The Corporate Objective Revisited: The Shareholder Perspective

Shareholder value maximization has spurred a long‐standing and heated debate between the proponents of a unified corporate objective function and the supporters of multi‐constituency goals of the corporation. We weigh in on the corporate purpose debate from a different point of view: that of the shareholders. Specifically, we seek to critically assess the assumptions about shareholders embedded in the shareholder value maximization doctrine and examine the implications of three contemporary shareholding practices: (a) shareholders investing concurrently in competing firms, (b) residual‐risk bearing decoupling, and (c) heterogeneous shareholder interests. Our critique draws out the challenges that contemporary shareholder practices pose for corporate governance and highlights the need for strategic corporate governance, or governance policies and practices that prioritize the sustainable competitive advantage of the firm.