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Shareholder Primacy as an Impediment to Corporate Social Responsibility

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Understanding Ethics and Responsibilities in a Globalizing World

Abstract

This paper examines the Shareholder Primacy Norm (SPN) in light of its widely acknowledged role as an impediment to corporate social responsibility. We start by explaining the SPN and then look at its status under US and UK law and show that it is no longer likely to be legally enforceable. This is in contrast to the assertion that managers are legally constrained from addressing CSR issues if doing so would be inconsistent with the interests of shareholders. Nonetheless, while the SPN might be muted as a legal norm, we argue that it is very much evident as a social norm among managers perpetuated by shareholders’ sole voting rights for the board of directors. We conclude with descriptive research propositions regarding the efficacy and justification of the SPN among managers as well as its implication for prescriptive research directions of both a normative and instrumental nature. By shining light on the hindrance to CSR resulting from the SPN as a social norm, the paper contributes to the “basic debate” in business ethics, regarding whether managers should focus on shareholder interests or the interests of a wider constituency of stakeholders.

The Shareholder Primacy Norm (SPN) is the part of a manager’s legal fiduciary duty that requires managers and company directors to make decisions on behalf of the corporation which further the interests of shareholders. It has been treated as a major obstacle to Corporate Social Responsibility (CSR) because it is said to hinder managers from considering the interests of other corporate stakeholders besides shareholders (Boatright 1994; Campbell 2007; Dodd 1932; Evan and Freeman 2003; Hinkley 2002; Phillips et al. 2003; Testy 2002). More recently, in light of the 2008 global financial crisis, the legitimacy of managerial focus on shareholder wealth maximization has also been questioned from quarters not usually associated with the advocacy of CSR (Financial Times 2009).

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Authors and Affiliations

  1. INSEAD Social Innovation Centre, Fontainebleu, France

    David Rönnegard

  2. Ethics and Social Responsibility, INSEAD, Fontainebleu, France

    N. Craig Smith

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  1. David Rönnegard
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Correspondence to David Rönnegard .

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Editors and Affiliations

  1. ALENE, Latin American Association of Business , Economics, and Ethics, São Paulo, Brazil

    Maria Cecilia Coutinho de Arruda

  2. Business Ethics Centre, Kozminski University, Warsaw, Poland

    Boleslaw Rok

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Rönnegard, D., Smith, N.C. (2016). Shareholder Primacy as an Impediment to Corporate Social Responsibility. In: Coutinho de Arruda, M., Rok, B. (eds) Understanding Ethics and Responsibilities in a Globalizing World. The International Society of Business, Economics, and Ethics Book Series, vol 5. Springer, Cham. https://doi.org/10.1007/978-3-319-23081-8_3

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