Stakeholder Orientation vs. Shareholder Value: A Matter of Contractual Failures

Publikation: Working paperForskning

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This article analyzes the conflict of interests between shareholders and other stakeholders, including when such conflicts of interests may arise. It is argued that shareholder value cannot be justified simply by referring to any prerogative property rights of the shareholders. Instead, shareholder value coincides with theefficient hypothetical perfect contract. However, due to contractual failures in certain bargain situations, management may be unable to `internalize the firms externalities'. This means that in these situations there is a trade off between a broad duty of loyalty for management in listed firms and other traditional remedies. The theoretical insights are applied on a case from the Danish Supreme Court (Louis Poulsen A/S) where the interests of the stakeholders were decisive. However, it is shown that the verdict may instead harm the relevant stakeholders illustrating how cautious the legal system should use a doctrine based on the `company's interests'. In addition, the notion of a firm's social responsibility is critically evaluated together with the associated pitfalls of accepting this concept.
UdgiverLEFIC. Center for Law, Economics and Financial Institutions
Antal sider44
StatusUdgivet - 2003
NavnLEFIC Working Paper


  • Virksomhedens interessenter
  • Aktionærer
  • Ansatte
  • Stakeholder values
  • Shareholder value
  • Louis Poulsen