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Japan has identified corporate governance as an important element in its attempt to reform its economic system. A combination of political will and sustained implementation by civil servants has produced a corporate governance code and associated mechanisms to sustain and refine the changes that have been introduced in order to raise corporate profitability and stimulate the whole national economy. Meanwhile, the direction of reform has shifted from an initially principles-based approach towards an increasingly proscriptive, rules-based one, favouring the interests of investors over those of other stakeholders. Whether this will achieve the desired results is increasingly being questioned within Japan and runs counter to experience from markets where shareholder primacy already prevails. Japan's own prior experience of trying to transplant laws and institutions from these markets suggests a need for caution. [ABSTRACT FROM AUTHOR]

We examine why organizations may at times decrease their performance after receiving a positive rating. We argue that in contrast to the prevailing assumption that organizations will strive for favorable ratings to achieve reputational benefits, incompatibility between a positive rating and a dominant institutional logic may cause recognized firms to question the perceived value of maintaining superior performance, thus leading them to strategically reduce their efforts on the rated dimension. Using a difference-in-differences design, we examine how companies responded to being rated as charitable organizations, an evaluation that we argue was generally perceived as incompatible with the dominant logic of shareholder maximization during the early 1990s. Our results suggest that firms that were rated as generous were more likely to decrease philanthropic contributions relative to firms that were not rated as generous. We also found this reaction to be amplified or attenuated by organizational and institutional factors that increased or decreased the saliency of the perceived incompatibility between the philanthropy rating and the dominant shareholder logic. These findings provide insights for scholarship on organizational reactivity and impression management and raise important questions for scholars and practitioners interested in improving the effectiveness of evaluation metrics as drivers of organizational performance. [ABSTRACT FROM AUTHOR]

Directors' duty to act in good faith and to act in the best interests of the company relates to the interests of shareholders held in the company as a separate legal entity. The obligation to act in the best interests of shareholders is potentially bounded by corporate purpose as the office requires directors to act in accordance with the constitution and Companies Act. The origin of the duty is traced to the emergence of permanent capital in the business corporation and the resulting new oaths sworn by directors in the seventeenth and eighteenth centuries with Charitable Corporation v Sutton considered in that historical context. The analysis illustrates that the duty is not owed to shareholders collectively at any time, but rather to the company as a separate entity from its shareholders. The interests of shareholders are held in the company as its capital base. The duty is considered in relation to the even longer-standing obligation that officers of corporations act faithfully to ensure compliance with the corporation's charter. The article concludes that the re-inclusion of purpose provisions in company constitutions combined with recognition that the modern company is an entity rather than contractual could significantly influence the application of the good faith and best interests duty. [ABSTRACT FROM AUTHOR]

The article discusses the relationship between corporate social responsibility (CSR) and the shareholder primacy paradigm. It explores the reasons for the increased focus on CSR, the roots of the shareholder primacy paradigm, and the implications of CSR preferences on corporate decision-making. The author argues that shareholder primacy remains an efficient organizational structure, as market forces ensure that companies meet CSR demands. The article concludes that while CSR policies may not always be socially optimal, a shift away from shareholder primacy is unlikely to benefit shareholders or other stakeholders. [Extracted from the article]

Corporate resource allocation decisions shape business investment, income distribution, and productivity growth. Stock buybacks––a term denoting when a corporation repurchases its own shares on the open market––manipulate stock prices and enrich senior corporate executives and hedge fund managers. We argue that the growing distribution of corporate funds to share-sellers via stock buybacks is a source of productivity fragility in the US economy. This article presents new data on the use of stock buybacks by US corporations in 2010–2019. We show the widespread and growing use of stock buybacks across industries and sectors and describe policies that will curb the excessive use of corporate funds on stock buybacks. [ABSTRACT FROM AUTHOR]

