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A Stake in Innovation

Laws allowing companies to prioritize stakeholders boost innovative activity

Peter Dizikes
Wed, 03/09/2016 - 13:09
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Want to encourage innovation? A new study co-authored by an MIT professor finds that little-known state laws called “constituency statutes” have significant effects on the quantity and quality of innovative business actions.

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The statutes, which allow companies to prioritize the interests of “stakeholders”—often employees rather than just shareholders—tend to allow businesses more time to bring innovations to market, rather than forcing those companies to prioritize quarterly financial results at the exclusion of new products and new activities.

“Constituency statutes are pretty important,” says Aleksandra Kacperczyk an associate professor at the MIT Sloan School of Management and an author of a new paper detailing the study.

Overall, constituency statutes, which exist in 34 U.S. states and were largely introduced during the 1980s, raise the rate of patenting among firms by at least 6.4 percent, according to the study.

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