A Critique of Shareholder Value
The Cournot Centre series
Despite the apparent divergence in institutions of governance, share ownership, capital markets, and business culture across developed economies, the basic law of the corporate form has already achieved a high degree of uniformity, and continued convergence is likely. A principal reason for convergence is a widespread normative consensus that corporate managers should act exclusively in the economic interests of shareholders. [. . .] Since the dominant corporate ideology of shareholder primacy is unlikely to be undone, its success represents the ‘end of history’ for corporate law. (Hansmann and Kraakman, 2001, p. 439) In Chapter 1, we emphasized the role of institutional investors in the promotion of shareholder value: concerned with making their portfolio of securities as proﬁtable as possible, these investors have taken advantage of their rising power in capital markets to increase demands on corporate executives. The quotation above, written by two of the foremost representatives1 of US law and economics, shows the extent to which shareholder value has become a resonating theme in academic debates on corporate governance. Today, the large majority of theoretical publications uphold this form of governance, more or less explicitly. What, however, are the foundations of this position? One possible answer is that the theorists are simply repeating the legal order, the very function of which is to pronounce what the community recognizes as being legal or just. The question which immediately arises, then, is the following: is it true that the legal order, if assumed to express the norm, is favourable to shareholder value? The...
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