Beyond Shareholder Value - A Framework for Stakeholder Governance

Abstract

Societal inequalities – mainly, economic – are a topical subject. Given the dominance of large business corporations in the US and Canada, an important question is about corporations’ role in shaping the socioeconomic trends, including inequality. "Beyond Shareholder Value - A Framework for Stakeholder Governance" (Forthcoming) (Edward Elgar 2021) is an effort to address the question. Examining the principles on which corporations presently function, the book evaluates their impact and consequences.

Maximizing shareholder value has been the dominant corporate goal in the recent decades. Critiquing the shareholder value model of corporate governance, the first part of the book examines its origin, context and consequences. It finds that shareholder value has been delivered substantially since the 1980s, but this has produced serious externalities for non-shareholder groups (employees, consumers, the environment and communities).

In its second part, book deals with shareholder value as law. Courts in Canada and Delaware have endorsed maximizing shareholder value as the legitimate corporate objective. This is a culmination of the doctrine of shareholder primacy that became influential since late 19th century, following the transition from the requirement of individual legislative charters to general incorporation. Questioning the validity of shareholder primacy in North America, the book explains how it is incompatible with the public interest in corporations.

The public interest in corporations is a historical fact in North America. In effect, corporations were charged with advancing the common good. This supplied the legitimacy for corporations, and the public interest in them is foundational for the stakeholder governance the book advocates.

Tracing the origin of the stakeholder vision and the methods that have been tried until now, an argument is presented for a robust role for legislation in promoting more balanced corporate governance. Proposals are presented for effective recognition of the stakeholder model through federal standards. The standards include legislative affirmation of corporate character as communities of interests, delineating the functions for boards of directors to promote greater balance and responsibility in governance, rules on pay equity in corporations and creation of specialist panels to deal with stakeholder disputes. The proposals build on prevailing trends and have the potential to produce better socioeconomic outcomes from the functioning of business corporations.

Keywords: Corporate governance, public interest in corporations, shareholder value, stakeholder interests, corporate law, democratic legitimacy of law, alternative dispute resolution, board of directors

JEL Classification: A11, A12, A13, B26, D00, D01, D02, D03, D04, D05, D10, D14, D18, D21, D22, D23, D29