Stakeholder Theory and the Challenge of Welfare Economics
In a new paper posted on SSRN, I argue that stakeholder theory will not become fully intellectually respectable until it adopts the concepts and methods of welfare economics. As everyone involved in corporate governance knows, stakeholder theory holds that directors should manage the corporation for the benefit of all its stakeholders, including not only its […]
Robert T. Miller is the F. Arnold Daum Chair in Corporate Finance and Law and the Associate Dean for Faculty Development at the University of Iowa College of Law. This post is based on his recent paper.
In a new paper posted on SSRN, I argue that stakeholder theory will not become fully intellectually respectable until it adopts the concepts and methods of welfare economics.
As everyone involved in corporate governance knows, stakeholder theory holds that directors should manage the corporation for the benefit of all its stakeholders, including not only its shareholders but also its employees, customers, creditors, and suppliers, as well as any other individuals affected by the corporation’s operations. In an age of climate change and concern about greenhouse gas emissions, the stakeholders of a corporation can reasonably be understood to include everyone now living or to be born in the future. The imperative to maximize stakeholder welfare can thus become an imperative to maximize social welfare generally.
All serious observers realize, however, that, even when the class of stakeholders is drawn narrowly, it virtually never happens that what is good for one stakeholder is good for all stakeholders. Rather, in the typical case, what is good for some stakeholders is bad for others, and what some stakeholders prefer others disprefer. It is essential to stakeholder theory, therefore, that directors balance the competing interests or aggregate the conflicting preferences of stakeholders in order to choose the course of action that is—in some sense—best for all stakeholders collectively.
