Stout, Lynn A. --- "New Thinking on ‘Shareholder Primacy’" [2012] ELECD 383; in Vasudev, M. P.; Watson, Susan (eds), "Corporate Governance after the Financial Crisis" (Edward Elgar Publishing, 2012)

Book Title: Corporate Governance after the Financial Crisis

Editor(s): Vasudev, M. P.; Watson, Susan

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9780857931528

Section: Chapter 1

Section Title: New Thinking on ‘Shareholder Primacy’

Author(s): Stout, Lynn A.

Number of pages: 17

Extract:

1. New thinking on `shareholder
primacy'
Lynn A. Stout

INTRODUCTION: THE RISE OF SHAREHOLDER
PRIMACY THINKING

Of all the controversies in US corporate law, one has proven most fun-
damental and enduring. This is, of course, the debate over the proper
purpose of the public corporation (Bratton and Wachter 2008, pp. 100­
103).1 Should a public company seek only to maximize the wealth of its
shareholders (the so-called `shareholder primacy' view)? Or should public
corporations be run in a manner that considers the interests of other cor-
porate `stakeholders' as well, including employees, consumers, even the
larger society?
The Great Debate, as it has been characterized by two sitting and one
former member of the Delaware judiciary (Allen, Jacobs and Strine 2002,
p. 1067), dates back at least to the initial emergence of the public corpor-
ation as a powerful business form in the early twentieth century.2 For
several decades afterwards, the two sides in the controversy seemed evenly
matched. Neither the champions of shareholder primacy, nor the defend-
ers of stakeholder interests, enjoyed the upper hand.
This changed in the 1970s with the rise of the `Chicago School' of econo-
mists. Prominent members of the School argued that economic analysis
could reveal the proper goal of corporate governance quite clearly and
that goal was to make shareholders as wealthy as possible. Thus Nobel-
prize winner Milton Friedman (1970) argued in the pages of the New York
Times Sunday magazine that because shareholders `own' the corporation,
the ...