U.S. politicians are actively "marketcrafting": the passage of the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act collectively mark a new moment of robust industrial policy. However, these policies are necessarily layered on top of decades of shareholder primacy in corporate governance, in which corporate and financial leaders have prioritized using corporate profits to increase the wealth of shareholders. The Administration and Congress have an opportunity to use industrial policy to encourage a broader reorientation of U.S. businesses away from extractive shareholder primacy and toward innovation and productivity. This Article examines discrete opportunities within the major policy programs for rule-makers to include corporate guardrails to prevent public funds from flowing mainly to shareholders, to encourage gainsharing with multiple corporate stakeholders, and to ensure that the public interests embedded in industrial policy are met. [ABSTRACT FROM AUTHOR]

When corporations inflict injuries in the course of business, shareholders wielding environmental, social, and governance ("ESG") principles can, and now sometimes do, intervene to correct the matter. In the emerging fact pattern, corporate social accountability expands out of its historic collectivized frame to become an internal subject matter--a corporate governance topic. As a result, shareholder accountability surfaces as a policy question for the first time. The Big Three index fund managers, BlackRock, Vanguard, and State Street, responded to the accountability question with ESG activism. In so doing, they defected against corporate legal theory's central tenet, shareholder primacy. Shareholder primacy builds on a pair of norms. The first is substantive and concerns purpose--the firm should be managed for the shareholders' financial benefit. The second norm is procedural and concerns power--shareholders should be able to tell managers how to run the firm. Once put into operation, the two norms are supposed to ensure that market control over production, and hence economic efficiency, is maximized. Prior to the Big Three's turn to ESG activism, the two norms operated in tandem--power on the ground assured shareholder value maximization in the boardroom toward the generally accepted efficiency goal. But power on the ground now also triggers questions about shareholder accountability, and the Big Three, upon switching into activist mode to address those questions, put the two norms out of synch, causing the directive of management for the shareholders' financial benefit to lose focus and compromising shareholder primacy in the performance of its mission. This Article looks closely at this confrontation between shareholder primacy and shareholder accountability, asking three questions: (1) whether investment institutions can legitimately sacrifice their investors' financial returns in connection with the installation of socially responsible business practices at operating companies; (2) whether assuming ESG concerns take a permanent place at the top of the corporate governance agenda, shareholder primacy can continue to provide a viable cornerstone for corporate legal theory; and (3) whether recent institutional interventions in the name of ESG herald a structural shift toward a welfarist corporation. The Article answers all three questions in the negative. The sequence of questions and answers delivers us to an unsatisfactory destination riven by contradiction and tension. [ABSTRACT FROM AUTHOR]

Scholars who favor shareholder primacy usually claim either that managers should not fulfill corporate duties of beneficence or that, if they are required to fulfill them, they do so by going against their obligations to shareholders. Distinguishing between structurally different types of duties of beneficence and recognizing the full force of the normative demands imposed on managers reveal that this view needs to be qualified. Although it is correct to think that managers, when acting on behalf of shareholders, are not required to fulfill wide duties of charity, they are nevertheless required to fulfill a variety of narrow duties of beneficence. What is more, the obligation to fulfill these duties arises precisely because they are acting on behalf of shareholders. As such, this article 1) refines our understanding of the duties of corporate beneficence and 2) helps to identify which duties of beneficence are imposed on managers when they are acting on behalf of shareholders. [ABSTRACT FROM AUTHOR]

