Beyond shareholders versus stakeholdersTowards a Rawlsian concept of the firm

Author: Tanweer AliAffiliation: Empire State College, State University of New York

Contact address:Tanweer Alic/o Empire State College, Center for International ProgramsLondynska 41 Prague 120 00Czech Republic

Email: tanweer.ali@esc.eduTelephone: +420 602 299547

1

Abstract

This paper critiques the principle of shareholder value and offers an alternative paradigm. We consider different theories describing the corporation and its relationship with shareholders, concluding that much of the modern academic discourse on corporate governance centres around the notion of the firm as a contractual arrangement. We provide a full critiqueof shareholder primacy from an economic as well as a moral perspective, which includes a focus on Rawls. An alternative contractarian paradigm is offered, one that is based on the concept of the corporation as a ‘social union.’ This characterization justifies participation of a wider group of stakeholders in the governance of a corporation, and we make a distinction between electoral and moral constituents. A role for the application of the principles of deliberative democracy is also discussed.

Key words: Corporate governance, ownership, democracy, contract, shareholdervalue, social union, Rawls, constituents, deliberative democracy

******************************************************************************

1. Corporations and ownership

The essential problem of corporate governance is that of the accountability of management. The essential question is accountability to whom. The two principal standpoints on this problem view corporate accountability as the legitimate concern either exclusively of equity shareholders or, alternatively, of awider group of stakeholders. Despite this divide there is some degree of overlap between these two views of corporate governance, with both sides frequently arguing that the long-terminterests of a corporation’s shareholders are best served by addressing the needs of multiple stakeholders and of wider society. The responsibility of a corporation, together with its shareholders, as responsible owners, towards wider society is a

2

recurrent theme in the literature on corporate governance, corporate social responsibility and socially responsible investment. This aspect of the discourse on governance is grounded in a view of a corporation as the property of its shareholders, and appeals to the duties of ownership.

1.1 Ownership as metaphor

The term ‘ownership’ is regularly used in the literature on corporate governance, especially in introductory academic texts. It might be useful to think of ‘ownership’ in the context of an intangible entity such as a business enterprise as a metaphor. This metaphor provides an anchor for conceptualizing the relationship between the investor and the business.In recent decades there has been considerable scholarship in the fields of linguistics and cognitive science on the role of metaphor in structuring concepts. In particular Lakoff and Johnson (1980) have explained how, far from being a purely literary device, metaphor plays a crucial role in our conceptual system, particularly in structuring more abstract ideas. In the light of the research of Lakoff and others, analysis of linguistic devices, especially metaphors, used in communicating ideas should be seen as an essential part of examining the way that concepts are formed and opinion is shaped.

Ownership in the context of a business entity may be best characterized, following Kövecses (2010) as an ontological metaphor, whose role is to ‘assign a basic status in terms of objects, substances, and the like to many of our experiences (p. 38).’ The concept of ownership most obviously applies to physicalobjects of varying sizes, such as pens, bags, books, cars and real estate. To apply the same term to characterize the more abstract relationship between a person and a business is metaphorical in character, serving to conceive the enterprise as an object – one that is in the possession of an owner.

Indeed a richer use of the metaphor of ownership is to be found in older texts. For example in a 1911 ruling the US Supreme CourtJustice Louis D. Brandeis refers to the widely distributed

3

shareholding as ‘absentee landlordism of the worst kind’ (Monks &Minnow, pp. 129-130). This conceptual framework is further developed by Thorstein Veblen in Absentee Ownership: Business Enterprise inRecent Times: The Case of America, originally published in 1923. Veblen characterizes what he terms ‘absentee ownership’ as a ‘remnant offeudalism,’ distinct from ownership arising from ‘handicraft’ and‘natural right’ (1997, p. 51). In this characterization he drawsheavily on Locke’s view of property ownership as a natural right derived from human labour (Second Treatise of Government). Monks uses a more contemporary metaphor to evoke this same notion of absent and uninvolved owners in his reference to ownerless ‘dronecorporations’ (Absence of Ownership, 2013).

We now turn to the appropriateness of this metaphor in providing a cognitive structure for understanding the relationship between the equity investor and the business enterprise. Our focus is thepublicly held corporation.

Monks & Minnow (2008, p. 95) have outlined four elements of the ownership of property: 1) the right to dispose of the property asone wishes; 2) the right to regulate others’ use of the property;3) the right to transfer ownership; and 4) responsibility for potential damage to others caused by use of the property. Monks &Minnow explain that in the context of the modern limited liability company only one of these elements clearly applies to shareholders, i.e. the right of transfer. In the case of the first two rights, ownership rights can only be exercised in the collective sense, and under numerous legal restrictions.

The relevance of the fourth element is questioned by Berle and Means, in their seminal work on corporate governance in the 1930s. They emphasize a broader conception of responsibility as afeature of ownership, and conclude that the modern context of highly liquid markets renders this little more than irrelevant:

“…property is immobilized by the necessity that it should have an attentive owner whose activity is indispensable to its continued usefulness… Consequently, to translate property into liquid form the first requisite is that it demand as little as possible of its owner … Thus if property

4

is to become liquid it must not only be separated from responsibility but it must become impersonal….” (Berle & Means, 2007, p. 249/50).

Joseph Schumpeter also questions the relevance of ownership in a modern corporation:

“The capitalist process, by substituting a mere parcel of shares for the walls and the machines in a factory, takes the life out of the idea of property. (Schumpeter, 1976 , p.142).”

As Donald MacKenzie, writing about high-frequency trading for theLondon Review of Books, reports, “we have now reached the point wheredelays measured even in nanoseconds (billionths of a second) matter (2014, p. 27).” Such a scenario, in which shares may be bought and sold in an instant, via a computer algorithm and without any human involvement, would appear to render any notion of the responsibility arising from ownership so abstract as to bemeaningless.

This discussion does not necessarily extend to all business enterprises. There is an argument to be made that ownership may be an appropriate metaphor for other types of enterprise, especially small businesses. Bernstein enumerated four functions fulfilled by a small business person, namely “entrepreneur, manager, capitalist and worker (1953, p. 409)” – and which may arguably justify the metaphor of ownership.

The legal basis for regarding shareholders as owners of a corporation is also open to question. According to Stout, “corporations are legal entities that own themselves (2013a, p. 1174).” In this view the shareholder owns a contract with the corporation, and not in any sense a part of the corporation itself. This contract conveys some rights, which are rather limited in scope.

There are indeed alternative metaphors of share ownership which are rooted in more sophisticated financial theory. For instance, Black & Scholes (1973) articulated a theory which viewed a firm’s

5

equity as an option on its assets, which are owned by its bondholders, spawning a whole new theory of company and asset valuation in the process. Whilst this doesn’t represent a common view, it is an extension of mainstream financial theory that turns established conceptions of corporate ownership somewhat on its head. And Martin Wolf, writing in the Financial Times, has likened modern equity to insurance: “What shareholders actually do is provide an equity cushion to absorb unexpected shocks – an insurance policy against events that could otherwise force the company into bankruptcy. Being able to diversify their portfolioswidely, shareholders are well-placed to bear these risks. This isan important function, for which they are rewarded with what we know as the equity risk premium (Wolf, 2014).” Both views offer aricher understanding of the role of modern corporate shareholders.

