ABSTRACT

Professional school courses emphasize maximizing corporate profits and shareholder value as the proper purpose of business corporations according to a recent Brookings study of the curricula of top law and business schools. One of the most striking symptoms of how shareholder primacy thinking dominates contemporary discussions of corporations is the way it has become routine for journalists, economists, and business experts to claim as undisputed fact that US corporate law requires directors of public companies to try to maximize shareholder wealth. Corporate “stakeholders” like employees, customers, and creditors are assumed to receive only the benefits their formal contracts and the law entitle them to (fixed salaries, interest, and so forth), while shareholders supposedly get all profits left over after the firm has met those fixed obligations. Over the past two decades, legal and economic scholars have generated dozens of empirical studies testing the statistical relationship between various measures of corporate performance and supposedly shareholder-friendly elements of corporate governance.