New Thinking on "Shareholder Primacy"

Stout Lynn A.
Additional contact information
Stout Lynn A.: Cornell Law School

Accounting, Economics, and Law: A Convivium, 2012, vol. 2, issue 2, 24

Abstract: By the beginning of the twenty-first century, many observers had come to believe that U.S. corporate law should, and does, embrace a “shareholder primacy” rule that requires corporate directors to maximize shareholder wealth as measured by share price. This Essay argues that such a view is mistaken.As a positive matter, U.S. corporate law and practice does not require directors to maximize “shareholder value” but instead grants them a wide range of discretion, constrained only at the margin by market forces, to sacrifice shareholder wealth in order to benefit other constituencies and the firm itself. Although recent “reforms” designed to promote greater shareholder power have begun to limit this discretion, U.S. corporate governance remains director-centric.As a normative matter, several lines of theory have emerged in modern corporate scholarship that independently explain why director governance of public firms is desirable from shareholders’ own perspective. These theories suggest that if we want to protect the interests of shareholders as a class over time—rather than the interest of a single shareholder in today’s stock price—conventional shareholder primacy thinking is counterproductive. The Essay reviews five of these lines of theory and explores why each gives us reason to believe that shareholder primacy rules in public companies in fact disadvantage shareholders. It concludes that shareholder primacy thinking in its conventional form is on the brink of intellectual collapse, and will be replaced by more sophisticated and nuanced theories of corporate structure and purpose.

Keywords: corporate governance; shareholder value; agency theory; entity theory; financialisation; corporate law and economics; theory of the firm (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://doi.org/10.1515/2152-2820.1037 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:aelcon:v:2:y:2012:i:2:n:4

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/ael/html

DOI: 10.1515/2152-2820.1037

Access Statistics for this article

Accounting, Economics, and Law: A Convivium is currently edited by Reuven S. Avi-Yonah, Yuri Biondi and Shyam Sunder

More articles in Accounting, Economics, and Law: A Convivium from De Gruyter
Bibliographic data for series maintained by Peter Golla ().