This Essay critiques an assessment by Lucian Bebchuk and Roberto Tallarita of the relative merits of shareholder and stakeholder governance. In “The Illusory Promise of Stakeholder Governance,” Bebchuk and Tallarita argue that stakeholder governance is either nothing more than enlightened shareholder value, or it imposes unmanageable trade-offs on directors of companies. But trade-offs are ubiquitous not just in stakeholder but also in shareholder governance, and the resulting judgments that are required of directors should not be viewed as an anathema but a fundamental function of a board, without which untenable outcomes result. The complexity that Bebchuk and Tallarita see in implementing a stakeholder system reflects a failure to recognize the way in which a business routinely makes judgments based on its purposes and values. Purpose and values hold management to account to a degree that enlightened long-term shareholder value cannot. In seeking to demonstrate that directors are not motivated or able to promote anything other than shareholder value in a shareholder-oriented system, Bebchuk and Tallarita merely describe the system that they see rather than analyze what it could or should be. “The Illusory Promise of Stakeholder Governance” therefore fails to provide a benchmark against which it is possible to evaluate either the comparative merits of shareholder and stakeholder systems, or alternative proposals for reform.
To read this Essay, please click here: Shareholderism Versus Stakeholderism–A Misconceived Contradiction: A Comment on “The Illusory Promise of Stakeholder Governance,” by Lucian Bebchuk and Roberto Tallarita.