TOWARDS A STAKEHOLDER-SHAREHOLDER THEORY OF CORPORATE GOVERNANCE: A COMPARATIVE ANALYSIS

Katharine Jackson, Temple University

Abstract

The governance regime of the public corporation in America, while tending to promote the concentration of economic and social power in company leadership, often encourages that leadership to advance the interests of their company’s short-term shareholders. The result is a board of directors beholden, if to anything at all, to short-term stock prices. This prioritization often comes at the expense of the corporation’s long-term sustainability and to its other constituents: its work force, creditors, and community. In contrast, governance in Continental European countries like Germany persuades corporate leadership to embrace social obligations and long-term outlooks through, e.g., enforced stakeholder representation on boards, fewer shareholder rights, institutionalized collective bargaining, and bank-based finance. Despite the differences, it cannot seriously be argued – as some neo-classical American corporate governance theorists posit – that Germany does not have a liberal, successful and industrialized economy. At the very least, many can convincingly contend that the German economy weathered financial crises better than its American counterpart.

In fact, many of the popular theories of corporate governance, as well as American corporate law itself, support a greater role of corporate stakeholders in the governance of those corporations. For example, Delaware corporate law affords directors wide discretion to apply their business judgment in favor of stakeholders, while “nexus of contract” theories of governance necessarily include their interests in the governance calculation. The corporation’s historical role in America, moreover, illustrates that companies can, and have, been governed in the interests of the community.

But, because of the unique history and personality of America, stakeholder voices have a better chance of being heard if they come through their role as corporate stockholders. This Paper, through a comparative and historical analysis of American, German and U.K. corporate governance regimes, will seek the common ground between the so-called shareholder- and stakeholder- centric theories of the corporation. It will find that common ground in the institutional shareholders that represent the investments of ordinary people, i.e., the corporation’s stakeholders.