So the ownership metaphor does not provide a way of conceiving the relationship between shareholders of a public corporation andthe corporation itself that is grounded in contemporary reality. Indeed for this very reason Freeman (1994) opted to use the term ‘financiers’ in the place of ‘shareholders’ or ‘owners’. We shallnow turn to another metaphor that is in common usage in discourseon corporate governance.

1.2 Democracy and Contracts

The metaphor of democracy is much more strongly represented and richly developed than that of ownership in the literature on corporate governance, with references to voting on resolutions, elections, representation, rights, the protection of minorities (and implicitly or explicitly equality of treatment), ‘activist investors’, policy making and indeed governance itself. During 2012, a spate of resolutions in which management recommendations on board compensation were rejected by shareholders (‘shareholders revolts’) were dubbed the ‘shareholder spring’ a clear reference to the pro-democracy movements that ejected autocratic regimes in a number of Middle Eastern and North African countries in the previous year. The inter-war German industrialist and statesman Walter Rathenau, as quoted by Berle &

6

Means expressed this explicitly: “…the enterprise becomes transformed into an institution which resembles the state in character (Berle & Means, 2007, p. 309).”

This metaphor of democracy would appear to fit the description ofa structural metaphor, which provides a rich ‘knowledge structure’ for understanding the nature of the relationship between the firm and its shareholders (Kövecses, 2010, p. 37). This metaphor is contractarian in nature.

A contractarian view of the firm was articulated by Coase (1937) who examined the firm as a means of supplying resources for production in contrast to the price mechanism, i.e. the market. According to Coase the process of production involving several parties, and taking place outside the context of a single organizational unit, would require a large number of separate contracts, with all suppliers of factors of production, includinglabour, which would entail ‘contract costs’ (which we now call transaction costs). The firm comes into being when “For this series of contracts is substituted one … whereby the factor, for a certain remuneration (which may be fixed or fluctuating), agrees to obey the directions of an entrepreneur within certain Limits. The essence of the contract is that it should only state the limits to the powers of the entrepreneur”. So the firm arisesas an organization where the ‘authority’ of the entrepreneur, as set out contractually, substitutes the operation of the market. Coase also draws on the work of Frank Knight (1921), who frames the contractual nature of the corporation in relation to risk anduncertainty. In Chapter 8 he states: “The bulk of the producing population cease to exercise responsible control over production and take up the subsidiary rôle of furnishing productive resources (labor, land, and capital) to the entrepreneur, placingthem under his sole direction for a fixed contract price.” Moreover, the suppliers of resources, including labour, earn rents, while the entrepreneur alone earns residual income, or profit. This characterization of the residual nature of the income arising to equity holders is at the heart of much contemporary thinking on shareholder sovereignty, as we shall

7

see, but ignores the qualification added by Knight, which will bediscussed in a subsequent section.

Jensen & Meckling (1976) set out a concept of the firm which integrates this notion of a contractual arrangement with agency theory, including agency costs. They present a theory of all organisations, ranging from the non-profit sector, through corporations, to include government, as a ‘nexus for a set of contracting relationships among individuals.’ The inclusion of government itself demonstrates how analogous this view is to the ‘social contract’ theory of political philosophy. Jensen & Meckling, echoing Knight, go on to highlight, in the corporate context, ‘…the existence of divisible residual claims on the assets and cash flows of the organization which can generally be sold without permission of the other contracting individuals (Jensen & Meckling, 1976).’

This concept of residual contracting individuals, is further developed into a rationale for the primacy of shareholders by Fama & Jensen (1983) who argue that the shareholders of a corporation are ‘residual risk bearers’, since all other parties have contractually specified rewards. These ‘residual risk bearers’ have no rights to fixed claims and bear the greatest level of uncertainty vis-à-vis all other contractual parties. It is this relationship between shareholders and the enterprise thatforms the case made by Fama & Jensen for prioritizing their interests above all others, rather than a direct relationship of ownership, although the word ‘ownership’ keeps pride of position in the title of their paper.

So the separation between ownership and control is really that between ‘residual claims’ and control. These writers have replaced the idea of the corporation as the private property of shareholders with the notion of a contract between various parties. But they have then proceeded to provide a rationale for the primacy of this one specific group, thereby implicitly resurrecting the idea of ownership. The metaphors of ownership, democracy and the contract (as explained here) are all coherent, at differing levels of abstraction.

8

It is the aim of this paper to present a contractarian metaphor which is much broader and richer in scope, drawing in a wider group of constituents.

But first of all let us critique the doctrine of shareholder supremacy and the firm as a ‘nexus of contracts’.

2. The separation of ‘ownership’ from control and the rise of ‘shareholder value’

The separation between equity investors and management, which lies at the heart of contemporary debates on corporate governance, was aided by the development of equity capital markets in the nineteenth and twentieth centuries and the institution of the limited liability company. Both of these factors facilitated the emergence of a class of professional managers of a firm as distinct from the suppliers of capital. Berle and Means (2007) were the first to study this phenomenon indetail. Their summary of the divergence between the interests of the two groups rings true today: “…the bulk of the profits of enterprise are scheduled to go to owners who are individuals other than those in control, the interests of the latter are as likely as not to be at variance with those of ownership and that the controlling group is in a position to serve its own interests” (p. 116).

Whilst Berle and Means may have pioneered the detailed analysis of the managerial class, the separation between owner/entrepreneur and manager was commented on much earlier by Adam Smith, who observed, of managers of joint-stock enterprises,that “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 (Smith, 2005, pp. 606-607).”

In his study of the historical development of the public corporation and its emergence as the dominant business form in the United States in the later part of the nineteenth century,

9

Lazonick (2014) explains that the principal reason for the separation between capital and management was to resolve the ‘managerial constraint’ rather than the ‘financial constraint’. In other words this corporate structure’s main benefit was not somuch to attract financial capital (retained earnings remains the primary source of capital for growth) but the professionalizationof management and its opening up to a talent pool extending well beyond original founders and their family members.

Historically the emphasis on asserting and strengthening shareholder supremacy has not always been the obvious response tothe separation between capital and management. The predominant principle of corporate governance for much of the post-war era until the 1980s was not shareholder value, but what Lazonick and O’Sullivan (2000a) have termed ‘retain and reinvest.’ In this model corporations retained both financial profit as well as employees, investing in capital assets and further human resources in order to achieve growth. John Kenneth Galbraith has explained a shift in the leadership of business from ‘entrepreneur’ to ‘management’. Galbraith’s analysis of business decision making extended beyond management to various levels within the organization, to include all significant holders of knowledge and information; he calls this the ‘technostructure’ (1967, p. 71). The legal scholar Lynn Stout and author of The Shareholder Value Myth quotes Berle, an early advocate of shareholdersupremacy, conceding defeat in the debate on the role of the corporation, accepting that corporate powers are ‘held in trust for the entire community (2012, pp. 17-18)’.

