SHAREHOLDER PRIMACY

Shareholder Primacy

Shareholder Primacy

Introduction

In recent years a growing consensus has emerged in favour of the shareholder-oriented model of the corporation. Increasingly, this model is justified not on the basis of shareholder ownership rights but on efficiency grounds: whoever the immediate and direct beneficiaries of shareholder orientation, it is argued; it ultimately indirectly benefits everyone by ensuring the maximization of aggregate social wealth. The prevalence of this view has caused the distributional dimensions of corporate governance to be neglected. This paper examines the distribution of share ownership and financial wealth in the US and the UK. Although share ownership has become more widely spread, it argues, it remains very heavily concentrated with the result that shareholder primacy is in reality the primacy of a small privileged elite. After an exploration of the contradictions of working class shareholding and the impact of greater shareholder-orientation on the distribution of wealth, the paper concludes by re-evaluating Hansmann and Kraakman's 'end of corporate history' thesis, arguing that recent developments represent a triumph not for efficiency but for the growing power of the shareholder class. 

Shareholder Primacy and the Distribution of Wealth

Many academics and policymakers now seem to believe that the big issues in the debates about corporate governance have been resolved.1A'broad normative consensus' has emerged among the 'academic, business and governmental elites in leading jurisdictions', argue Henry Hansmann and Reinier Kraakman, that 'ultimate control over the corporation should rest with the shareholder class' and that managers should manage in its interests. Indeed, such is the degree of harmony, there is 'no longer any serious competitor to the view that corporate law should principally strive to increase long-term shareholder value'. As equity markets develop, the 'ideological and competitive attractions' of the shareholder-oriented model of the corporation will become 'indisputable, even among legal academics' and the goal of shareholder primacy will become 'second nature even to politicians'. Its triumph is thus 'assured' and convergence in 'most aspects of the law and practice of corporate governance' inevitable.2 One does not have to endorse Hansmann and Kraakman's more extravagant claims about the 'end of corporate history' to recognise that there does indeed seem to be a growing consensus in favour of the shareholder-oriented corporation. 3 Even those who press the case for stake holding now tend to do so on the grounds that it would best serve the long-term interests of shareholders, hence Sanjat Bhagat and Roberta Romano's assertion that 'the participants in corporate law debates share the objective of corporate law - to adopt policies that enhance shareholder wealth', and disagree only 'over the means to achieve that end'. 

Paradoxically, however, as the shareholder primacy norm has gained in strength, the rationale for it has become rather blurred. Sometimes it is defended simply on the basis of shareholder corporate 'ownership'. For Bhagat and Romano, for example, the goal of corporate law is to 'further the interests of the owners of the firm' and 'the benchmark for evaluating the benefit of corporate and securities laws is whether they improve investor welfare'.4 It is now increasingly common, however, for the support for shareholder primacy to be couched in the more neutral and consequentiality language of 'efficiency'. Indeed, it was on this basis that the recent Company Law Review rejected a 'pluralist' model of the corporation in favour of one based ...