Research Question/Issue: On August 19, 2019, the Business Roundtable (2019) released a statement signed by 181 chief executive officers (CEOs) of well‐known US corporations, in which they pledged "a fundamental commitment" to "deliver value to all" stakeholders. This study examines the stock market reaction to this new statement on the purpose of a corporation. Research Findings/Insights: Based on a sample of 163 publicly listed companies that signed the pledge, the results show that investors react positively to a firm's pledge in the days surrounding the statement release. The consensus among stock market investors was robust, characterized by the low volatility in the share price post‐announcement date. The decision by these companies, though intended to maximize the wealth of all stakeholders, rather than shareholders alone, carries an opportunity cost. Specifically, a post‐announcement decline in share buybacks by pledge firms relative to control firms is observed, though investors embracing stakeholder theory appear undeterred by the reduction in distributions. Theoretical/Academic Implications: This study provides empirical support that, in the evolving business environment, companies must emphasize issues that concern customers, employees, non‐governmental organizations (NGOs), and the government. Failure to prioritize these issues may engender public backlash, especially in the age of social media. However, the attention to stakeholders is compatible with the focus on shareholder performance. Performance suffers when customers leave, workers feel dissatisfied, NGOs call for boycotts, and governments levy fines. Corporations seeking to increase shareholder wealth will need to fully embrace stakeholder concerns. Practitioner/Policy Implications: This study shows that adopting a stakeholder perspective unlocked value that would not have been achieved had the focus remained on shareholder primacy. The excess values may derive from greater customer loyalty, improved employee motivation, better supplier relations, supportive financiers, maximizing revenue, minimizing costs, and/or yielding higher profits. Shareholders anticipate greater long‐term value from companies emphasizing employees, communities, supply chain, financiers, and shareholders. [ABSTRACT FROM AUTHOR]

Departing from the Regulation Approach and the concept of spatio-temporal fixes, this article analyses how different mechanisms of financialization have ameliorated and accelerated crisis-tendencies in the North European forest industry and its implications for labour, suppliers and corporate R&D. Although wood products can potentially ameliorate the climate crisis by substituting plastics, petrochemicals, polyester and various other applications from fossils, firms have been slow to advance into these higher value-added segments. Instead, under an increasingly financialized accumulation regime, innovation has been undermined through R&D downsizing while dividends have been increased to shareholders at labour's expense. Meanwhile, amid ultra-low interest rates, the industry's profitability has been supported by appreciating forest assets that are increasingly treated as a new financial asset class by the financial sector. Evidently, while some mechanisms of financialization are detrimental to firms, the financialization of forests has constituted a profitability-enhancing socioecological fix (McCarthy, 2015; Ekers & Prudham, 2017) not only for financial capital (Ekers, 2019) but also for non-financial firms themselves. In the long run, however, it is highly uncertain if forest asset prices can be kept from depreciating amid the problems of profitability, weakened ecological carrying capacity, rising interest rates and strained supplier relations. [ABSTRACT FROM AUTHOR]

Bond portfolio managers constantly worry about the liquidity of their portfolio. Consider a bond portfolio manager holding bonds of a particular firm that has numerous maturities outstanding. Assume that some of the issuing firm's bonds mature. Do the firm's remaining bonds become more liquid or less liquid? The authors analyze the impact of the maturity of a firm's bonds on the liquidity of the firm's remaining bonds, where a reduction in the number of bonds outstanding suggests a potential reduction in liquidity. Alternatively, the leverage reduction due to the reduction in the number of bonds outstanding may improve the firm's credit quality and result in greater liquidity. Their results strongly suggest the former where the strength of reduction depends on the ratio of the USD amount matured to total debt. The results have important implications for how to hedge the portfolio against interest changes. [ABSTRACT FROM AUTHOR]

The article analyzes potential of systemic stewardship with tradeoffs among portfolio companies and the extent to which universal owners can and should be expected to sacrifice single firm value. Topics discussed are potential benefits of systemic stewardship, single firm focus and egalitarian focus of corporate law, shareholder primacy and stakeholderism, climate stewardship, and conflict between tradeoff strategy and universal owners' business model and legal obligations to clients.

The distinction between what I call nonelective obligations and discretionary obligations, a distinction that focuses on one particular thread of the distinction between perfect and imperfect duties, helps us to identify the obligations that carry over from principals to agents. Clarity on this issue is necessary to identify the moral obligations within "shareholder primacy" (i.e., "shareholder theory"), which conceives of managers as agents of shareholders. My main claim is that the principal-agent relation requires agents to fulfill nonelective obligations, but it does not always require (and sometimes actually prohibits) discharging discretionary obligations. I show that the requirement to fulfill nonelective obligations is more far-reaching than has been acknowledged by most defenders and critics of shareholder primacy. But I also show that managers are not bound by certain discretionary obligations like charity, showing that their moral obligations are more circumscribed than the obligations that apply to human beings in general. [ABSTRACT FROM AUTHOR]

Oliver Hart, Nobel Laureate in Economics for 2016, and economist Luigi Zingales recently published an article justifying companies’ pursuit of social objectives at the expense of profits from within the shareholder primacy framework. This Article highlights an important consequence of this approach: a new agency problem between managers and shareholders regarding social preferences. This Article provides two possible solutions to this agency problem: a bottom-up solution focused on shareholders’ ability to submit proposals on such issues and a top-down solution based on an independent board sub- committee intended to identify social objectives and forward them for shareholder approval.