The doctrine of ‘shareholder value,’ which places shareholder wealth maximization as the sole goal of corporate management gained the ascendancy in the 1970s and 1980s, amidst a changing economic environment and as part of a wider ideological shift towards a belief in markets and finance. In an article in the New York Times Magazine in 1970, Milton Friedman set out the view that the sole duty of corporate managers was to shareholders and that their sole corporate responsibility was to maximize profits,within the bounds of the law and of commonly agreed ethical principles (Friedman, 1970). This view assumes that shareholders

10

are the true owners of a corporation - and grew in importance in the years after the publication of Friedman’s article, promoted in academia primarily by the Chicago school in economics and the ‘law and economics’ movement in legal scholarship (Stout, 2013b).Since then shareholder value has been the dominant ideological principle of corporate governance.

Despite the separation between equity and control, shareholders have in principle three major routes to exercising sovereignty over boards and managers. The first is recourse to law, using thecourts to exercise their contractual rights. Secondly, shareholders have voting rights, and thirdly, if all else fails, they may ‘vote with their feet’ and sell their position in a company. We will examine these three routes in turn in the following sections.

2.1 Shareholder value and law

Let us first examine how the law treats shareholders with respectto the corporations in which they invest. We will consider the cases of the United State and United Kingdom, the countries in which the doctrine of shareholder value has taken the greatest hold. In turns out that despite the dominance of shareholder value, it is something of a myth that company directors are required by law to focus on shareholder wealth maximization as a sole aim. As Stout explains, in the United States, the law does not force public corporations to follow the shareholder value doctrine. Rather, the courts have generally applied the ‘businessjudgment rule,’ allowing directors of public corporations considerable flexibility in decision making, provided that personal conflicts of interest were avoided (Stout, 2013a).

In contrast to the United States, legal provisions in the United Kingdom indicate a more positive approach towards shareholders and to the idea of shareholder sovereignty. Nevertheless, John Kay, in his report on the UK equity markets commissioned by the government and published in July 2012, explains that ‘As a matterof law, as well as a matter of public interest, the primary responsibility of the board of a company is, through its senior

11

management, to promote the success of the company and to do so over the long-term (2012)’.

2.2 Shareholders and voting

Besides the fact that shareholder value is not backed by legal principle or precedent nearly as strongly as is often assumed, the rights that equity investors do have are restricted in law toa fairly narrow range. The decisions that shareholders may vote on rarely extends to much beyond the election (or removal) of directors. In many jurisdictions shareholders have no role in theselection of the chief executive officer, the payment of dividends, merger recommendations, or the calling of extraordinary general meetings (Stout, 2012, pp. 42-43). There are also numerous specific obstacles in place that limit the power of shareholders to bring serious pressure to bear upon directors and managers. Many public corporations have dual-class shareholding structures, whereby a small group of Class B shareholders, often the founders or original owners, have greatervoting rights than the rest, the Class A shareholders. This places severe limitations upon the power of ordinary shareholdersand somewhat negates the notion of a democracy of owners. A high-profile example of a dual-class structure is News Corp and 21st Century Fox, firms in which Rupert Murdoch and his family own some 7% of the equity but control just under 40% of the voting power (Rushton, 2013). This type of arrangement is also popular in the technology sector and, for example, is used by Google, Zynga, LinkedIn and Facebook (Gapper, 2011).

Other mechanisms that limit the power of shareholders include classified boards, the members of which are elected for differingterms of office; those elected for very long terms may be motivated to be less attentive to the interests and concerns of shareholders, favouring deeper relationships with management. Also, board elections are frequently run on the principle of plurality and not majority, allowing directors to be put in placewith the support of only a minority of the shareholders – and rendering the election process symbolic in the case of unopposed candidacies. Besides such restrictions, there is a whole class of

12

measures designed to defend companies against hostile takeovers, such as so-called ‘poison pills’ (or more formally ‘shareholder rights plans’), which may equally be deployed to favour the interests of managers over those of shareholders. And when shareholders do ‘rebel’ against the wishes of management and succeed, we may question the extent to which this success is a reflection of their power or simply of media pressure. Shareholder revolts are often accompanied by extensive media coverage.

There are a number of other practical obstacles to the vision of shareholders exercising democratic control over corporations. Shareholding in large corporations is widely dispersed both in terms of types of shareholder and geographical location, and thispresents a serious obstacle to any coordination of voting intentions. Any single investor, especially one with a very smallstake in a company, perhaps as part of a diversified portfolio, considering making the effort to take a more active stance is faced with the free-rider problem. If she were to dedicate precious time and energy into attending Annual General Meetings and exercising some form of control, she would be promoting the interests of other, inactive shareholders, who would have effectively taken a free ride on the back of her efforts. Yet shewould receive no compensation from these other investors. Therefore the rational course of action would be to abstain from playing an active role in the exercising of equity rights. Even large institutional investors tend to have relatively small holdings in any individual corporation, so this point applies to institutions as much as it does to individuals.

Moreover, despite rigorous requirements of transparency in developed markets, full-time managers inevitably have better information than distant investors. A great deal has been writtenon information asymmetries in corporate governance. In their exhaustive study of the history of corporate finance Baskin & Miranti examined the importance of access to information in determining corporate capital structure from a broad historical perspective and conclude that this has been a critical factor over several centuries (Baskin & Miranti, 1997). And in the

13

context of well diversified holding, with dozens if not hundreds of positions, it is hard to imagine an investor committing the resources to meticulously researching every single investment.

We can add to this the fact that most of the ultimate investors, such as participants in pension schemes, are often several times removed from their investments, with numerous layers of intermediaries in between, such as plan trustees and fund managers. As Stout (2012, pp. 91-94) explains, institutional investors are not necessarily better equipped than individuals toact as effective stewards guarding the interests of their clients. After all, the same resources of time and energy that individuals would need to devote to monitoring corporate performance would need to be committed to monitoring the performance of institutional investors, with the same demotivating factors. As a result institutional investors are motivated to focus on achieving impressive short-term results at the expense of long-term goals.

If the shareholders of a corporation constitute a democracy, thenTocqueville’s words constitute an apt warning: “Their [the people’s] conclusions are hastily formed from a superficial inspection of the more prominent features of a question. Hence itoften happens that mountebanks of all sorts are able to please the people, while their truest friends frequently fail to gain their confidence (Democracy in America, Volume 1, 1990, p. 201).”

In addition, hedge fund investors, with less diversified portfolios and more concentrated holdings, are more motivated to play an ‘activist’ role, promoting their own short-term interestsat the expense of the longer-term interests of other institutional clients. As Stout (2012) has pointed out, there is no reason to assume that shareholders should constitute one monolithic group, with one shared set of interests. Even if decision-making were to serve solely the interests of shareholders we would still be left with the issue of conflictinginterests amongst different groups of shareholder and the balanceof power between them.

14

So we have seen that in the current legal environment, despite a long period during which shareholder value has been the dominant view, shareholders cannot rely on law courts enforcing their absolute sovereignty over corporations. Their voting rights are also limited to a handful of decisions at infrequent intervals. And the dispersal of holdings, information asymmetries, the free rider problem and the separation between institutions and their ultimate clients should lead us to doubt whether removing the legal obstacles would lead to a major increase in the degree of control exercised by shareholders. So what remains is the right of shareholders to ‘vote with their feet’ i.e. to sell their holdings. We shall now examine this right, and what it implies.

