The Corporate Objective

The Corporate Objective

Corporations, Globalisation and the Law series

Andrew Keay

The Corporate Objective addresses a question that has been subject to much debate: what should be the objective of public corporations? It examines the two dominant theories that address this issue, the shareholder primacy and stakeholder theories, and finds that both have serious shortcomings.

Chapter 4: An Entity Maximisation and Sustainability Model

Andrew Keay

Subjects: law - academic, company and insolvency law, corporate law and governance


INTRODUCTION Thus far the book has concentrated on examining the two dominant theories put forward for dealing with the issue of the corporate objective. While weaknesses have been identified most frequently in shareholder primacy by stakeholder theorists and weaknesses have been found in stakeholder theory by shareholder primacy advocates, leading to a significant polarisation in the consideration of the issue of the corporate objective, it is submitted that many of the weaknesses suggested in relation to each model are legitimate. Jonathan Macey has said1 that no company can sustain the abstract goal of shareholder wealth maximisation or the broad stakeholder model. The former is unachievable given management’s control, power and relationship to constituents other than shareholders. Similarly, given the fact that shareholders provide the capital required to keep the company going, the sustained application of the stakeholder model is precluded. Arguably, shareholder primacy is not attractive from a normative perspective, although it might be regarded as pragmatic and workable. It is argued that it provides for more certainty than stakeholder theory, but, although often overlooked, it does suffer from many uncertainties, as identified and discussed in Chapter 2. While stakeholder theory has attractions, normatively speaking, because, inter alia, it embraces values of trust and fairness, it is difficult to see how it can be applied effectively in practice. Rather than seeking to modify either of these models it is felt that it is better to seek a new model. Consequently, in this Chapter I seek to formulate a new theory....

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