Shareholderism Versus Stakeholderism – a Misconceived Contradiction. A Comment on 'The Illusory Promise of Stakeholder Governance' by Lucian Bebchuk and Roberto Tallarita

18 Pages Posted: 4 Jun 2020

See all articles by Colin Mayer

Colin Mayer

University of Oxford - Said Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: June 3, 2020

Abstract

This paper critiques an assessment by Bebchuk and Tallarita (BT) of the relative merits of shareholder and stakeholder governance. BT’s paper argues that stakeholder governance is either nothing more than enlightened shareholder value, or it imposes unmanageable tradeoffs on directors of companies. But trade-offs are ubiquitous not just in stakeholder but also in shareholder governance, and the resulting judgments that are required of directors should not be viewed as an anathema but a fundamental function of a board, without which untenable outcomes result. The complexity that BT see in implementing a stakeholder system reflects a failure to recognize the way in which business routinely makes judgments based on its purposes and values. Purpose and values hold management to account to a degree that enlightened long-term shareholder value cannot. In seeking to demonstrate that directors are not motivated or able to promote anything other than shareholder value in a shareholder-oriented system, BT merely describe the system that they see rather than analyse what it could or should be. The paper therefore fails to provide a benchmark against which it is possible to evaluate either the comparative merits of shareholder and stakeholder systems, or alternative proposals for reform.

Keywords: Corporate purpose, stakeholder governance, enlightened shareholder value, values

JEL Classification: D21, G32, G34, G38, K22

Suggested Citation

Mayer, Colin, Shareholderism Versus Stakeholderism – a Misconceived Contradiction. A Comment on 'The Illusory Promise of Stakeholder Governance' by Lucian Bebchuk and Roberto Tallarita (June 3, 2020). European Corporate Governance Institute - Law Working Paper No. 522/2020, Available at SSRN: https://ssrn.com/abstract=3617847 or http://dx.doi.org/10.2139/ssrn.3617847

Colin Mayer (Contact Author)

University of Oxford - Said Business School ( email )

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Centre for Economic Policy Research (CEPR)

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