On a Stakeholder Model of Corporate Governance

52 Pages Posted: 29 Jul 2020 Last revised: 16 Apr 2021

See all articles by Jonathan M. Karpoff

Jonathan M. Karpoff

University of Washington - Michael G. Foster School of Business; European Corporate Governance Institute (ECGI)

Date Written: December 8, 2020


Rationales for a stakeholder model of corporate governance are based on enlightened self-interest, moral imperative, and/or externalities. Of these, the externalities rationale holds the most promise to justify a stakeholder focus. Recent evidence, however, indicates that the benefits of a stakeholder focus are limited because the social costs of many corporate activities already are internalized. Potential benefits also must be weighed against the costs, which include increased potential for conflict, waste, and managerial self-dealing. I conclude by advocating for the traditional governance model based on shareholder interests, with allowance for managers to deviate from this model in limited circumstances when the external impacts on other stakeholders are large. To constrain managerial opportunism, such deviations should be defended with a new type of double bottom line reporting, which augments traditional financial reporting with a statement of the social benefits of any deviations from shareholder value maximization.

Keywords: Stakeholders, shareholders, CSR, externalities, corporate governance

JEL Classification: D23, G30, K42, M14, P12

Suggested Citation

Karpoff, Jonathan M., On a Stakeholder Model of Corporate Governance (December 8, 2020). Financial Management, European Corporate Governance Institute – Finance Working Paper No. 749/2021, Available at SSRN: https://ssrn.com/abstract=3642906 or http://dx.doi.org/10.2139/ssrn.3642906

Jonathan M. Karpoff (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

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European Corporate Governance Institute (ECGI) ( email )

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