In-corporating crisis: Time to shift the paradigm away from shareholder primacy

Abstract

Shareholder primacy has reigned supreme for over a century and is considered one of the bedrock principles upon which the modern corporation is built. This paper explores this complex evolution and argues in favour of an alternative theory for the corporation. This alternative theory is advanced because shareholder primacy is flawed in its modern-day adoption. This article deconstructs the foundations for the leading shareholder primacy model. It argues that shareholder primacy fails to recognise the corporation as an entity where wealth maximisation for shareholders is the primary goal. Moreover, the externalities that this model has resulted in are a net loss to economic and environmental welfare generally. Furthermore, shareholder primacy is based upon the ideology that shareholders are an easily identifiable 'unit' with one voice. This article deconstructs this as a basis to justify shareholder primacy and identifies that the wide dispersion of shareholders undermines this argument. It proposes a progressive method, the pluralist approach, to advance the 'new' modern corporation to affirm the corporation's position in the market and to reduce negative externalities.