2.3 Voting with their feet

The doctrine of shareholder value that has dominated corporate governance since the 1980s effectively means the rule of the financial markets, where investors may choose to sell if they aredissatisfied with a company’s performance, consequently lowering share prices and leaving management vulnerable to takeover bids. In this way equity investors, whilst not directly involved in themanagement of companies, are in theory able to exercise discipline over corporate managers. This market-driven process should lead to the efficient allocation of capital between competing firms in an environment of transparency and readily available information. This rule of the financial markets is sometimes referred to as ‘financialization.’

The contemporary version of the principle that financial markets serve as efficient allocators of capital comes in the form of theefficient markets hypothesis. The efficient markets hypothesis, originally formulated by Eugene Fama (1970), states that all relevant information is reflected in stock market prices. This view of the functioning of capital markets is based on the assumption that the market is populated by intelligent, rational and profit-maximizing investors.

John Maynard Keynes (1936) drew attention to the potential dangers inherent in assuming that the financial markets are an

15

efficient allocator of capital. Whilst liquid markets may in manycases enable investment in very large scale enterprises which mayotherwise be accessible to only a small number of investors, thisvery liquidity creates a source of instability. The nature of corporate investment involves long term capital commitments, often over a period of many years, sometimes decades. But individual investors, as we have seen, may alter their commitments over very short time periods, impacting share prices;and share prices in turn affect the overall investment climate. As Keynes wrote:

“the Stock Exchange revalues many investments every day and the revaluations give a frequent opportunity to the individual (though not to the community as a whole) to revise his commitments” (pp. 150-151).

So liquidity can facilitate investment but also enables financialspeculation that has no social value but which contributes to instability in the real economy. Keynes describes stock market investment as a game of anticipating the anticipations of others,using inter alia the analogy of a beauty contest. So financial markets might not after all serve the role of optimal allocators of capital between competing enterprises that is often assumed infinancial theory.

Moreover, the efficient markets hypothesis may be challenged by numerous anomalies in the pricing of financial assets that appearto contradict the notion that prices fully reflect all the available information. For instance Lazonick and O’Sullivan(2000b) and Pompian (2013) describe several such anomalies, many of which are explained effectively by research in the domain of behavioural finance which has cast doubt on the central assumption of rationality, pointing to numerous cognitive and emotional biases in the investment decision-making process. Arguably the greatest anomaly of all is the recurrent phenomenon of market bubbles, fuelled by euphoria and debt, followed by panics and crashes. Surely there is no more serious challenge to the notion that markets price securities in a way that incorporates all available information than the rapid and

16

dramatic price shifts involved in the development of a bubble andthe ensuing crash. Whilst behavioural finance has yet to offer a complete and coherent paradigm for the study of markets, what hasbeen revealed to date renders the assumption of rationality, as defined in neoclassical economic theory, all but heroic. This represents a serious challenge to the idea that financial marketsare an efficient means of allocating capital and that market mechanisms serve to further the interests of investors.

2.4 An essential source of capital?

We may identify another problem with the theoretical rationale for financialization, based on a view of financial markets as an optimal allocator of investment capital, by examining the data ontransfers between shareholders and corporations. It is by no means a universal truth that the equity markets are significant net sources of capital for the corporate sector. Markets are usedto reallocate existing ownership stakes in companies, to reward management and employees via share option schemes, or to distribute cash to shareholders via dividends or share buy-backs as much as (or more than) to inject new capital.

According to the data contained in the Financial Accounts of the United States (previously called the Flow of Funds Accounts of the United States) published by the Federal Reserve, net equity issuance for US nonfinancial corporate businesses has been negative for every single year since 1993 (Federal Reserve, 1996-2013). In the 20-year period from 1994 to the end of 2013 some USD 4.6 trillion was transferred from US nonfinancial corporations to shareholders, through growing dividend payment rates and increasing use of share buybacks. Lazonick (2014) datesthis overall trend of the corporate sector transferring wealth tothe stock market to the mid-1980s.

Similar trends apply equally to other markets. For instance Kay(2012) provided data showing the financial flows to companies through new issues of shares were more than offset by cash transfers from companies to shareholders through the acquisitionsand share repurchases for the decade from 2002 to 2012. Indeed

17

Kay explains that when there was a major net transfer to the corporate sector in 2009, the reason was deleveraging rather thaninvestment in new projects, and that the major component was the provision of new capital to the banking sector by the government.These observations would tend to negate the argument that shareholder primacy is essential to attracting an important source of financing for the corporate sector.

One possible economic argument for retaining the elevated position of the shareholder in the scheme of fiduciary responsibilities of corporate officers remains. Goodpaster (1991)has argued that a move towards multi-fiduciary stakeholders wouldrepresent a radical dilution of the notion of private enterprise and the power of the profit motive. He makes the case that this would “blur traditional goals in terms of entrepreneurial risk-taking” representing “the conversion of the modern private corporation into a public institution (Goodpaster, 1991, p. 66).”This view, however, conflates the role of the risk-taking entrepreneur with that of the passive role of shareholders in themodern corporation, with their diversified holdings and high degree of liquidity. Goodpaster has ascribed ownership to shareholders with little discussion of the real meaning of the concept; a deeper analysis of the actual power of shareholders inthe governance of large corporations would, as we have seen above, demonstrate that the transition from ‘private corporation’to ‘public institution’ has already taken place, driven by the separation of finance from control and facilitated by the development of modern capital markets.

Indeed Lazonick (2014) has convincingly argued that the shareholder primacy model of corporate governance, which he characterizes as ‘downsize-and-distribute’ has motivated managersto reduce costs, cut staff and distribute resources out of the firm at every opportunity. The focus is on the extraction, ratherthan the creation, of value. This stands in contrast to the firm which invests profits into developing know-how and building the resources necessary to innovate and create economic progress. If innovation is at the heart of what is of wider value in private enterprise and risk-taking, then the shareholder primacy model

18

falls short. Whilst Goodpaster’s point may well be valid for someenterprises it does not seem to apply to the public corporation.

We have seen the economic grounds for rejecting the principle of shareholder value. We shall now examine the moral case for rejecting shareholder value.

3. A moral critique of shareholder value

3.1 Residual risk bearers revisited

The primary moral justification for shareholders’ primacy is their status as ‘residual risk bearers’, facing the greatest level of uncertainty amongst all the contractual parties in a corporation. But whether the shareholders really do face the greatest degree of uncertainty is debatable. Early on Adam Smith pointed out the reduction in risk conferred by limited liability status: “This total exemption from trouble and from risk, beyond a limited sum, encourages many people to become adventurers in joint stock companies, who would, upon no account, hazard their fortunes in any private copartnery (Smith, 2005, p. 606).”

And in a modern corporation equity stakes are divisible and thereis considerable scope for diversification. Moreover in liquid markets shareholders may enter and exit positions with greater ease than any other contracting party. As Knight put it:

“The minute divisibility of ownership and ease of transfer of shares enables an investor to distribute his holdings over a large number of enterprises in addition to increasingthe size of a single enterprise. The effect of this distribution on risk is evidently twofold. In the first place, there is to the investor a further offsetting throughconsolidation; the losses and gains in different corporations in which he owns stock must tend to cancel out in large measure and provide a higher degree of regularity and predictability in his total returns (Knight, 1921).”

