Chapter Shareholder Primacy Theory Summary

Shareholder primacy has been a dominant principle for decades in corporate law. This principle draws attention to the interests of shareholders and leads corporations to focus on the shareholders’ benefits. It is usually approved that the impartial of businesses is to increase the shareholders’ benefits. Even though scholars have questioned this description plus standard, it is normally accepted that shareholders are currently the only holders of businesses. In developed nations such as the USA, United Kingdom, Japan and France, shareholder primacy theory is one of a few main principles in corporate law. By contrast, shareholder primacy theory takes a back seat to other corporate principles in many developing countries such as China, India, Brazil, and Argentina. Although there are no studies on the development of this phenomenon in China and India, there have been some studies in Argentina and Brazil. Most studies agree that it can be attributed to differences in economic development among those countries. Still, they have not reached a full consensus on which factor plays the most important role. Therefore, it is necessary to comprehensively conduct more research to investigate this issue. Check out Law coursework writing services for more details on shareholder primacy according to law.

The recent reputation of the corporations

It is no secret that corporations have had a bad rap in the public eye. From the Great Depression to the recent financial crisis, from criticism of outsourcing to criticism of corporate political contributions, many Americans decry corporations for not being sufficiently “citizenship-minded” and only caring about profit-making. Even within corporate America itself, “shareholderprimacy” this idea should be given top priority has been met with some backlash. Berle and Dodd’s debate in the 1930s can be thought of as a precursor to this conversation. In their debate, Berle claimed that shareholders are holders of the business and that managers were representatives of these holders. Dodd responded by arguing that corporations serve social functions beyond profit-making and should care about stakeholders other than shareholders. It seems fair to say that Dodd’s view on stakeholder theory was prescient (he was writing in 1936), but Berle’s view on shareholder primacy still has its supporters today. A case is possible for both sides: some argue that stakeholder theory is too broad, while others cite instances when shareholder interests have been put ahead of others. The corporate world is complicated, and there are no easy answers to questions like these, but it’s important to know why certain opinions exist and what they mean.


Shareholder primacy ownership is a principle that creates a clear distinction between shareholders and directors. The idea is that the board of directors are supposed to represent the interest of the shareholders and not the other way around. It is sometimes argued that this distinction, adopted by company law in most jurisdictions, does not allow for a full understanding of corporate governance. In a friendly tone: Economists and business theorists have long considered the corporation synonymous with ownership. It was not until the 1940s that corporate lawyers began to separate the notions of ownership from control, creating the current shareholder-based model of corporate governance. This legal model has been adopted in most common law countries worldwide, but there are notable differences between countries’ corporate laws that can be traced to cultural and historical differences. For example, in Germanic countries like Germany and Sweden, there is still a close association between controlling shareholders and the management of corporations. In contrast, in France, this relationship does not exist.

Advantages and Drawbacks of shareholder primacy

Shareholder primacy is a notion whereby the interests of shareholders are given priority over other stakeholders. The view that directors are agents of shareholders and have to enhance shareholder value at the expense of other stakeholders is very popular and widely accepted by businesses, especially in the United States. This concept is considered an orthodoxy for modern corporations’ management. It is assumed that if directors are provided a clear assignment, such as operating the corporations’ business to increase shareholders’ interests. The costs of the companies will remain minor as there are no agency charges compulsory.

It is considered that under the shareholder primacy strategy, non-shareholders are expected to obtain improved matters than they would beneath undecided assignments. As a rule, the interests of the corporation and the interests of its shareholders are aligned. Their goals are the same: maximize profits and return value to shareholders. They are often represented by the same group of people: directors and officers who have fiduciary duties to their shareholders under state corporate law. This structure provides a safeguard for shareholders, who can rest easy knowing that directors and officers will make informed decisions that are in the best interest of their shares since it is also in their most suitable interest to do so. The disadvantage, or critique, is that when shareholder primacy trumps all other stakes, the value per share can expand to exclude the liability of all other stakeholder interests. No need to worry about your homework for the chapter on shareholder primacy theory summary, as you can hire an expert from Law coursework writing.

How business is affected by stakeholders

You have probably heard the term “public benefit corporation” used in the news lately, or maybe you’ve noticed it on a business’s website. But what is a public benefit corporation, exactly, and why are they catching on? Today, more companies are choosing to become public benefit corporations. These businesses have added a specific public benefit purpose to their corporate charter to align their business model with the values of their community. It means that they will not be required to prioritize shareholder primacy value above all else when making decisions, but rather that they will consider the interests of all stakeholders: the environment, employees, and customers. In some states, the law requires them to do so. To give you an example of how this works, Company A is beginning to feel pressure from shareholders who would like it to produce cheaper products for sale overseas. However, Company A is concerned about the environmental impact of producing those products overseas (and has been considering whether it should move its manufacturing operations closer to home), the living conditions of its overseas workers and the quality of production in general. It also wants to ensure that its decision does not negatively impact its relationship with key customers overseas.

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