Shareholder-Centric Perspective – Definition

Cite this article as:"Shareholder-Centric Perspective – Definition," in The Business Professor, updated April 28, 2019, last accessed October 20, 2020, https://thebusinessprofessor.com/lesson/shareholder-centric-perspective-definition/.

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Shareholder-Centric Perspective Definition

Corporations that consider the interests of shareholders as paramount while making governance decisions are said to have ‘Shareholder-Centric Perspective’. This perspective has a significant impact on the growth, direction, and strategic planning of a business.

A Little More on What is Shareholder-Centric Perspective

When Shareholder obligations and wealth creation take centre stage in corporate governance, Shareholder-Centric Perspective drives the decision making. Shareholder primacy in this scenario overrides other considerations like corporate social responsibility, consumer demands and employees and corporate stakeholders’ interests.

While advocates of Shareholder-Centric Perspective demand that corporates focus on maximising the profits for shareholders, the Stakeholder-Centric Perspective advocates for equal emphasis on other factors like quality, corporate culture, social mores, etc.

The Factors Influencing Shareholder-Centric Perspective

This perspective stems from the answer to the question, ‘Who owns a corporate?’. As investors, shareholders are partial owners of the business and their interests should supercede those of other stakeholders even as they should be accorded greater control in the operating of said business. Other stakeholders like board members, employees, and executives are there to serve the business – which in turn serves shareholder interests, ergo, everyone involved should work towards maximising profits for shareholders.

Since wealth creation is one of the most significant parameters of measuring growth, it provides the Shareholder-Centric approach a solid framework of reasons to advocate its goals.

Criticism of the Shareholder-Centric Perspective

Critics of the Shareholder-Centric Perspective argue that a corporate cannot be owned and serves a myriad of purposes. Besides being responsible for its shareholders’ wealth, it also has obligations towards its clients, consumers, stakeholders, community and society at large. It is a legal entity that is not bound by ties of investments alone. Within this larger context, shareholders are just a part of the sum and not the prime focus of its existence. This view has been gaining ground post the economic recession of 2008.

Disadvantages of the Shareholder-Centric Perspective

  • Long term strategies are adversely affected by short term goals that look at immediate profits, jeopardising the long term sustainability of the firm.
  • Focus on profits alone diminishes the will to take risks, isn’t conducive to the spirit of entrepreneurism, and trades in forward thinking, risky measures for small and short term goals, adversely impacting the firm’s market dominance and relevance.
  • Research and development require capital that is apportioned from dividends. These are expenditures that do not provide immediate gains but are imperative for the long term survival and thriving of a business. Limiting this resource to please shareholders is bad for the business.

Although corporations are moving on from this approach to managing businesses, it will be a long time before concrete steps are taken to make corporates more conducive to  stakeholder-centric governance policies.

References for Shareholder-Centric Perspective

Academic Research on Shareholder-Centric Perspective

Adapting to the new shareholdercentric reality, Rock, E. B. (2013). University of Pennsylvania Law Review, 1907-1988. This paper explores the shift in U.S. corporates from operating with the Shareholder-Centric Perspective to the current trends in Stakeholder-Centric Perspectives.

Stakeholder‐centric governance and corporate social performance: a cross‐national study, Shahzad, A. M., Rutherford, M. A., & Sharfman, M. P. (2016). Corporate Social Responsibility and Environmental Management, 23(2), 100-112. This paper studies empirical data from 342 firms from 24 countries over a period of four years to examine the mechanisms of a Shareholder-Centric Perspective and its outcomes.

Minority shareholder protection in takeovers: A UK perspective, Payne, J. (2011). European Company and Financial Law Review, 8(2), 145-173. This paper studies corporates with Shareholder-Centric Perspective and the anti-takeover measures in place they have, in the United Kingdom.

New Thinking on” Shareholder Primacy”, Stout, L. A. (2012). Accounting, Economics, and Law, 2(2). This paper presents a unique view on shareholder primacy in corporate governance.

Shareholder empowerment as an end in itself: A new perspective on allocation of power in the modern corporation, McConvill, J. (2007). Ohio NUL Rev., 33, 1013. This paper compares and contrasts the impact of Shareholder-Centric Perspective and Directors Primacy in corporate governance.

A Long View of Shareholder Power: From the Antebellum Corporation to the Twenty-First Century, Wells, H. (2015). Fla. L. Rev., 67, 1033. This paper charts the history and growth of the Shareholder-Centric Perspective in corporations from the dawn of the industrial era up to the 21st century.

The sustainable corporation and shareholder profits, Snierson, J. F. (2011). Wake Forest L. Rev., 46, 541. This paper draws the correlation between Shareholder-Centric Perspective and the sustainability of corporations.

Commentary on the Shareholder Rights Directive, Johnston, A., & Morrow, P. (2014). This paper presents an objective overview of shareholder rights directives.

Shareholder primacy, corporate social responsibility, and the role of business schools, Smith, N. C., & Rönnegard, D. (2016). Journal of Business ethics, 134(3), 463-478. This paper examines the role of business schools in shaping corporate social responsibility and their influence on shareholder primacy.

From corporate responsibility to corporate design: Rethinking the purpose of the corporation, Kelly, M., & White, A. L. (2009). The Journal of Corporate Citizenship, (33), 23. This paper delves into the primary reasons that justify the existence of corporations to explain secondary reasons like corporate responsibility and shareholder stakes.

Embedding corporate social responsibility in corporate governance: A stakeholder systems approach, Mason, C., & Simmons, J. (2014). Journal of Business Ethics, 119(1), 77-86. This paper presents the case for a Stakeholder-Centric Perspective to embed social responsibility in corporate governance.

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