So a shareholder in a listed corporation can hardly be compared with the residual risk-bearing of an entrepreneur, taking responsibility for decision-making and with illiquid holdings

19

concentrated in one risky enterprise. It would appear that this is precisely what the proponents of shareholder value have attempted to achieve.

Zingales remarks upon the very legalistic nature of the view of the firm as a nexus of explicit contracts, adding that “…de factoa firm’s decisions influence the payoff of many other members of the nexus, sometimes to a greater extent than that of equity holders (2000, p. 1631).” If it were the case that other contracting parties were fully protected, the decisions made by the shareholders would be a matter of total indifference to them.That corporate control is at all subject to contention suggests that “…other contracting parties … are not fully protected by explicit contracts, undermining the basic premise of shareholders’ supremacy (Zingales, 2000, p. 1632).” Bond holders are an example of a non-equity-holding contracting parties not fully protected by explicit contracts. Lazonick (2014) has pointed out the very important contribution that government makesin providing for the infrastructure and knowledge base (includingthe research facilities within universities) that are a vital ingredient for innovation by the corporate sector. This is much the same point made by Mariana Mazzucato in The Entrepreneurial State (2013). The state, as a recipient of tax revenues is also a significant risk bearer.

This insight is extended in the ‘incomplete contract approach’, inspired by the observation that “…conclusions are substantially modified when we take into account the ex post dimension of contracts, in other words their actual unfolding… contracts signed ex ante do not cover this relationship exhaustively….certain decisive elements of the relationship cannot be contracted at the start, giving it an indeterminate character from the outset (Aglietta & Rebérioux, 2005, p. 37).” In other words the ‘nexus of contracts’ position fails to take account of fundamental uncertainty. Viewed from this perspective,there is no reason to focus on shareholders as the only party subject to an incomplete contractual relationship within the nexus of contracts that is the firm. In a world of highly liquid and diversified equity holdings, surely it is at least plausible

20

to assert that employees, typically with their entire livelihood tied to the fortunes of a single enterprise, are greater risk bearers than shareholders. Moreover employees often invest considerable energy into developing human capital that benefits the firm and that may not always be easily transferable to other firms (Aglietta & Rebérioux, 2005, p. 38). Hsieh (2006, p. 264) gives a very thorough overview of the ways in which employees costs of ‘exit’ may be larger than that implied by an examinationof purely formal contractual arrangements. Besides the firm-specificity of the human capital investment made by employees, employers might, due to the costs of monitoring, pay above the market rate in order to raise the costs of exit. Thirdly, there are also costs to the option of exit, which is in theory available to workers, including, inter alia, the costs of search andtransition, which limit their mobility. Lastly, the ultimate exitoption would be “withdrawing from economic enterprises altogetherwhich would represent a substantial cost (Hsieh, 2006, p. 264).”

Indeed the focus on shareholder value, has seen the transfer of an increasing amount of risk from shareholders towards other groups, especially employees, in reality reversing, as pointed out by Aglietta & Rebérioux (2005), much of the former’s role of residual risk bearer. Both Aglietta & Rebérioux and Lordon (2007)have pointed out that some corporate valuation paradigms, especially Economic Value Added (EVA), stipulate a minimum required (or expected) return on equity. In the EVA model only returns above this minimum count towards adding value, effectively inserting a minimum required rate of return on equityand somewhat turning the status of ‘residual risk bearer’ on its head. The result can be seen in the change in working conditions,the emphasis on flexible labour contracts, the rise of temporary and ‘zero-hours’ contracts, and the shift in pension arrangementsfrom defined-benefit to defined-contribution.

In addition, the widening of income inequalities in most of the developed world in recent decades has meant that lower and middleincome households have had to take on increasing levels of debt to sustain their living standards – and to maintain aggregate demand. Indeed, as Kumhof and Rancière (2010), have claimed, this

21

increase in private debt may have played a major role as a cause of the current financial crisis. Moreover, as Graziani asserts itis “…highly debatable whether credit granted to households is really given to consumers or rather is in fact indirectly grantedto firms, by allowing consumers to buy finished products (2003, p. 21).” If we accept Graziani’s view, the increase in household leverage in recent decades represents a massive transfer of risk away from corporate balance sheets.

So the position of the shareholder as the residual risk bearer, justifying its special position in the corporation, is hardly justified. Accepting the contractarian view of the corporation need not necessitate acknowledging a privileged position for shareholders.

3.2 A Rawlsian persective

Rawls’ principles of justice may be applied to the corporate sector in two ways. First, one may apply the principle within thecorporation, as if it were a microcosm of society. This is the approach taken by Freeman (1994) in his exposition of stakeholdertheory. He first explains that stakeholder theory in reality represents a plurality of theories, and then proceeds to outline the ‘normative core’ of a theory based on fairness as outlined byRawls and others. The outcome is a ‘Doctrine of Fair Contracts’ defined by six principles of governance.

Secondly, we may examine the arrangements within the corporation in terms of their impact upon the organisation of society as a whole. In this case we no longer view the corporation as a sort of mini-society; instead we take the view that if we are to applythe principles of justice to broader society, it is essential that we should include corporations, which employ a large proportion of the overall labour force in most developed economies and which exercise considerable power. It is on this second way of applying the principles of justice that we shall now concentrate.

22

Hsieh (2006) has pointed out that Rawls’ first principle of justice, that “each person has the same indefeasible claim to a fully adequate scheme of equal basic liberties, which scheme is compatible with the same scheme of liberties for all (Rawls, 2001, p. 42)” is directly relevant to the apportionment of power within the corporation. This principle supports the argument for institutional protection against ‘arbitrary interference’ at work, just as in any other sphere of life. Constraints are required on the power of managers to make decisions without justification - decisions that might impact severely on the interests of the worker. As we have seen in the preceding section, the right to ‘exit’ the firm provides insufficient protection. Representation of workers in governance of the corporation provides a mechanism that might provide an adequate constraint on the power of managers and protect against arbitraryinterference, without necessarily compromising what makes the firm a productive social entity.

Rawls’ second principle, the difference principle, which states that “social and economic inequalities…are to be to the greatest benefit of the least-advantaged members of society (2001, pp. 42-43),” is also relevant to the question of corporate governance. As William Lazonick (2013) has shown in detail, the attempt to align the interests of shareholders and managers has led to the increased usage of stock options in the compensation of senior management. Indeed proceeds from cashing in lucrative stock options forms the greater part of the income of top executives. Given the power that executives hold to manipulate stock prices through buybacks, and their increased use in recent decades, it is little surprise that executive pay has risen to unprecedented levels. Lazonick (2013, pp. 878-9) has shown that senior corporate managers form a large part of the 0.1% of the US population that has seen rising incomes over the past 30 years, whilst median incomes have stagnated. In particular, he has demonstrated how the use of share buybacks is linked to the totalcompensation of CEOs and other top executives (Lazonick, Profits without Prosperity, 2014). If we add to this group of top executives the financial intermediaries, such as hedge fund managers and investment bankers, who have gained from the

23

financialization of the corporation, we see that the doctrine of shareholder primacy has played a major part in the rise in inequality that has accompanied the neoliberal era that began in the late 1970s. There is no reason to believe that similar developments have not been behind the rise in inequality in othercountries.

