Stakeholder Governance: A Bad Idea Getting Worse

39 Pages Posted: 28 Mar 2009 Last revised: 23 Oct 2014

See all articles by George W. Dent

George W. Dent

Case Western Reserve University School of Law

Date Written: March 1, 2009

Abstract

Calls for a stakeholder voice in corporate governance never end, as evidenced by the Symposium Corporations and Their Communities to which this paper is a contribution. The demise of labor unions and explosion of executive compensation while the income of most Americans has stagnated over the last several years has precipitated cries for remedial action, some of which include stakeholder governance. Although complaints about deepening inequality are just, other remedies should be pursued. The traditional objections to stakeholder governance remain valid: the interests of stakeholder groups clash not only with those of the shareholders but also with each other, and acceptable means for choosing representatives of stakeholders other than employees have not been discovered. Stakeholder governance would impair economic efficiency: maximization of shareholder wealth remains the best proxy for maximizing the benefits of private enterprise to society. Beyond the traditional problems with stakeholder governance, economic developments make it an even worse idea. Capital has become more mobile, and the U.S. is no longer so dominant a venue for investment; many countries (notably China and India) have now entered the competition for capital, and corporate governance in many countries now treats investors better than the U.S. does. Instituting a serious stakeholder role in corporate governance now would send capital fleeing abroad, with great resulting damage to the American economy.

Keywords: Corporate Governance, Stakeholder, Capitalism, Kent Greenfield, Timothy Glynn, Shareholder Primacy

JEL Classification: K22

Suggested Citation

Dent, George W., Stakeholder Governance: A Bad Idea Getting Worse (March 1, 2009). Case Western Reserve Law Review, Vol. 48, 2009; Case Legal Studies Research Paper No. 09-9. Available at SSRN: https://ssrn.com/abstract=1368947

George W. Dent (Contact Author)

Case Western Reserve University School of Law ( email )

11075 East Boulevard
Cleveland, OH 44106-7148
United States
216-368-3311 (Phone)
216-368-2086 (Fax)

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