Shareholder Primacy vs. Stakeholder Theory: The Law as Constraint and Potential Enabler of Stakeholder Concerns

32 Pages Posted: 21 Apr 2018

Date Written: April 20, 2018

Abstract

This chapter examines the Shareholder Primacy Norm (SPN) as a widely acknowledged impediment to corporate social responsibility (CSR), including how this relates to Stakeholder Theory. We start by explaining the SPN and then review its status under US and UK law and show that it is not a legal requirement, at least under the guise of shareholder value maximization. This is in contrast to the common assertion that managers are legally constrained from addressing CSR issues if doing so would be inconsistent with the economic interests of shareholders. Nonetheless, while the SPN might be muted as a legal norm, we show that it is certainly evident as a powerful social norm among managers and in business schools— reflective, in part, of the sole voting rights of shareholders on corporate boards and of the dominance of Shareholder Theory. We argue that this view of CSR is misguided, not least when associated with claims of a purported legally enforceable requirement to maximize shareholder value. We propose two ways by which the influence of the SPN among managers might be attenuated: extending voting rights to non-shareholder stakeholders or extending fiduciary duties of executives to non-shareholder stakeholders.

Suggested Citation

Ronnegard, David and Smith, N. Craig, Shareholder Primacy vs. Stakeholder Theory: The Law as Constraint and Potential Enabler of Stakeholder Concerns (April 20, 2018). INSEAD Working Paper No. 2018/15/ATL/Social Innovation Centre. Available at SSRN: https://ssrn.com/abstract=3165992 or http://dx.doi.org/10.2139/ssrn.3165992

David Ronnegard

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

N. Craig Smith (Contact Author)

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

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