The Economic Argument for Stakeholder Corporations

20 Pages Posted: 9 Nov 2019

See all articles by Lenore Palladino

Lenore Palladino

University of Massachusetts at Amherst - College of Social and Behavioral Sciences - Department of Economics; Franklin & Eleanor Roosevelt Institute

Date Written: April 18, 2019


The mainstream economic theory of the corporation is written to fit within the neoliberal framework of perfectly efficient markets. The entity itself — the corporation — is hypothesized as simply a site for freely negotiated contracts between rational actors, and the privileges granted to the corporation by public power are erased. As all negotiations between rational actors lead to efficient outcomes, the theory goes, the dominance of shareholders and their exclusive authority in decision-making must be the most efficient structure for corporations.

The neoliberal economic theory that underlies shareholder primacy is deeply flawed and does not reflect how corporations actually operate and distribute value between stakeholders. While many economists that the shareholder primacy model is, and always has been, a “natural law” of the market, its dominance in American corporate governance is only decades old — and ultimately, shareholder primacy is a failed economic model. By documenting the economic arguments made to support shareholder primacy and showing why these assumptions do not hold, this article adds to the growing literature on the effects of corporate shareholder primacy. I argue that shareholder primacy should be replaced by a model of “stakeholder corporations,” in which stakeholders collectively engage in corporate governance and own corporate equity.

Keywords: Corporate governance; shareholder primacy; employee ownership; financialization; stakeholders

JEL Classification: B50, D21, G30, G35, K22

Suggested Citation

Palladino, Lenore, The Economic Argument for Stakeholder Corporations (April 18, 2019). Available at SSRN: or

Lenore Palladino (Contact Author)

University of Massachusetts at Amherst - College of Social and Behavioral Sciences - Department of Economics ( email )

Amherst, MA 01003
United States

Franklin & Eleanor Roosevelt Institute ( email )

4079 Albany Post Rd.
Hyde Park, NY 12538
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics