1、 Munich Personal RePEc Archive Stakeholders vs. shareholders in corporate governance Chilosi, Alberto and Damiani, Mirella Department of Economics-Univeristy of Pisa and Department of Economics, Finance, and Statistics-University of Perugia 20 March 2007 Online at http:/mpra.ub.uni-muenchen.de/2334/
2、 MPRA Paper No. 2334, posted 07. November 2007 / 02:25STAKEHOLDERS VS. SHAREHOLDERS IN CORPORATE GOVERNANCE 1Alberto Chilosi Department of Economics University of Pisa chilosisp.unipi.it Mirella Damiani Department of Economics, Finance and Statistics University of Perugia mirelladamianilibero.it Key
3、words: Stakeholders, Corporate Governance, Varieties of Capitalism Abstract The paper is divided in two coordinate parts. The first considers in general the issue of stockholders vs. stakeholders oriented governance systems and their relative merits and demerits. The second part deals specifically w
4、ith the issue of the principal-agent problem in a stakeholder context. 1The paper is the outcome of a common research project on the issue of corporate governance. The authorship of the first part is mainly to be ascribed to Alberto Chilosi, the authorship of the second part mainly to Mirella Damian
5、i. Chilosi-Damiani Stakeholders vs. Shareholders in Corporate Governance 2Part I Shareholders, Shareholder Value, and Stakeholders 1.1 Two alternative concepts of the corporation and of its governance 1.The corporation belongs to stockholders and in their interest must be run. This conception finds
6、its clearest expression in the shareholder value doctrine, according to which the corporation must be run in the interest of shareholders, creating value on their behalf. Thus the objective of management should be to maximize the market value of the company. This is in accordance, in particular, wit
7、h the interest of minority shareholders, which should be adequately protected. 2. The corporation must be run in the interest of stakeholders. As the interest of stakeholders is various and contradictory, a compromise between the pursuit of the various interests should be found. This compromise coul
8、d be trusted to managers (Berle and Means view), to politicians, to an articulated management board, where the different instances may be represented, leading through their interaction and compromise to the specification of the overall interest of the company. According to the latter viewpoint the c
9、orporation can be seen as a community, and as such must be run. In the stakeholders view may also be included the vision of the social responsibility of the firm, whereby society as a whole is a stakeholder. The different conceptions have their counterpart in different aspects of corporate law, from
10、 the composition and election rules of directors, to the publicity of societal documents, up to the determination of the rules that determine the framework of corporate life, concerning fusions and mergers, takeovers, and the legal framework of capital markets. 2Of the two conceptions the first seem
11、s to be dominant, especially in the Anglo-Saxon environment. In a somewhat different perspective the various corporate institutional systems prevailing in different countries may be seen, whoever are the principals, as different methods to deal with the problem of the separation of ownership and con
12、trol. The second part of the present paper is dedicated in particular to the consideration of the latter issue in the specific framework of the stakeholder view. 2For some discussion of the alternative disciplines see Aglietta, Rebrioux (2005, p. 52 f.), and the literature quoted there. Chilosi-Dami
13、ani Stakeholders vs. Shareholders in Corporate Governance 31.2 Corporate governance and the agency problem Whatever the actual discipline of corporate governance a large scope for managerial discretion remains, leading to an agency problem, as well as a problem of collective action. This was already
14、 well understood by Adam Smith in a famous passage. “The trade of a joint stock company is always managed by a court of directors. This court, indeed, is frequently subject, in many respects, to the control of a general court of proprietors. But the greater part of those proprietors seldom pretend t
15、o understand anything of the business of the company, and when the spirit of faction happens not to prevail among them, give themselves no trouble about it, but receive contentedly such half-yearly or yearly dividend as the directors think proper to make to themThe directors of such companies, howev
16、er, being the managers rather of other peoples money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own.Negligence and profusion, therefore, must always prevail,
17、more or less, in the management of the affairs of such a company.” (Adam Smith, 1776, paragraph V.1.107, bold added.) In the first part of the passage (in bold) one may notice the reference to asymmetric information, from which the conclusion of the sentence follows. The final result is contained in
18、 the last sentence of the passage (in bold). For many the issue of corporate governance essentially lies in finding a solution to the agency problem. 3Accordingly to an often quoted sentence, “corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of
