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On a stakeholder model of corporate governance
Author(s) -
Karpoff Jonathan M.
Publication year - 2021
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12344
Subject(s) - corporate governance , stakeholder , opportunism , externality , business , corporate social responsibility , shareholder primacy , stakeholder theory , shareholder , shareholder value , accounting , economics , public relations , finance , microeconomics , political science , market economy
Rationales for a stakeholder model of corporate governance are based on enlightened self‐interest, moral imperative, and/or externalities. Of these, the externalities rationale holds the most promise to justify a stakeholder focus. Recent evidence, however, indicates that the benefits of a stakeholder focus are limited because the social costs of many corporate activities already are internalized. Potential benefits also must be weighed against the costs, which include increased potential for conflict, waste, and managerial self‐dealing. I conclude by advocating for the traditional governance model based on shareholder interests, with allowance for managers to deviate from this model in limited circumstances when the external impacts on other stakeholders are large. To constrain managerial opportunism, such deviations should be defended with a new type of double bottom line reporting, which augments traditional financial reporting with a statement of the social benefits of any deviations from shareholder value maximization.