Moreover, the focus on the ‘downsize-and-distribute’ model of governance has led managers to hollow out corporations, not only reducing the capacity for innovation but also destroying middle and working class jobs. And, as we have seen in the preceding section, the focus of maximizing shareholder wealth has led to a wholesale transfer of risk towards employees, leading to a rise in insecurity. In a society which enables property to be passed on through generations, and where social mobility is relatively low, the principle of shareholder supremacy is likely to strengthen class privilege and hold back the redistribution or predistribution of wealth. This is clearly in violation of Rawls’Second Principle.

In short the ideology of shareholder wealth maximization has provided cover for a small elite of senior managers and financiers, rather than the wider set of holders of common equity, to accumulate considerable wealth and power, via stock options and other mechanisms supposedly intended to align managerial and shareholder interests. If modern corporations are democracies, then an apt analogy might be the British parliamentary system prior to the 1832 Great Reform Act when the electoral franchise was tied to property, and many bogus consistencies (the so called ‘Rotten Boroughs’) were part of the personal fiefdom or some or other nobleman. Many a modern corporation essentially functions as a ‘Rotten Borough.’

In Justice at Work, Hsieh (2009) argues that Rawls saw this weakness in the set-up of the capitalist welfare state, and advocated whathe termed a property-owning democracy. Rawls explained the difference between welfare-state capitalism and a property-owningdemocracy as follows:

24

“…welfare-state capitalism permits a small class to have a near monopoly of the means of production. Property-owning democracy avoids this, not by the redistribution of income to those with less at the end of each period, so to speak, but rather by ensuring the widespread ownership of productive assets and human capital (that is, education and trained skills) at the beginning of each period, all this against a background of fair equality of opportunity. The intent is not simply to assist those wholose out through accident or misfortune (although that must be done), but rather to put all citizens in a position to manage their own affairs on footing of a suitable degree of social and economic equality (Rawls, 2001, p. 139).”

A property-owning democracy is unlikely to be achieved simply by distributing shares to employees (Hsieh, 2009). For large corporations, the equity stake held by any one worker is likely to be so small as to confer a negligible degree of influence, similar to any external shareholder. Power would remain firmly inthe hands of corporate managers.

In addition, where employees are shareholders, for example through occupational pension schemes, their equity holdings are only part of a much larger set of interests, including their roles as workers, consumers and tax payers (Stout, 2012). A focuson prioritizing shareholder value will benefit such investors in the one sense of increasing returns on their equity holdings, butpossibly at the expense of their other interests.

For small and medium enterprises, a level of equity sufficient toenable a worker to exercise any meaningful degree of control would entail taking a level of risk incompatible with prudent diversification. A serious commitment to building a property-owning democracy, in the Rawlsian sense, would therefore need to entail a redistribution of real power into the hands of employees, as a key stakeholder group, within the governance mechanism of the corporation.

4. Towards a new contractarian view of the corporation

25

4.1 The social union

Rejecting shareholder supremacy as a doctrine of corporate governance implies a rejection of the metaphors that frame the corresponding view of the nature of the corporation. We can instead envisage the modern corporation as a social institution, as part of what John Locke called the ‘common property of mankind’, rather than the private property of a group of individuals. To ground this view, the concept of ‘social union’, as used by Rawls (1999), and defined by Humboldt (1969), may serve as a useful metaphor. It is worth quoting in full the passage in Humboldt’s The Limits of State Action, as cited by Rawls:

“Every human being, then, can act with only one dominant faculty at a time; or rather, our whole nature disposes us at any given time to some single form of spontaneous activity. It would therefore seem to follow from this, that man is inevitably destined to a partial cultivation, since he only enfeebles his energies by directing them to a multiplicity of objects. … What is achieved, in the case of the individual, by the union of past and future with the present, is produced in society by the mutual cooperation ofits different members… It is through a social union, therefore, based on the internal wants and capacities of itsmembers, that each is enabled to participate in the rich collective resources of all the others” (p. 16).

Characterising the firm as a social union would address the criticism that the stakeholder model represents the corporation as a purely autonomous entity, external to its stakeholders. Thispoint is made in feminist critiques of stakeholder theory, for instance by Wicks et al. Extending the concept of the autonomous individual, the pioneer, the firm is presented as an individual agent. Stakeholders are external parties who, whilst they are affected by and affect the firm, remain separate (Gilbert, Wicks,& Freeman, 1994). The social union, with constituent members, does not represent a view of the firm as an autonomous entity; here participants in a social union are an integral part of its

26

existence. The corporation is no longer characterised as an object, to be possessed, and external to its possessors. For thisreason Kuhn and Shriver (1991) argued for the use of the term ‘constituents’ as opposed to ‘stakeholders’ (whom they felt shares a somewhat similar position to shareholders, as fundamentally external parties having a claim on the firm). Constituents “because of their own existence, interests, concerns, and activities are – whether recognized by managers or not – an inescapable, necessary part or element of the business corporation (Kuhn & Shriver, 1991, p. 75).”

The concept of the social union also allows for a contractual arrangement that extends beyond formal legal agreements, including implicit agreements and allowing for the element of incompleteness. Moreover this conception of the corporation is compatible with the team production approach to contractual relations amongst participants. The team production approach, which has been described in detail by Blair and Stout (1999), addresses problems of cooperation amongst numerous parties, and is more suited to a view of the firm as composed of several constituents than the principal/agent model. A team production problem occurs when different parties work together towards a common outcome, but where the result is not clearly attributable to the efforts of the respective participants. An ex-ante agreement regarding the sharing of the rewards of the work may result in the ‘shirking’ of the responsibilities of some parties,and an ex-post agreement may create incentives for rent-seeking behavior. It is to address this problem that the institutional set-up of the corporation is best designed, rather than the resolution of the principal/agent problem which sees only a conflict between the interests of two particular groups, viz. shareholders and managers.

And wider participation in the decision making process within a corporation, taking account of wider interests than purely those of one group, would better serve the interests of promoting equity as a social goal. Constituents with a proportionally more significant and less transferable investment in the firm, especially employees, would be more strongly motivated to

27

exercise their rights diligently and at the same time are better informed. This would better serve the interests of the whole firm.

Such a concept is also compatible with the theory of the firm outlined by Edith Penrose (1995), who emphasized the accumulationof collective knowledge as central to the efforts of a firm and key to its success. Penrose saw the firm as a ‘collection of resources’, including human resources, devoted to production, with knowledge being the vital ingredient in ensuring the firm’s effective use of these resources and its growth. Galbraith makes a similar point, in connection with the decision-making process and the exercise of power, namely that firms rely on the knowledge of many people: “Typically they draw on the specializedscientific and technical knowledge, the accumulated information or experience and the artistic or intuitive sense of many persons(1967, p. 61).” In the sense that the firm enables the accumulation and coordination of knowledge beyond that achievableby any one individual, its purpose as a social union is clear.

