reading widely and deeply these past few years about business and economic history has enabled me to blend lessons from history with my ongoing work with companies seeking to embed sustainability into core strategy and purpose, as well as with initiatives to redesign key systems and institutions to transform the operating system for capitalism itself. This book is the product of that intellectual journey; it combines the theoretical with practical frameworks and tools, and the historical with leading-edge, “next practice” examples. It focuses on the role that business and business leaders can (and must) play in driving this transformation—the third capitalist reformation—but should also be of interest to those in civil society, government, and education with a commitment to creating a truly sustainable economy and world. I hope you find the book informative and thought-provoking. But most important, I hope you find it useful for moving beyond a continuous improvement mentality to the transformational mindset we so desperately need.


1. Academic articles include Stuart Hart, “A Natural Resource-Based View of the Firm,” Academy of Management Review 20 (1995): 986–1014; Stuart Hart and Gautam Ahuja, “Does It Pay to Be Green? An Empirical Examination of the Relationship Between Emission Reduction and Firm Performance,” Business Strategy and the Environment 5 (1996): 30–37; Glen Dowell, Stuart Hart, and Bernie Yeung, “Do Corporate Global Environmental Standards Create or Destroy Market Value?” Management Science 46, no. 8 (2000): 1059–1074; and Ted London and Stuart Hart, “Reinventing Strategies for Emerging Markets: Beyond the Transnational Model,” Journal of International Business Studies 35 (2004): 350–370. Practitioner articles include Stuart Hart, “Beyond Greening: Strategies for a Sustainable World,” Harvard Business Review, January-February 1997, 66–76; C. K. Prahalad and Stuart Hart, “The Fortune at the Bottom of the Pyramid,” Strategy+Business 26 (2002): 54–67; and Stuart Hart and Mark Milstein, “Creating Sustainable Value,” Academy of Management Executive 17, no. 2 (2003): 56–69.

2. Stuart Hart, Capitalism at the Crossroads (Upper Saddle River, NJ: Wharton School Publishing, 2005). Other books include Ted London and Stuart Hart, eds., Next-Generation Business Strategies for the Base of the Pyramid: New Approaches for Building Mutual Value (Upper Saddle River, NJ: Financial Times Press, 2011); and Fernando Casado and Stuart Hart, eds., The Green Leap to an Inclusive Economy (Oxford, UK: Routledge, 2019).


4. University of Michigan’s Erb Institute Dual Master’s Program, University of North Carolina Kenan-Flagler Business School’s Center for Sustainable Enterprise, Cornell University Johnson School of Management’s Center for Sustainable Global Enterprise, and, most recently, the University of Vermont Grossman School of Business’s Sustainable Innovation MBA Program.

5. The University of Vermont’s Sustainable Innovation MBA Program is the exception. It is one of the few clean-sheet redesigns of the MBA currently in existence. Much more about this in Chapter 7.

6. Sanjay Sharma and Stuart Hart, “Beyond ‘Saddle Bag’ Sustainability for Business Education,” Organization & Environment 27, no. 1 (2014): 10–15.

7. Duncan Austin, “The Towering Problem of Externality-Denying Capitalism, 2022,

8. World Bank, State and Trends of Carbon Pricing 2022 (Washington, DC: World Bank, 2022).


10. Austin, The Towering Problem, 3.

11. Some of those exceptions, such as Novelis and Griffith Foods, are discussed in depth in this book.