Shareholder Primacy vs. Stakeholder Theory

doi:10.1017/9781108123495.007

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

David Rönnegard and

N. Craig Smith

Edited by

Jeffrey S. Harrison ,

Jay B. Barney ,

R. Edward Freeman and

Robert A. Phillips

Show author details

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

DOI: https://doi.org/10.1017/9781108123495.007 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2019

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