Evaluating the Shareholder Primacy Theory: Evidence from a Survey of Australian Directors

In recent years, scholars have noted the rise of ‘shareholder primacy’ or ‘shareholder value’ as an aspect of corporate governance. It has also been argued that the rise of shareholder primacy often has an injurious impact upon the interests of corporate employees. The argument suggests that under a certain type of capitalism, and particularly that which characterises ‘market-based’ rather than ‘relational’ styles of production systems, the interests of shareholders are considered paramount by directors, over and above those of other stakeholders, such as employees. At its extreme, this perspective suggests that directors will tend to favour the short-term financial interests of shareholders (shareholder value), being driven in that direction by capital markets fixed on share price and short term returns. But even in a more balanced perspective, the shareholder primacy view would hold that the overriding goal of the corporation is to maximise shareholder wealth. Among nations, the Anglo-American group (the UK, USA, Canada, New Zealand and, perhaps less straight forwardly, Australia) are taken to constitute those most clearly exhibiting the ‘shareholder primacy’ style of corporate governance.