19、 getting a return on their investment” (Shleifer and Vishny, 1997, p. 737). The sentence relates the agency problem to the shareholder value viewpoint, but the problem exists whoever is supposed to be the principal. 1.3 The normative and positive aspect, and the agency and collective action problems
20、 Both conceptions may have a normative or a positive connotation. The positive viewpoint concerns the issue whether corporations are really managed in stockholder (or some other stakeholder) interest, the normative one whether they should be managed in stockholders interest, or in the interest of wh
21、om should they be managed. Concerning the positive viewpoint, of what really happens in the real world, there are many who maintain that corporations are mainly managed in managers own interest, or in the interest of blockholders (control shareholders) rather than, say, in shareholder overall intere
22、st. Chilosi-Damiani Stakeholders vs. Shareholders in Corporate Governance 4 Two very knowledgeable practitioners who appear to share this opinion are the authors of the following two classical quotes: “Shareholders are stupid and impudent: stupid because they buy shares, and impudent because they ex
23、pect to be paid dividends” 4(Carl Frstenberg, Famous German Banker, 1850- 1933). “Petit actionnaire minoritaire, petit con, gros actionnaire minoritaire gros con.” 5(Baron Albert Frre, wealthy Belgian businessman 1926-). Turning to the prominent economists of the past we may add, besides Adam Smith,
24、 Thorstein Veblen (1904) and Berle and Means (1932). Let us consider in particular Veblens point of view. “the men who have the management of such an industrial enterprise, capitalized and quotable on the market, will be able to induce a discrepancy between the putative and the actual earning-capaci
25、ty, by expedients well known and approved for the purpose. Partial information, as well as misinformation, sagaciously given out at a critical juncture, will go far toward producing a favorable temporary discrepancy of this kind, and so enabling the managers to buy or sell the securities of the conc
26、ern with advantage to themselves. If they are shrewd business men, as they commonly are, they will aim to manage the affairs of the concern with a view to an advantageous purchase and sale of its capital rather than with a view to the future prosperity of the concern.” (Veblen, 1904, pp. 156-157, bo
27、ld added). The quote is of special present interest, owning to the manipulation of share prices and of accounting values, associated with the great corporate bankruptcies of the past years, and in particular, such as in Enrons famous case, with the objective of cashing in options and speed out of a
28、sinking concern. The passage that we have emphasized in bold deals with a possible serious issue of corporate governance, especially in the case of diffuse share ownership: the dominance of financial over productive considerations, of the short run over the long run perspective. In order to curb the
29、 types of behaviour that Veblen laments prohibition of insider trading and of manipulating share values through diffusion of false information have been introduced. However practical proof of wrongdoings may be difficult. An important component of the legislation concerning corporations and financia
30、l intermediaries is to contrast managers tendency to take advantage of their privileged control position to the 3For a well articulated, if concise, synthesis of all the various ways in which “managers may take actions that hurt shareholders” see Tirole (2001), pp. 1-2. 4The original sentence runs a
31、s: Die Aktionre sind dumm und frech; dumm, weil sie Aktien kaufen, und frech, weil sie auch noch Dividende erwarten.“ (Quoted in Becht, 1997, p. 14.) Biographical information on Carl Frstenberg is available in the German edition of Wikipedia. 5Ibidem. Biographical information on Albert Frre is avail
32、able in Wikipedia (English edition). Chilosi-Damiani Stakeholders vs. Shareholders in Corporate Governance 5 detriment of shareholders, and of control shareholders to the detriment of minority shareholders. The strength and efficacy of this kind of legislation is notoriously lower in continental Eur
33、ope than in Anglo-Saxon countries. But even independently of the agency issue, there is an issue of collective action that could lead to prefer governance systems where the monitoring of corporations is entrusted to actors with a strong interest in performing it (such as blockholders or fund manager
34、s, in case of the shareholder value view; trade unionists, employees representatives or local politicians in the communitarian view). The agency and collective action problems are only two specific aspects of the issue of corporate governance. However they are relevant for understanding the overall
35、economic and social consequences of different systems of governance. Whatever the latter, the legal rules concerning corporate governance aim to prevent and repress opportunistic and fraudulent behaviour. This kind of intervention is relevant to our discourse, but only as long as its actual specific
36、ation is dependent on the two alternative conceptions of the corporation we have considered above. 1.4 Corporate governance and shareholder interest But then, what is shareholder interest? The simplest and most obvious answer is that shareholder interest lies in the maximization of corporate profit.
