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Corporate Governance

Jean Tirole

Abstract

The paper first develops an economic analysis of the concept of shareholder value, describes its approach, and discusses some open questions. It emphasizes the relationship between pledgeable income, monitoring, and control rights using a unifying and simple framework.

The paper then provides a first and preliminary analysis of the concept of the stakeholder society. It investigates whether the managerial incentives and the control structure described in the first part can be modified so as to promote the stakeholder society. It shows that the implementation of the stakeholder society strikes three rocks: dearth of pledgeable income, deadlocks in decision-making, and lack of clear mission for management.

While it fares better than the stakeholder society on those three grounds, shareholder value generates biased decision-making; the paper analyzes the costs and benefits of various methods of protecting noncontrolling stakeholders: covenants, exit options, flat claims, enlarged fiduciary duty.