The curious case of shareholder primacy norm: calling for a more realistic theory

The shareholder primacy norm is the corporate governance model prevailing in the US, the UK and some other common law countries with effective legal enforcement of shareholder rights. The directors’ duties are exclusively owed to the company and the maximisation of the wealth of the shareholder is the fundamental focus of the fiduciary duties. It is constructed in terms of financing though equity, dispersed ownership, active markets for corporate control, and flexible labour markets. Companies rely more on stock and bond markets for their external financing. Corporate law provides relatively extensive protection for shareholders, with active enforcement of that protection in the court. According to the maintenance of efficiency theory, it is more efficient if directors run corporations with the aim of maximising shareholder wealth since the least cost is expended in doing this. However there are also many disadvantages to adopt shareholder norm as a dominant corporate objective principle in a jurisdiction. Shareholder primacy, as a curious and controversial case in corporate law and corporate governance, will be interpreted in this article based on various legal theories, and the advantages and objections of both models will be presented with further touch on stakeholder theory, which seems to be a more realistic theory.