We explore privilege and its systemic intertwining with management education curricula. We take the view that privilege as power and control is intimately bound up with shareholder primacy as a foundation of mainstream management education (Lund Dean & Forray, 2021). In an attempt to tackle this, we provide a single case study of how we appreciate a broad concept of Indigenous stewardship in a brand-new foundation unit called "Responsible Business Mindset," as part of a Master of Commerce program at a large Australian university. By proactively engaging with Indigenous stewardship to tackle privilege we contribute to the literature on engaging with privilege in management education curricula. We highlight how a concept of Indigenous stewardship may help us to reimagine business, where business no longer ignores the interconnections and interdependencies it has with the communities and natural environments within which it operates. Such a concept may also be a means to bolster alternative narratives to shareholder primacy that currently exclude a meaningful debate about privilege. At the same time, the entire exercise of introducing a new concept into the curricula has brought about a deep and critical self-reflection of our own privilege and how we as educators can respectfully and meaningfully introduce such concepts with a sense of appreciation rather than appropriation. [ABSTRACT FROM AUTHOR]

The power of finance vis-à-vis the nonfinancial sector is changing. Macroeconomic developments and financial innovations have reduced financial actors' exit options, thus diminishing exit-based structural power. At the same time, shareholdings have become more concentrated in the hands of large asset managers, thus increasing control-based power. This article documents these trends, before examining whether asset managers wield their power and why, despite being universal shareholders, they have not steered corporate behavior toward decarbonization. Rather than assuming orderly, good-faith interactions between shareholders and managers, this article argues that in the United States today, political considerations govern the use of control-based power. Asset managers' corporate governance policies are subservient to the—increasingly inconsistent—goals of maximizing assets under management while avoiding regulatory backlash. Unlike exit-based power, control-based power is constrained by being highly visible and, therefore, easily politicized. [ABSTRACT FROM AUTHOR]

Corporate law scholarship revolves around two polar conceptions, known as "shareholder primacy" and "corporate social responsibility." This Article takes the literature in a new direction, arguing that the current dichotomy misses a crucial aspect of corporate law: its norm of legal primacy. Any pursuit of profit. by the corporation, is legally permitted only within the bounds of full compliance with non-corporate positive law. When the corporation acts unlawfully, corporate law provides a powerful, and until now undertheorized, set of remedies against its fiduciaries and shareholders. As this Article demonstrates, the most effective way to promote socially desirable corporate behavior is by utilizing the legal primacy devices that corporate law already offers, while continuing to strengthen non-corporate law. Connecting legal primacy with corporate practice, this Article discusses a number of doctrines, some ofwhich have recently become high-profile topics of litigation and scholarship: the fiduciary duty of good faith; directors' oversight duties; the mandatory limits on dividends and buybacks; the shift in corporate purpose in the vicinity of insolvency; the seniority of preferred and trust shareholders; and the judicial dissolution of law-breaking corporations. The analysis offered in this Article can help shape the law to better protect stakeholders (without departing from rule of law principles, or the rights that entities and shareholders do have), and chart a more nuanced trajectory for broader discourse on business law, private law, and public regulation. [ABSTRACT FROM AUTHOR]

