Corporate Governance Beyond the Shareholder and Stakeholder Model

Abstract

There is a heated debate on shareholder versus stakeholder governance. The debate has expanded from traditional stakeholders who are directly involved with the company, such as employees and customers, to stakeholders who are indirectly affected by the company’s conduct, for example through ecological damage and climate change, including future stakeholders. But the lack of an integrated measure makes it difficult to hold the board accountable against multiple goals. This paper develops an integrated model of corporate governance including current and future stakeholders, building on an integrated measure for corporate value. The board can use this integrated value measure to balance the interests of the various stakeholders in a structured way. The integrated value measure can also be used by stakeholders (including shareholders) to hold the board accountable for its decisions. Finally, the paper examines mechanisms, such as stakeholder councils and sustainability-related performance pay, to include the interests of the various stakeholders on the board.

Keywords: Corporate governance, shareholder model, stakeholder model, sustainability

JEL Classification: K22, G31, G34