37、 But shareholders have different time horizons, subjective discount rates and propensities to risk. Moreover the temporal strategy of corporate management can change, even dramatically: for instance a company can change its behaviour deciding to maximize accounting profits in the short run at the co
38、st of their future reduction (goodwill can be cashed in and run down by increasing prices to a level higher than it would be optimal in a long run perspective). Furthermore, future profits are uncertain. Even if we were to know them, what discount rate should be used for determining the present valu
39、e of a company? This is unclear, owing to imperfections and limitations of the credit market and the intrinsic riskiness of capital investment. However the working of financial markets allows to overcome the above difficulties. The possibility of trading shares provides flexibility, permitting diffe
40、rent portfolio allocations according to preferences, while the market continuously values and actualizes future prospects. In the end the maximization of the discounted value of corporate profits can be seen to be conceptually akin to the maximization of the market value of shares. Chilosi-Damiani S
41、takeholders vs. Shareholders in Corporate Governance 61.5 Shareholder value (sv) In a normative perspective the idea that corporations must be run in the interest of shareholders finds its counterpart in the doctrine of shareholder value. (The term has been made popular by a fortunate 1986 volume by
42、 Alfred Rappaport, Creating Shareholder Value.) Shareholder value creation is shown on the one hand in dividends, on the other in the variation of the value of shares and in stock market capitalization. But the value of shares continuously changes, following the continuous adaptation of expectations
43、, as well as a consequence of short-run events concerning the functioning of the economy (such as changes in monetary policy), irrational herd behaviour and fad-like movements, 6simple random walk. If a consistent block of shares (or, for that matter, of other financial assets) were to be sold, the
44、price they would fetch would be different, even very much so, from the equilibrium share price that is relevant for marginal transactions. The price of blocks of shares could be lower, but more probably higher than the current share price, especially in case it were to bring corporate control. Moreo
45、ver, one thing may be the market value of a company in the short run, another in the longer run. Some types of action, such as increasing dividends at the expense of financing investments through retained profits, avoiding risks, but also the prospects of future gains, remunerating managers with sto
46、ck options, instead than with other more transparent forms of payments, may increase the value of shares in the short run but have a contrary effect subsequently. One could contend that the changes of a companys long run prospects, as engineered by changes in its managerial direction, would correspo
47、ndingly affect its market values (hypothesis of the efficiency of financial markets). But this is to assume more transparency of information and foresight than realism and experience would allow. On the other hand one could hardly find a better assessment of profitability present and future than the
48、 market value of shares. 1.6 Shareholder value and accounting The shareholder value doctrine has a counterpart in the evolution of corporate accounting, toward the measurement of the shareholder value produced by corporate management, and the determination of the fundamental capability of a company
49、to create value (this means, in the 6Cf. Shiller (1987 and 2003). Chilosi-Damiani Stakeholders vs. Shareholders in Corporate Governance 7 end, to be profitable). The objective is to achieve transparency of the fundamental data of the company, in the interest of investors. 7Aside from the contingent variations of stock exchange capitalization, from the point of view of the underlying fundamentals the economic value of a company can be seen as the present value of the future net cash-flow plus the non-operative assets of the firm (real est
