An Emerging Third Way?: The Erosion of the Anglo-American Shareholder Value Construct

Abstract

There is an active debate among corporate law professors about the extent to which European companies are converging on the Anglo-American shareholder-wealth-maximizing model of the corporation. In this model, the paramount obligation of corporate officers and directors is to maximize the near-term financial return to the company's shareholders. The American literature has paid far less attention to the opposite phenomenon: factors that are causing British and even American companies to converge on a European stakeholder model of the corporation. The European view authorizes - or even requires - management to take account of the interests of stakeholders, including such constituencies as employees, residents of communities in which the company operates, and advocates for more diffuse social and environmental interests. The enclosed Article analyzes recent developments in the United Kingdom and the United States that are promoting that convergence to varying degrees. In this Article, we describe and evaluate recent legal developments, particularly in the United Kingdom, that are not only causing greater attention to be paid to stakeholders' interests, but that cast doubt on the intellectual construct, Anglo-American corporate governance. We argue that on a number of corporate governance measures, Britain has embarked upon a unique course to encourage enlightened share value as the proper approach to corporate governance. This approach explicitly adopts a long-term shareholder orientation, and assumes that the long-term health of the company will depend in large part on its ability to manage social, ethical and environmental risks. Accordingly, the U.K. has recently moved to require the disclosure of such risks an annual basis. In addition, institutional investors in London are acting to bring social and environmental issues, such as climate change and global labor standards, into the ambit of mainstream concern in a way that is quite different from institutional investor behavior in the United States. These developments, construed together, suggest to us that a divergence is occurring between the United States and the United Kingdom, such that our understanding of the Anglo-American corporate governance model needs to be re-evaluated.