Working Paper: CEPR ID: DP17276
Authors: Oliver Hart; Luigi Zingales
Abstract: In the last few years, there has been a dramatic increase in shareholder engagement on environmental and social issues. In some cases shareholders are pushing companies to take actions that may reduce market value. It is hard to understand this behavior using the dominant corporate governance paradigm based on shareholder value maximization. We explain how jurisprudence has sustained this criterion in spite of its economic weaknesses. To overcome these weaknesses we propose the criterion of shareholder welfare maximization and argue that it can better explain observed behavior. Finally, we outline how shareholder welfare maximization can be implemented in practice.
Keywords: shareholder value; shareholder welfare; proxy voting
JEL Codes: G3; L21; K22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| shareholder value maximization (SVM) (L21) | shareholder behavior (G34) |
| shareholder behavior (G34) | social welfare (I38) |
| shareholder welfare maximization (SWM) (L21) | shareholder expectations (G38) |
| shareholder expectations (G38) | governance framework (G38) |