Q: From society's perspective, what is a corporation for?
Corporations are social and economic institutions that serve many different groups. They have made enormous contributions to human welfare. The evidence suggests that the primary purpose was as a vehicle for locking in financial capital, so that corporations could pursue projects that required enormous amounts of specific investment, such as building railroads, canals, or manufacturing plants; developing brand names; or producing patents or patentable processes.
When there's an absolute focus on profits, we see, over and over, that companies cut back on expenses, including payroll and research and development. They do massive dividends and share repurchases, which drain the companies of cash, thus making them less prepared to deal with problems that arise. They sell off key assets and even the company itself. None of those things are good for long-term returns.
[This article has been reproduced with permission from Qn, a publication of the Yale School of Management http://qn.som.yale.edu]