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Chapter 7 - Shareholder Primacy vs. Stakeholder Theory

The Law as Constraint and Potential Enabler of Stakeholder Concern*

from Part II - Stakeholder Theory and Society

Published online by Cambridge University Press:  01 May 2019

By
David Rönnegard  and
N. Craig Smith
Edited by
Jeffrey S. Harrison ,
Jay B. Barney ,
R. Edward Freeman  and
Robert A. Phillips
Jeffrey S. Harrison
Affiliation:
University of Richmond
Jay B. Barney
Affiliation:
University of Utah
R. Edward Freeman
Affiliation:
University of Virginia
Robert A. Phillips
Affiliation:
York University, Toronto
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Summary

This chapter examines the Shareholder Primacy Norm (SPN) as a widely acknowledged impediment to corporate social responsibility (CSR), including how this relates to Stakeholder Theory. We start by explaining the SPN and then review its status under US and UK law and show that it is not a legal requirement, at least under the guise of shareholder value maximization. This is in contrast to the common assertion that managers are legally constrained from addressing CSR issues if doing so would be inconsistent with the economic interests of shareholders. Nonetheless, while the SPN might be muted as a legal norm, we show that it is certainly evident as a powerful social norm among managers and in business schools— reflective, in part, of the sole voting rights of shareholders on corporate boards and of the dominance of Shareholder Theory. We argue that this view of CSR is misguided, not least when associated with claims of a purported legally enforceable requirement to maximize shareholder value. We propose two ways by which the influence of the SPN among managers might be attenuated: extending voting rights to non-shareholder stakeholders or extending fiduciary duties of executives to non-shareholder stakeholders.

Type
Chapter
Information
The Cambridge Handbook of Stakeholder Theory , pp. 117 - 131
Publisher: Cambridge University Press
Print publication year: 2019

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