Investors, politicians, media, and others are asking for a shift to a stakeholder primacy governance model from the current shareholder primacy model While companies are making changes to put more emphasis on other stakeholders (e.g., employees, community, government, customers, and suppliers), execution of this transition has many hurdles. This article discusses many of the practical issues of both becoming more multi-stakeholder sensitive as well as the complexities of managing to a stakeholder primacy business. The focus is on the practical considerations and addresses them from multiple perspectives including measurement and compensation. Finally, it provides some ideas that might be considered for the development of tools to better address the decision-making balancing act inherent in a stakeholder primacy model. [ABSTRACT FROM AUTHOR]

Research Summary: The post‐Enron era is marked with growing discourse of stakeholders, sustainability, and corporate social responsibility (CSR). Yet, commentators debate whether U.S. corporations have indeed moved toward a stakeholder orientation, given the difficulties in measuring such a shift. We assess this shift by examining corporate governance practices, especially the prevalence of shareholder‐ and stakeholder‐oriented practices in chief executive officer (CEO) dismissals. Using data on large firms in 1980–2015, we found that, before the 2000s, CEOs were less heavily penalized for poor firm performance when they demonstrated a shareholder orientation by downsizing and refocusing the corporation and more heavily penalized for CSR activity. This trend, however, reversed after the early 2000s. This article provides evidence of the evolution of U.S. firms' governance practices from a shareholder toward stakeholder orientation. Managerial Summary: Many people are skeptical of the assertion that U.S. corporations have become more stakeholder‐oriented over time. It is no wonder, as scant evidence exists for this claim. We tackle this claim head on by analyzing firm practices in 1980–2015 that contributed to chief executive officer (CEO) dismissal when the firm was performing poorly. Some practices, such as downsizing and firm refocusing, are associated with a shareholder orientation and others, such as CSR, are associated with a stakeholder orientation. We found strong evidence for a growing trend toward a stakeholder orientation. When the firm was performing poorly before the 2000s, CEOs were more likely to be dismissed for CSR activities and less likely to be dismissed for downsizing or refocusing the firm. This trend reversed in the early 2000s. [ABSTRACT FROM AUTHOR]

Under the traditional shareholder primacy doctrine, corporate decisions were to be made with a single objective: the maximization of shareholder welfare. Paradoxically, that self-regarding view did much to maximize social welfare, because the corporate directors and officers knew full well that they had to do business with suppliers, customers, employees, and the public at large to achieve that end. The recent environment-social-governance model seeks to upend that model by seeking to make officers and directors answer to these many masters. That movement believes that shareholders want boards to take into account social values. Surely they do, but there is no agreement which values count and to what extent. The key advantage of the shareholder primacy model is it lets these divergent views be expressed at the shareholder level, so as to tamp down the negative effect on corporate performance in dealing with conflicts of interest on social issues. [ABSTRACT FROM AUTHOR]

Delaware Supreme Court Chief Justice Leo Strine and Nicholas Walter have recently published an article arguing that the U.S. Supreme Court’s decision in Citizens United v. FEC undermines a school of thought they call “conservative corporate law theory.” They argue that conservative corporate law theory justifies shareholder primacy on grounds that government regulation is a superior constraint on the externalities caused by corporate conduct than social responsibility norms. Because Citizens United purportedly has unleashed a torrent of corporate political campaign contributions intended to undermine regulations, they argue that the decision undermines the viability of conservative corporate law theory. As a result, they contend, Citizens United “logically supports the proposition that a corporation’s governing board must be free to think like any other citizen and put a value on things like the quality of the environment, the elimination of poverty, the alleviation of suffering among the ill, and other values that animate actual human beings.”This essay argues that Strine and Walker’s analysis is flawed in three major respects. First, “conservative corporate law theory” is a misnomer. They apply the term to such a wide range of thinkers as to make it virtually meaningless. More important, scholars who range across the political spectrum embrace shareholder primacy. Second, Strine and Walker likely overstate the extent to which Citizens United will result in significant erosion of the regulatory environment that constrains corporate conduct. Finally, the role of government regulation in controlling corporate conduct is just one of many arguments in favor of shareholder primacy. Many of those arguments would be valid even in a night watchman state in which corporate conduct is subject only to the constraints of property rights, contracts, and tort law. As such, even if Strine and Walker were right about the effect of Citizens United on the regulatory state, conservative corporate law theory would continue to favor shareholder primacy over corporate social responsibility.

