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The New Corporate Governance

Author

Listed:
  • Hart, Oliver
  • Zingales, Luigi

Abstract

In the last few years, there has been a dramatic increase in shareholder engagement on environmental and social issues. In some cases shareholders are pushing companies to take actions that may reduce market value. It is hard to understand this behavior using the dominant corporate governance paradigm based on shareholder value maximization. We explain how jurisprudence has sustained this criterion in spite of its economic weaknesses. To overcome these weaknesses we propose the criterion of shareholder welfare maximization and argue that it can better explain observed behavior. Finally, we outline how shareholder welfare maximization can be implemented in practice.

Suggested Citation

  • Hart, Oliver & Zingales, Luigi, 2022. "The New Corporate Governance," CEPR Discussion Papers 17276, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17276
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    Cited by:

    1. Pablo Ottonello & Wenting Song & Sebastian Sotelo, 2024. "An Anatomy of Firms’ Political Speech," Staff Working Papers 24-37, Bank of Canada.
    2. Shira Cohen & Igor Kadach & Gaizka Ormazabal & Stefan Reichelstein, 2023. "Executive Compensation Tied to ESG Performance: International Evidence," Journal of Accounting Research, Wiley Blackwell, vol. 61(3), pages 805-853, June.
    3. Carlo Drago & Fabio Fortuna, 2023. "Investigating the Corporate Governance and Sustainability Relationship: A Bibliometric Analysis Using Keyword-Ensemble Community Detection," Working Papers 2023.12, Fondazione Eni Enrico Mattei.
    4. Bejan, Camelia, 2024. "On the shareholders versus stakeholders debate," Journal of Economic Behavior & Organization, Elsevier, vol. 218(C), pages 68-88.
    5. Matthias Efing & Stefanie Ehmann & Patrick Kampkötter & Raphael Moritz, 2024. "All Hat and No Cattle? ESG Incentives in Executive Compensation," CESifo Working Paper Series 11407, CESifo.
    6. Anjan V. Thakor, 2023. "Finance research: What are the new frontiers?," The Financial Review, Eastern Finance Association, vol. 58(3), pages 453-462, August.

    More about this item

    Keywords

    Shareholder value; Shareholder welfare; Proxy voting;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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