What We Talk About When We Talk About Shareholder Primacy

Abstract

There is a longstanding (and unresolved) tension in corporate law, namely, the extent to which corporate purpose is a privately ordered one, selected by shareholders themselves, or whether corporate purpose is simply long-term shareholder wealth maximization. That puzzle is what I address in this Article, prepared for the Case Western Reserve Law Review Conference and Leet Symposium, “Fiduciary Duty, Corporate Goals, and Shareholder Activism.”

The debate that I engage is an old one, but it has new urgency today due to the changing nature of the shareholder base. So long as shareholders were docile and silent, their preferences could be presumed in a manner that preserved state authority over corporate purpose while simultaneously attributing the state’s choices to private ordering. Then, inconveniently, institutional investors made it known that their actual preferred outcomes often diverged from the ones predicted by corporate theory. As this Article discusses, that shift has prompted a round of corporate soul-searching, resulting in inconsistent legal regimes both at the state and federal levels, and renewed attempts to identify a “true” set of shareholders whose private preferences perfectly map to the governmental policy sought to be advanced.

Keywords: corporations, shareholder primacy, institutional shareholders