Enlightened Shareholder Value: Four Elements of Effective Governance

Assumed tension between directors’ fiduciary duties and stakeholder governance is fueling a drive to reconceive corporate purpose, particularly in Europe. This memo argues that the assumption is flawed. We outline the contours of director discretion in shareholder-primacy regimes before suggesting four key elements of effective, good-faith, and legally sound stakeholder governance.

We excerpt below the memo’s introduction. The complete memo is available here.


The social devastation of 2020 accelerated a march to reconceive corporate purpose from fringe to mainstream concern. Challenging the received wisdom that shareholder value is the corporation’s ultimate end (“shareholder primacy”), advocates for “stakeholder governance” argue that business leaders should serve an array of constituencies affected by, or interested in, corporate decisions. This once-radical position is increasingly resonant for global companies.

In the United States, the Business Roundtable—representing over 180 of the country’s largest companies—issued a “Statement on the Purpose of a Corporation” (the ‘BR Statement’) avowing “a fundamental commitment to all of our stakeholders”, including customers, employees, suppliers, communities, and shareholders. The same group was previously unequivocal that “the paramount duty of management and of boards of directors is to the corporation’s stockholders.” (Despite revolutionary hues, the statement is arguably tautological if relevant stakeholder interests are limited to those that bear on shareholder value.)

The stakeholder-centric approach has gained far more traction across the Atlantic, where the European Commission has made it central to the 2021 Sustainable Corporate Governance Initiative. As part of that Initiative, the Commission recently completed a Study on Directors’ Duties and Sustainable Corporate Governance and has solicited public comment on potential legislative amendment of board duties to capture the full panoply of stakeholders (beyond even those imagined by the BR Statement), possibly with rights enforceable by each. [A2’s complete comments are available here.] While nascent, it is a path that could radically change corporate law across Europe, with profound, expansive, and unpredictable implications.

This memo argues that the quest for a radically new corporate governance regime—entertained in the European Commission’s public engagement—is colored by a flawed assumption: that meaningful stakeholder governance is inexorably at odds with shareholder primacy. Rather, we suggest, committed boards can effectively and in good faith respond to stakeholder interests even under the aegis of the most conservative directors’ fiduciary duty regimes. The challenge is implementing calibrated and credible governance.

We begin by surveying criticisms of stakeholder governance as both voluntary aspiration and legal obligation. We then consider the contours of directors’ fiduciary duty in an archetypal shareholder-primacy jurisdiction, Delaware, which is both dominant in U.S. corporate law and largely reflective of directors’ duties across jurisdictions. Drawing on these criticisms and legal imperatives, we close with four practical elements of corporate governance for boards to deliver meaningfully on commitments to stakeholder governance, while navigating an array of emerging business risks and opportunities.