Stakeholder Governance as Governance by Stakeholders

19 Pages Posted: 31 Aug 2023

See all articles by Brett McDonnell

Brett McDonnell

University of Minnesota Law School

Date Written: August 29, 2023

Abstract

Much debate within corporate governance today centers on the proper role of corporate stakeholders, such as employees, customers, creditors, suppliers, and local communities. Scholars and reformers advocate for greater attention to stakeholder interests under a variety of banners, including ESG, sustainability, corporate social responsibility, and stakeholder governance. So far, that advocacy focuses almost entirely on arguing for an expanded understanding of corporate purpose. It argues that corporate governance should be FOR various stakeholders, not shareholders alone.

This Essay examines and approves of that broadened understanding of corporate purpose. However, it argues that we should understand stakeholder governance as extending well beyond purpose to embracing governance BY stakeholders. Purpose-based governance longingly hopes that either shareholders, or the directors elected by shareholders, will vigorously promote the interests of other stakeholders. But if we truly want companies to promote stakeholder interests, we should empower stakeholders within those companies. Such stakeholder governance would create some costs along with many benefits. However, we can structure stakeholder governance to emphasize the benefits while keeping the costs under control. Employees should be empowered via board representation, works councils, and/or unions. Other stakeholders can be less fully empowered through councils, advisory at first but potentially given power to nominate or even elect directors.

Keywords: stakeholders, stakeholder governance, corporate governance, corporate purpose

JEL Classification: K22, M10

Suggested Citation

McDonnell, Brett H., Stakeholder Governance as Governance by Stakeholders (August 29, 2023). Minnesota Legal Studies Research Paper No. 23-27, Seattle University Law Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4557291

Brett H. McDonnell (Contact Author)

University of Minnesota Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States
612-625-1373 (Phone)

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