Indeed we can extend the purpose of the business enterprise beyond the process of production. The enterprise is formed in order to enable the fulfilment of the goals of the various parties to the social union, namely consumption of the product, satisfying work, career opportunities, earning an income, earninga return on investment, saving for retirement as well as a mediumfor social interaction. Nevertheless, the primary purpose of the firm remains the utilization its resources in the production process. In Ruskin’s simple formulation, ‘the merchant’s function…is to provide for the nation’ (1997, p. 178).

The enterprise must be profitable to an adequate degree in order to be sustainable, and to satisfy the needs of the financial investors, and profit may be taken as a signal that the enterprise is satisfying its social function. However, in this conception of the firm, earning a profit is not the overriding reason for the entity’s existence. This concept of the firm as a social union can be perhaps better understood in the context of other forms of business organisation than the joint stock

28

company, such as worker or producer cooperatives, or mutual companies.

4.2 A role for deliberative democracy

So we are left with the challenge of designing an intellectual framework that may guide the establishment of practical governance mechanisms for the corporation as a social union. Sucha framework must serve as the foundation for concrete governance structures whilst also allowing for flexibility, given the multiple forms of business organisation and ownership structure that exist.

By characterising the modern corporation as a social union the line of argument that we have so far followed strongly supports the case for increased industrial democracy. For the purpose of defining how this may work in practice the theory of deliberativedemocracy may prove useful. We will define democratic deliberation as ‘un-coerced, other-regarding, reasoned, equal andinclusive debate’ (Chappell, 2012). Gutmann and Thompson (2004) introduce the concept of electoral and moral constituents, in thecontext of national politics. The electoral constituents of a leader (or of a government) are those to whom she is directly accountable. The moral constituents, whilst not having a direct say in the election of the leader, nevertheless have moral claimsto accountability. An example might be citizens of foreign countries whose lives will be affected by decisions taken by the leader but who do not have a direct say in her election. This formulation allows for a broader role for accountability than onewhich focuses purely on electoral constituents, whilst also defining the distinction clearly.

In a corporation the electoral constituents would be those who have a direct involvement in decision-making processes. These would include shareholders and creditors, and should also includeemployees who are also key stakeholders. Employee participation on corporate boards already exists in a number of jurisdictions. Beyond these two groups, the exact definition of a corporation’s electoral constituents will depend on the form and structure of

29

the enterprise. For instance, for consumer cooperatives, customers will be included, and for some firms it will make senseto include suppliers. All constituents of a company to whom the board is not directly accountable via an electoral process or other constitutional devices are moral constituents. These may include those with direct contractual or commercial links to the firm, such as suppliers and customers, but will also include government, civil society, local communities and society as a whole. The extent of a company’s obligations to its moral constituents, and the framework for a deliberative process, will need to be fixed by legislation and regulation.

It should be possible to envisage legislation sufficiently flexible to allow for a choice of arrangements, depending on the way in which electoral constituents are defined. So some corporations may adopt a narrower definition, including financialinvestors and employees, others may define themselves as consumercooperatives, giving specific rights to customers, and yet othersmay function as producer cooperatives. In his rebuttal of the principle of shareholder supremacy, Boatright (1994) argues for considerations of public policy to form the basis of corporate governance arrangements. In other words the system (or systems) of economic organization should be chosen on the basis of social utility. This would appear to be a useful criterion for defining the electoral constituents and establishing the balance of power within a corporation. (This also allows for consideration of the special position of entrepreneurs as innovative risk-takers.) This balance of power will need to change with society, and it isdesirable that governance arrangements allow for flexibility overtime as well as in terms of promoting a variety of corporate forms.

A corporation may indeed extend its relationship with its moral constituents beyond the requirements of the law. Indeed, as Davis(2005) has explained, a farsighted corporation will understand its relationships with its moral constituents as being of fundamental importance to its implicit contract with society.

30

It should be emphasized at this point that this application of deliberative democracy is very different to the concept of ‘political corporate social responsibility (CSR)’ as outlined by Scherer and Palazzo (2011). Political CSR sees corporations assuming some of the role traditionally occupied by states but progressively abandoned in the current wave of globalization, andis essentially a prescription for self-regulation. Edward and Willmott (2011) have critically examined the legitimacy of the application of deliberative democracy to CSR and have also drawn attention to very specific examples of cases, for instance the Forest Stewardship Council, where the self-regulation favoured byadvocates of political CSR has apparently failed in practice to achieve the required results.

The aim here, rather than to support the concept of political CSR, is to use the insights of deliberative democracy to inform the creation of structures to ensure accountability of corporate managers to all constituents of the corporation. Accountability is the critical missing ingredient in the formulation of political CSR, dependent as it is on self-governance. The conceptof corporate accountability, as used, for instance, by Amnesty International (2009), is a broader and more complete framework for analysing the responsibilities of firms to wider society thanCSR alone, dependant as it is on voluntary good will.

5. Conclusion

Rejecting the doctrine of shareholder value has prompted us to search for an alternative paradigm. We have found the concept of constituent members of a social union a richer metaphor for characterising the corporation, allowing for wider possibilities for the application of democratic principles, whilst retaining the contractarian approach. ‘Constituents’ are members of a group, and present us with a more inclusive approach than seeing the enterprise as an object to be owned by entities external to it, with at best subordinate rights for all other external parties. A framework for corporate governance may be guided by the principles of deliberative democracy.

31

This article also points to areas for further research. This includes a rigorous study of the metaphors used in discourse on corporate governance, which support thought structures. An examination of the concept of entrepreneurship, especially in contrast to the nature of the public corporation, is also needed.Furthermore a new conception of the firm would require a revisionto the theoretical principles of corporate finance, one that would include a consideration of the investment commitments of actors other than creditors and shareholders. Such a revision would necessitate investigation into new concepts of value, and new means for measuring value accruing to all constituents.

Acknowledgements: The author wishes to thank Timothy Childers forhis comments and advice.

Works CitedAglietta, M., & Rebérioux, A. (2005). Corporate Governance Adrift: A Critique of

Shareholder Value. Cheltenham: Edward Elgar.

Amnesty International. (2009, May). Close the accountability gap: corporations, human rights and poverty. Retrieved from Amnesty International: http://www.amnesty.org/en/library/asset/ACT35/006/2009/en/596a9967-2265-4f60-b0b3-6db14516af66/act350062009en.pdf

Baskin, J. B., & Miranti, P. J. (1997). A History of Corporate Finance. Cambridge: Cambridge University Press.

Berle, A. A., & Means, G. C. (2007). The Modern Corporation & Private Property (9th printing). New Brunswick, NJ: Transaction Publishers.

Bernstein, P. L. (1953). Profit Theory - Where do we go from here? Quarterly Journal of Economics Vol. 67, issue 3, 407-422.

Black, F., & Myron Scholes. (1973). The Pricing of Options and Corporate Liabilities. Journal of Political Economy, 637-659.

Blair, M. M., & Stout, L. A. (1999). A Team Production of Corporate Law. Virginia Law Review, Vol. 85 #2, 247-328.

32

Boatright, J. R. (1994). Fiduciary Duties and the Shareholder-Management Relation:Or, What's So Special About Shareholders? Business Ethics Quarterly, Vol. 4, issue 4, 393-407.

