Managerial Fixation and the Limitations of Shareholder Oversight

50 Pages Posted: 13 Aug 2018 Last revised: 17 Apr 2020

See all articles by Emily Winston

Emily Winston

University of South Carolina School of Law

Date Written: April 1, 2020


BlackRock’s recent public letters to the CEOs of the companies in which it invests have drawn substantial attention from stock market actors and observers for their conspicuous call on corporate CEOs to focus on sustainability and social impacts on non-shareholder stakeholders. This Article explores the market changes that propelled BlackRock into a position to make such a call, and whether institutional shareholders can be effective monitors of these broad social goals. It argues that while corporate attention to non-shareholder stakeholders can improve firm value, shareholder oversight of these stakeholder relationships will not succeed in having this effect.

In the past several decades, U.S. institutional shareholders have come to exert significant influence over corporate managers. In the wake of this shift, concerns have arisen about how shareholders are using their power to influence corporate managers. Described herein as “managerial fixation” on shareholders, these discussions raise concerns about negative stakeholder impacts and a loss of firm value.

The team production theory of corporate law explains why, when shareholders are disproportionately influential, other stakeholders’ interests will be neglected to the detriment of corporate value. This theory leaves open the question of why shareholders cannot simply use their influence to remedy the problem. This Article fills that gap.

Even when shareholders are financially incentivized to use their power to promote the interests of other stakeholders, they will lack the information about stakeholder relationships necessary to do so effectively. This asymmetry of information means that shareholders cannot incorporate stakeholder information into their assessment of firm value, so managing to shareholder expectations will not maximize the value created by stakeholder relationships. Thus, a solution to managerial fixation must entail reducing shareholders’ proportional influence over managerial decision-making vis-à-vis the corporation’s other stakeholders. This Article concludes by offering two proposals for governance mechanisms that would encourage this reallocation of managerial attention.

Keywords: corporate governance, corporations, shareholders, stakeholders, team production, information asymmetries, incomplete contracts, institutional shareholders, short-termism

JEL Classification: K2, L2, K, M1

Suggested Citation

Winston, Emily, Managerial Fixation and the Limitations of Shareholder Oversight (April 1, 2020). Hastings Law Journal, Volume 71, Issue 3, 699-748 (2020), Available at SSRN: or

Emily Winston (Contact Author)

University of South Carolina School of Law ( email )

701 Main Street
Columbia, SC 29208
United States

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