Stakeholder Theory in Corporate Law: Has It Got What It Takes?

52 Pages Posted: 22 Jan 2010

See all articles by Andrew R. Keay

Andrew R. Keay

University of Leeds - School of Law

Date Written: January 4, 2010


There has been much debate for many years as to what should be the objective of the large public company. This issue is important for a number of reasons, not least of which is that the theory nominated will underpin corporate governance and dictate to a large extent the kind of corporate governance system that will exist. As far as the objective of the company is concerned, two theories have been dominant. They are the shareholder primacy and stakeholder theories. The former is said to be operative in what can be called “Anglo-American jurisdictions.” Notwithstanding the fact that it has been regularly said that the US and the UK and other Anglo-American jurisdictions embrace shareholder primacy, there are many who feel that, due to a number of factors (mentioned in the paper), some of these jurisdictions are moving towards more of a stakeholder approach to corporate governance. After setting out what stakeholder theory stands for, this paper analyses whether stakeholder theory should overtake shareholder primacy as the leading theory in Anglo-American jurisdictions. Specifically, the paper examines the arguments propounded in support of stakeholder theory and evaluates the strength of these arguments with the aim of determining if there is sufficient justification for the theory to be wholeheartedly embraced in Anglo-American jurisdictions. The two major parts of the paper involve, first, an examination of the rationale given for the theory’s existence as well as the leading arguments that are put forward for it being embraced by all companies. The second part identifies and analyses some of the concerns raised about the theory and the primary points that are directed against the theory. The paper concludes that while the stakeholder theory is attractive in a number of ways, it is lacking in many respects, and it cannot be justified as a theory of the objective of large corporations.

Keywords: stakeholder theory, corporate governance, corporations, shareholder primacy

JEL Classification: G3, K22, L21

Suggested Citation

Keay, Andrew R., Stakeholder Theory in Corporate Law: Has It Got What It Takes? (January 4, 2010). Available at SSRN: or

Andrew R. Keay (Contact Author)

University of Leeds - School of Law ( email )

Corporate and Commercial Law
Leeds LS2 9JT
United Kingdom
0113-343-6389 (Phone)

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