Large corporations dominate economic and social life in the United States and around the globe. The mainstream corporate governance ideology of "shareholder primacy" claims that the exclusive purpose of a corporation is to generate returns for shareholders, which means that governance decisions should be exclusively in their hands. However, shareholder primacy lacks a theory of how companies innovate, and instead focuses solely on allocation of corporate profits, misunderstanding the relationship of shareholders to the twenty-first-century corporation. The theory of the corporation as an innovative enterprise—engaged in productive innovation by producing higher-quality goods and services for lower unit costs—is an accurate way to understand what makes corporations successful producers. Stakeholder theory from progressive legal scholarship illustrates specific corporate governance institutions that can assist innovation, including fiduciary duty, stakeholder participation in decision making, and equity ownership. This article contributes to the growing literature refuting shareholder primacy by utilizing the theories of the innovative enterprise and multi-stakeholder governance to propose reshaping US corporate governance to better to serve innovation in production and a balance of power in distributional decision making. JEL classification: B50, D21, G30, G35, K22 [ABSTRACT FROM AUTHOR]

This Article identifies and analyzes the de facto and de jure end of lawyers' exclusivity over the practice of law in the United States. This development will have profound implications for the legal profession, the careers of individual lawyers, and the justice system as a whole. First, the Article argues that various financial products that have recently flooded the legal market are functionally equivalent to investing in and owning law firms and create all the same governance challenges as allowing nonlawyers to directly own stock in law firms. Second, the Article analyzes Arizona's groundbreaking legalization of nonlawyer participation in law firms, effective January 1, 2021, and the effects it will have nationally. Third, the Article explains that the drawbacks of liberalizing the practice of law are rooted in the conception of shareholder primacy, a bedrock principle of corporate law. This principle would encourage lawyers to prioritize profit maximization for the benefit of their investors over the interests of clients and the courts. Fourth, despite the apparent dangers, there are reasons to celebrate the end of the era of the legal practice as the exclusive purview of lawyers. Lawyers' monopoly on the practice of law hinders inclusion and diversity and, counterintuitively, undermines practitioners' dignity and well-being. Fifth, the apparent dangers of liberalization can be avoided if states follow Arizona in allowing nonlawyer participation in the practice of law but condition it on organization as an Alternative Business Structure with certain professional responsibilities. More specifically, the Article proposes a type of "benefit entity," which I call "legal benefit entity" (LBE). LBEs will be required to privilege the interests of clients and the courts over those of investors. The final Part explains what an LBE should look like. [ABSTRACT FROM AUTHOR]

Corporate-led women's empowerment initiatives appear, in their proactiveness, to be a welcome addition to a range of measures addressing adverse human rights impacts by business. This article questions the claim that these projects significantly advance women's rights. Instead, they can be understood as a manifestation of what Catherine Rottenberg terms 'neoliberal feminism' with women at risk of being transformed into 'gender capital' for business gain. This article rejects the claim that empowerment can only be delivered by encouraging women into market-based work. Instead, it is argued that the corporate responsibility to respect the human rights of women can better be supported by reorienting business away from its preoccupation with delivering value for shareholders, towards an approach that values women's unpaid socially reproductive labour. [ABSTRACT FROM AUTHOR]

Moving beyond the current focus on the individual as the unit of analysis in the privacy paradox, this article examines the misalignment between privacy attitudes and online behaviors at the level of society as a collective. I draw on Facebook's market performance to show how despite concerns about privacy, market structures drive user, advertiser and investor behaviors to continue to reward corporate owners of social media platforms. In this market-oriented analysis, I introduce the metaphor of elasticity to capture the responsiveness of demand for social media to the data (price) charged by social media companies. Overall, this article positions social media as inelastic, relative to privacy costs; highlights the role of the social collective in the privacy crises; and ultimately underscores the need for structural interventions in addressing privacy risks. [ABSTRACT FROM AUTHOR]