'Enlightened Shareholder Value': Corporate Governance Beyond the Shareholder-Stakeholder Divide

Abstract

The global financial crisis has led to calls for greater corporate accountability and heightened controls over public corporations. As a result, the past year has seen a marked increase in regulatory initiatives that give shareholders a greater voice in corporate affairs. While debate continues to rage in the academy and beyond over the promise and pitfalls of empowerment, an important undercurrent in the controversy is the potential impact of shareholder democracy on corporate stakeholders. This Article urges a vision of the corporation and its purpose that transcends the shareholder-stakeholder divide. Under this approach, which has been introduced statutorially in the United Kingdom, attention to corporate stakeholders, including the environment, employees, and local communities, is seen as critical to generating long-term wealth. This Article observes that a similar paradigm is now being advanced in the U.S. by leading institutional investors who also identify stakeholder interests as key to long-term firm financial performance and effective risk management. It moves beyond prior literature by articulating a statement of the corporate purpose that is consistent with an investor-driven enlightened value approach and presents normative arguments in its favor. The Article then considers how enlightened value intersects with existing corporate governance rules in the U.S. context and the extent to which it in fact represents a departure from the standard wealth maximization norm. In so doing, it offers a response to some of the concerns surrounding corporate stakeholders that have been raised by skeptics of greater voice.