A Democratic Participation Model for Corporate Governance

Corporate law is in the grip of a fundamental conundrum: whether corporations should seek only to serve shareholders or instead attend to the interests of all stakeholders. The doctrine of shareholder primacy, which focuses the corporation’s attention on the goal of maximizing shareholder wealth, has been startingly successful, capturing the theory and practice of corporate governance for roughly fifty years. But recently the costs of this monomaniacal focus on the financial interests of one set of corporate participants have become clearer. At a time when the original reasons for restricting the corporate franchise to shareholders have been shown to rest on faulty assumptions and the misapplication of standard economic theory, shareholder primacy’s fingerprints have been discovered all over potentially catastrophic problems such as dramatically rising income and economic inequality, accelerating climate change, and the unleashing of vast sums of money upon politics.