Chappell, Z. (2012). Deliberative Democracy: A Critical Introduction. Basingstoke: Palgrave Macmillan.

Coase, R. (1937). The Nature of the Firm. Economica (Vol. 4, issue 6), 386-405.

Davis, I. (2005, May 26). The Biggest Contract. The Economist.

Edward, P., & Willmott, H. (2011, August 15). Political Corporate Social Responsibility: Between deliberation and radicalism. Retrieved from SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1904344

Fama, E. (1970). Efficient Capital Markets: A Review of Theory and Empirical Work. The Journal of Finance, 383-417.

Fama, E. F., & Jensen, M. C. (1983). Separation of Ownership and Control. Journal of Law & Economics, 301-325.

Federal Reserve. (1996-2013). Financial Accounts of the United States: http://www.federalreserve.gov/releases/z1/. Washington, DC: Federal Reserve.

Freeman, R. E. (1994). The Politics of Stakeholder Theory: Some FutureDirections. Business Ethics Quarterly (Issue 4, Volume 4), 409-421.

Friedman, M. (1970, September 13). The Social Responsibility of Business is to Increase its Profits. New York Times Magazine.

Galbraith, J. K. (1967). The New Industrial State. Boston, MA: Houghton Mifflin.

Gapper, J. (2011, July 13). News Corp is all about the family. Financial Times.

Gilbert, D. R., Wicks, A. C., & Freeman, R. E. (1994). A Feminist Reinterpretation of the Stakeholder Concept. Business Ethics Quarterly, vol. 4, issue 4, 475-497.

Goodpaster, K. E. (1991). Business Ethics and Stakeholder Analysis. Business Ethics Quarterly, Vol. 1, issue 1, 53-73.

33

Graziani, A. (2003). The Monetary Theory of Production. Cambridge: Cambridge University Press.

Gutmann, A., & Thompson, D. (2004). Why Deliberative Democracy? Princeton and Oxford: Princeton University Press.

Hsieh, N.-h. (2006). Justice, management, and governance. Corporate Governance: The International Journal of Business in Society 6, no. 3, 261-267.

Hsieh, N.-h. (2009). Justice at Work: Arguing for Property-Owning Democracy. Journal of Social Philosophy, Vol. 40 no. 3, 397-411.

Humboldt, W. v. (1969). The Limits of State Action (ed. J.W. Burrow). Cambridge: Cambridge University Press.

Jensen, M. J., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure. Journalof Financial Economics (V.3, no. 4), 305-360.

Kay, J. (2012). The Key review of UK equity markets and long-term decision making. London: The Department for Business, Innovation and Skills.

Keynes, J. M. (1936). The General Theory of Employment, Interest and Money. London: Macmillan.

Knight, F. (1921). Risk, Uncertainty and Profit. Boston, MA: Houghton Mifflin. Retrieved from http://oll.libertyfund.org/index.php?option=com_staticxt&staticfile=show.php%3Ftitle=306&Itemid=27

Kövecses, Z. (2010). Metaphor: A Practical Introduction (2nd ed.). New York, NY: Oxford University Press.

Kuhn, J. W., & Shriver, D. W. (1991). Beyond Success: Corporations and the criticsin the 1990s. New York, Oxford: Oxford University Press.

Kumhof, M., & Rancière, R. (2010). Inequality, Leverage and Crises. Washington,DC: International Monetary Fund.

Lakoff, G., & Johnson, M. (1980). Metaphors We Live By. Chicago: Universityof Chicago Press.

34

Lazonick, W. (2013). The Financialization of the US Corporation: What has been lost and how it can be regainsed. Seattle University Law Review, Vol. 36, 857-909.

Lazonick, W. (2014). Innovative Enterprise and Shareholder Value. Law and Financial Markets Review, 52-64.

Lazonick, W. (2014). Profits without Prosperity. Harvard Business Review, 46-55.

Lazonick, W., & O'Sullivan, M. (2000a). Maximizing shareholder value: a new ideology for corporate governance. Economy and Society Volume 29,No. 1, 13-35.

Lazonick, W., & O'Sullivan, M. (2000b). Perspectives on Corporate Governance, Innovation, and Economic Performance. Fontainebleau: The European Institute of Business Administration (INSEAD).

Locke, J. (2005). Second Treatise of Government. Project Guterberg: http://www.gutenberg.org/files/7370/7370-h/7370-h.htm.

Lordon, F. (2007, February). Enfin une mesure contre la démesure de lafinance, le SLAM ! Le Monde Diplomatique.

MacKenzie, D. (2014, September 11). Be grateful for drizzle. London Review of Books, p. 27.

Mazzucato, M. (2013). The Entrepreneurial State: Debunking Public vs Private Sector Myths. London: Anthem Press.

Monks, R. A. (2013, June 4). Absence of Ownership. Retrieved from Big Think: http://bigthink.com/experts-corner/absence-of-ownership

Monks, R. A., & Minnow, N. (2008). Corporate Governance (4th ed.). Chichester:John Wiley.

Penrose, E. (1995). The Theory of the Growth of the Firm (revised ed.). Oxford: Oxford University Press.

Pompian, M. M. (2013). The Behavioral Finance Perspective. Charlottesville, VA:CFA Institute.

35

Rawls, J. (1999). A Theory of Justice (revised edition). Oxford: Oxford UniversityPress.

Rawls, J. (2001). Justice As Fairness: A Restatement. Boston, MA: Harvard University Press.

Rushton, K. (2013, May 24). New rule tightens Rupert Murdoch's grip onNews Corp companies. The Telegraph.

Ruskin, J. (1997). Unto This Last. London: Penguin Classics.

Scherer, A. G., & Palazzo, G. (2011). The New Political Role of Business in a Globalized World: A Review of a New Perspective on CSR and its Implications for the Firm, Governance, and Democracy.Journal of Management Studies Vol. 48, issue 4, 899-931.

Schumpeter, J. (1976 ). Capitalism, Socialism and Democracy. New York: HarperPerennial.

Smith, A. (2005). An Inquiry into the Nature and Causes of the Wealth of Nations. Hazleton: Pennsylvania State University. Retrieved from http://www2.hn.psu.edu/faculty/jmanis/adam-smith/wealth-nations.pdf

Stout, L. (2012). The Shareholder Value Myth. San Francisco, CA: Berrett-Keohler Publishers.

Stout, L. (2013a). On the Rise of Shareholder Primacy, Signs of Its Fall, and the Return of Managerialism (in the Closet). Seattle University Law Review, Vol. 36, 1169-1185.

Stout, L. (2013b). The Toxic Side Effects of Shareholder Primacy. University of Pennsylvania Law Review, Vol. 161, 2003-2023.

Tocqueville, A. d. (1990). Democracy in America, Volume 1. New York, NY: Vintage Books.

Veblen, T. (1997). Absentee Ownership: Business Enterprise in Recent Times: The Case of America. New Brunswick, NJ: Transaction Publishers.

Wolf, M. (2014, May 8). AstraZeneca is more than investors' call. The Financial Times.

36

Zingales, L. (2000). In Search of New Foundations. The Journal of Finance Vol.LV, no. 4, 1623-1653.

37