Bad and Not so Bad Arguments for Shareholder Primacy
In the Introduction of the article of the author Lynn A. Stout pointed out the two arguments in regard to shareholder primacy that were made by Adolph A. Berle and Merrick Dodd.
Adolph A. Berle argued for “Shareholder Primacy” in that he believed that the corporation exists only to make money for its shareholders.
Merrick Dodd argued against it his view was “the business corporation as an economic institution which has a social service as well as a profit making function”.
Although both men have argued over this the result of what the interest of the business lie in still remains unsolved.
No one can be sure if the firm exists to increase shareholders wealth or to serve the interests of the stakeholders of the business. Yet there has been no more research has been done after the debate to solve the argument.
Therefore from this I can interpret that the argument is whether the interest in the business lies in the interest of the shareholders or stakeholders.
So then the author Lynn A. Stout goes on to list the arguments for and against these theories –
1. The Shareholder Ownership Argument for Shareholder Primacy.
In this argument the Author considers the most common argument which is that the Business “belongs” to its shareholders in that its main purpose to increase shareholder wealth. While shareholders do not own all of the business the do own a stake in it so for this their rights as “the owners” are quite limited this is where the Agency theory takes effect while shareholders are seen as the owners they do not manage the day to day running of the business that managers do. Shareholders do not receive a salary or wage like managers but rather r ...