'Enlightened Shareholder Value': Corporate Governance Beyond the Shareholder-Stakeholder Divide
Virginia E. Harper Ho
University of Kansas - School of Law
August 11, 2010
Journal of Corporation Law, Vol. 36, No. 1, p. 59, 2010
The global financial crisis has led to calls for greater corporate accountability and heightened controls over public corporations. As a result, the past year has seen a marked increase in regulatory initiatives that give shareholders a greater voice in corporate affairs. While debate continues to rage in the academy and beyond over the promise and pitfalls of shareholder empowerment, an important undercurrent in the controversy is the potential impact of "shareholder democracy" on corporate stakeholders.
This Article urges a vision of the corporation and its purpose that transcends the shareholder-stakeholder divide. Under this "enlightened shareholder value" approach, which has been introduced statutorially in the United Kingdom, attention to corporate stakeholders, including the environment, employees, and local communities, is seen as critical to generating long-term shareholder wealth.
This Article observes that a similar paradigm is now being advanced in the U.S. by leading institutional investors who also identify stakeholder interests as key to long-term firm financial performance and effective risk management. It moves beyond prior literature by articulating a statement of the corporate purpose that is consistent with an investor-driven enlightened shareholder value approach and presents normative arguments in its favor. The Article then considers how enlightened shareholder value intersects with existing corporate governance rules in the U.S. context and the extent to which it in fact represents a departure from the standard shareholder wealth maximization norm. In so doing, it offers a response to some of the concerns surrounding corporate stakeholders that have been raised by skeptics of greater shareholder voice.
Number of Pages in PDF File: 54
Keywords: enlightened shareholder value, stakeholder, ESG, risk management, institutional investor, shareholder activism, shareholder primacy, director primacy, Principles for Responsible Investment, PRI, SRI
JEL Classification: G23, K22working papers series
Date posted: September 21, 2009 ; Last revised: January 26, 2011
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