Assessing the Arguments Related to Shareholder Primacy and Stakeholder Theory in Corporate Governance - Dissertation Example

Historically, the shareholder primacy theory has occupied a significant role in the corporate governance strategies based on the Anglo-American model. Shareholder primacy theory takes the position that the corporation is owned by shareholders and thus exists for the sole purpose of maximizing shareholder value. The role of shareholder primacy in corporate governance has been challenged by the European model of corporate governance which recognizes stakeholder value. Stakeholder theory looks more keenly at relationships between the corporation and its stakeholders, and presumes that profits flow naturally from improving stakeholder value and should not drive corporate decisions and behaviour.

It therefore follows that theories of shareholder and stakeholder value espouse divergent presumptions on what factors should drive corporate behavior. In light of the recent global financial crisis of 2008-2009, there has been considerable debate over whether or not shareholder primacy should play an even greater role in making management accountable. Even so, these arguments are countered by arguments that express concern over the possibility that shareholder primacy would have a negative impact on the corporation or organization’s wider class of stakeholders; employees, creditors, the community and consumers.. icism of Shareholder Primacy 24 2.

3 Stakeholder Theory 28 2.3.1 Definition 28 2.3.2 Origins of Stakeholder Theory 30 2.3.3 Developments and Current Stakeholder Theory 32 2.3.4 Criticisms of Stakeholder Theory 34 2.4 Conclusion 36 2.5 Chapter Summary 37 Chapter Three 38 Shareholder Primacy in Corporate Governance 38 3.1 Introduction 38 3.2 Shareholder Primacy in Practice 38 3.3 Shareholder Primacy and Corporate Governance in the UK 42 3.4 Conclusion 46 3.5 Chapter Summary 47 Chapter Four 47 Stakeholder Theory and Corporate Governance 47 4.

1 Introduction 48 4.2 Definition of Corporate Social Responsibility 48 4.3 Stakeholder Theory and Corporate Social Responsibility in Practice 49 4.4 Conclusion 54 4.5 Chapter Summary 54 Chapter Five 55 Findings/Conclusion 55 Bibliography 58 Chapter One Shareholder Primacy and Stakeholder Theory: Issues and Background 1.1 Introduction Historically, the shareholder primacy theory has occupied a significant role in the corporate governance strategies based on the Anglo-American model.4 Shareholder primacy theory takes the position that the corporation is owned by shareholders and thus exists for the sole purpose of maximizing shareholder value.

5 The role of shareholder primacy in corporate governance has been challenged by the European model of corporate governance which recognizes stakeholder value. Stakeholder theory looks more keenly at relationships between the corporation and its stakeholders, and presumes that profits flow naturally from improving stakeholder value and should not drive corporate decisions and behaviour.6 It therefore follows that theories of shareholder and stakeholder value espouse divergent presumptions on what factors should drive corporate behavior.

In light of the recent global financial crisis of 2008-2009,