Shareholder primacy is a theory in

corporate governance Corporate governance is defined, described or delineated in diverse ways, depending on the writer's purpose. Writers focused on a disciplinary interest or context (such as accounting, finance, law, or management) often adopt narrow definitions th ...

—especially when dealing with

United States corporate law United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governance ...

—holding that

shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal own ...

interests should be assigned first priority relative to all other corporate stakeholders. A shareholder primacy approach often gives shareholders power to intercede directly and frequently in corporate decision-making, through such means as unilateral shareholder power to amend

corporate charter In corporate governance, a company's articles of association (AoA, called articles of incorporation in some jurisdictions) is a document which, along with the memorandum of association (in cases where it exists) form the company's constituti ...

s, shareholder referendums on business decisions and regular

corporate board A board of directors (commonly referred simply as the board) is an Committee#Executive committee, executive committee that jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such a ...

election contests. The shareholder primacy norm was first used by courts to resolve disputes among majority and minority shareholders, and, over time, this use of the shareholder primacy norm evolved into the modern doctrine of minority shareholder oppression. James Kee wrote in 1995 for the

Mises Institute Ludwig von Mises Institute for Austrian Economics, or Mises Institute, is a libertarian nonprofit think tank headquartered in Auburn, Alabama, United States. It is named after the Austrian School economist Ludwig von Mises (1881–1973). It ...

, "If private property were truly respected, shareholder interest would be the primary, or even better, the sole purpose, of the corporation." However, the doctrine of shareholder primacy has been criticized for being at odds with

corporate social responsibility Corporate social responsibility (CSR) is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethicall ...

and other legal obligations.

Background

In their 1932 publication on foundations of

and

governance Governance is the process of interactions through the laws, social norm, norms, power (social and political), power or language of an organized society over a social system (family, tribe, formal organization, formal or informal organization, a ...

—''

The Modern Corporation and Private Property ''The Modern Corporation and Private Property'' is a book written by Adolf Berle and Gardiner Means published in 1932 regarding the foundations of United States corporate law. It explores the evolution of big business through a legal and economi ...

''—

Adolf Berle Adolf Augustus Berle Jr. (; January 29, 1895 – February 17, 1971) was an American lawyer, educator, writer, and diplomat. He was the author of ''The Modern Corporation and Private Property'', a groundbreaking work on corporate governance, a prof ...

and

Gardiner Means Gardiner Coit Means (June 8, 1896 in Windham, Connecticut – February 15, 1988 in Vienna, Virginia) was an American economist who worked at Harvard University, where he met lawyer-diplomat Adolf A. Berle. Together they wrote the seminal work of ...

's first introduced the idea that "shareholders are the corporation's 'true owners'." In his landmark book, ''

Capitalism and Freedom ''Capitalism and Freedom'' is a book by Milton Friedman originally published in 1962 by the University of Chicago Press which discusses the role of economic capitalism in liberal society. It has sold more than half a million copies since 1962 and ...

'', the economist

Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...

, advanced the theory of shareholder primacy which says that "corporations have no higher purpose than maximizing profits for their shareholders." Friedman said that if corporations were to accept anything but making money for their stockholders as their primary purpose, it would "thoroughly undermine the very foundation of our free society." His article, "A Friedman Doctrine: The Social Responsibility of Business is to Increase Its Profits", was published September 13, 1970 in ''

The New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...

''.

References

{{Reflist, 30em Corporate governance

Primacy Primacy may refer to: * an office of the Primate (bishop) * the supremacy of one bishop or archbishop over others, most notably: ** Primacy of Peter, ecclesiological doctrine on the primacy of Peter the Apostle ** Primacy of the Roman Pontiff, e ...

Background

See also

References