Stakeholder Theory in Corporate Law: Has It Got What It Takes?
Andrew R. Keay
University of Leeds - School of Law
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.
Number of Pages in PDF File: 52
Keywords: stakeholder theory, corporate governance, corporations, shareholder primacy
JEL Classification: G3, K22, L21
Date posted: January 22, 2010