Enlightened shareholder theory: Whose interests should be served by the supporters of corporate governance?

Abstract

This paper questions the feasibility of corporate governance and a company's Board Members being able to serve two masters at once: shareholders; and the many different agents inhabiting the labyrinth of the stakeholder universe. Absurdist reasoning will be used to demonstrate the theoretical impossibility of a dual legitimacy. An alternative 'Enlightened shareholder theory' will be proposed, inspired by Jensen's 'Enlightened partnership theory' (2001). After demonstrating that a company's interest is not synonymous with the interests of its shareholders, a proposition will be made that Board Members should always highlight social interests. The paper's conclusion will identify the consequences of the new theoretical framework for the definition of corporate governance; Board Members' missions; and the composition of a Board of Directors.