Who is in charge? A property rights perspective on stakeholder governance

Abstract

The fields of strategy and organization are dominated by the stylized idea that the purpose of the firm is to maximize returns on investment for equity shareholders. This idea is based on simplifying assumptions about externalities, contractual ties, investments, and the nature of competition. As a result, the dominant conceptualization of the firm’s purpose as shareholder value maximization may lead to serious misunderstandings regarding the firm’s contractual obligations. Furthermore, the idea of shareholder value maximization may lead to problematic and inaccurate representations of organization, innovation, and other aspects of value creation and capture. Creating and capturing value in the presence of spillovers, relationship-specific investments, and complex contractual ties is difficult in ways that are obscured by a relentless focus on shareholder value. In this essay, we develop these claims and point to the consequences for the canonical business school curriculum, which does not deal sufficiently with the challenges of value creation and capture under more realistic assumptions. We compare the shareholder view with a stakeholder view and seek to advance a synthetic agenda that puts limits on stakeholder claims without problematic, stylized assumptions. 453108 SOQ10310.1177/1476127012453108Klein et al.Strategic Organization 2012