Enlightened Shareholder Theory: Whose Interests Should Be Served by the Supporters of Corporate Governance?

Abstract:     
This paper questions the feasibility of Corporate Governance (CG) and a company's Board Members (CG's most obvious agents) being able to serve two masters at once: shareholders; and the many different agents inhabiting the labyrinth of the stakeholder universe. Following on from this is the question of which of these stakeholders deserve special treatment from companies. After analysing this conundrum, absurdist reasoning will be used to demonstrate the theoretical impossibility of a dual legitimacy that would undermine the very factors explaining the success of modern developed societies. An alternative 'Enlightened shareholder theory' will be proposed, inspired by JENSEN's 'Enlightened stakeholder theory' (2001). After demonstrating that a company's interest is not necessarily synonymous with the interests of its shareholders, a proposition will be made that Board Members should always highlight social interests. The paper's conclusion will identify the consequences of the new theoretical framework for the definition of CG; Board Members' missions; and the composition of a Board of Directors.

Number of Pages in PDF File: 22

Keywords: Company performance, corporate governance, principles of corporate governance, shareholder value, Board Members, Board of Directors, value creation, Enlightened stakeholder theory, Enlightened shareholder theory

JEL Classification: M10, M14

Accepted Paper Series