Stakeholders’ Protection in 2020: Government Measures or Corporate Governance



  1. Introduction

The shareholder-oriented model of corporate governance,[1] identified by two authors at the beginning of the millennium as the universal pattern of convergence of national corporate laws,[2] is still the subject of a vibrant debate that is far from over.[3]

The European Union has just concluded a corporate law harmonization cycle that covered almost two decades and that fully embraces a shareholder-oriented vision.[4] In the United States the “Statement on the Purpose of a Corporation,” signed by 181 CEOs in the August of 2019,[5] supporting a stakeholder-oriented approach,[6] appears to be a true Copernican revolution if compared to the same Statement signed in September 1997,[7] totally devoted to shareholders’ value.[8] However, it is questioned whether the Statement is just a façade and not effectively transposed into concrete governance mechanisms.[9] Similarly, the “Davos Manifesto 2020” issued by the World Economic Forum advocates for a stakeholder capitalism.[10]

The attention to the stakeholder-oriented model,[11] the antagonist par excellence to the traditional shareholder-oriented one,[12] could become even more topical in the light of the COVID-19 pandemic,[13] with the health of stakeholders such as workers, clients, and communities at risk. Like any debate that investigates two contrasting poles, new dialectical tensions push against the fossilization of opinions around the superiority of one model over the other.[14] Also, the abovementioned current developments of the stakeholderism v. shareholderism “practical” manifestation on the two sides of the Atlantic shows that sometimes the influence of Corporate America’s culture, practice and legislation reverberates in Europe not instantaneously but through echoes and idiosyncratic steps.[15]

This article argues that two kinds of stakeholders’ protection can be developed during this crisis, but only one of them can be properly defined as “stakeholderism” (meaning a stakeholder-oriented corporate governance).[16] In the final part, I propose an evaluation of the pros and cons of these two methods.

  1. Two kinds of stakeholders’ protection in 2020

The health crisis caused the urgent need to radically change the form in which business is conducted.[17] States can impose health measures through establishing new common and temporary regulations to protect stakeholders, such as safety measures for employees (e.g. enforcing social distancing in the workplace), for clients (e.g. displacing separators), and for communities in general (e.g. imposing local lockdowns).[18] More incisively, States can change the number of customers who can access a certain service at the same time (e.g. limiting the seats available and reducing capacities in events).[19]

These measures if mandated by legislation are exogenous to corporate governance: they compose the legislative framework in which the company operates, but they are perfectly consistent with a shareholder-oriented model.[20] In other words, the new health-related measures enacted through legislation go alongside every labor or health measures already existing: they certainly protect stakeholders, but do not necessarily push companies to orientate their business in order to increase stakeholders’ wealth.[21] They “externalize” stakeholders’ protection, separating it from corporate law.[22] These measures can therefore be considered a (necessary) cost imposed on companies through the designing of the “rules of the game” in which companies compete to realize shareholders’ profit.[23]

A second type of stakeholders’ protection can be pursued at the level of the individual company in contexts where health measures enacted by legislation are absent or insufficient and therefore it is up to company to decide which to adopt.[24] Companies would have, in my opinion, the two following options.

On the one hand, in order to maintain a shareholder-oriented governance in a laissez faire environment during a pandemic, the management would need to continue to consider stakeholders’ wealth as only functional to the maximization of shareholders’ value[25] (in “normal” times, through productive and well-paid workers, happy customers, reliable supplier, and the trust of the public; today, by ensuring a safe work environment, protecting clients, and preserving the safety of communities).[26] It is worth noticing, in fact, that voluntary health measures do not seem, at least in principle, contrary to a shareholder-oriented governance, which maintains to a certain degree an interest in the health of its employees (from a utilitarian perspective, by ensuring that they do not get sick), in the trust of its customers (to retain them), and in the community in general (so as not to let the virus spread and increase costs for the abovementioned protections).[27]

On the other hand, to shift to a stakeholder-oriented governance, the management should orientate its action to the goal of increasing stakeholders’ wealth, by taking into consideration as primary objective the protection of workers, clients and communities, and not relegating them to the second place in the scale of corporate value.[28] Profits would therefore continue to be necessary and functional to increase stakeholders’ wealth, and shareholders’ remuneration would be considered secondary and only functional to raise sufficient capital from investors to keep the company efficient.

“Stakeholderism” could be characterized by the voluntary adoption of health measures with the main scope of increasing workers and customers well-being; this could as well be done by “gold-plating” on State regulations that is, by providing for more stringent measures than those required by law. But “stakeholderism” could also be forced by law, mandating that the management should run the company in the interests of the stakeholders.[29] In any of these cases, the stakeholders’ protection would require the “internalization” within the (corporate) governance of the company to be defined as stakeholder-oriented governance.

As opposed to State legislation that protects stakeholders, only the “internalization” of the stakeholders’ protection can be defined as stakeholder-oriented governance, because it would leave to the management the choice (or impose to it the obligation) to orient its action to the end of increasing stakeholders’ wealth and safety; this approach could be adapted to how the business is managed daily, to how resources are allocated, and to how the purpose of the corporation is realized.[30]

  1. Pros, Cons, and Conclusion

There are, in my opinion, pros and cons in these two types of stakeholders’ protection: the stakeholder-oriented “public” governance, and the stakeholder-oriented corporate governance. Health regulations imposed externally by governments leave companies free to focus merely on profit and float in an already wounded economy.[31] State regulations, by definition, achieve a certain degree of uniformity of standard throughout the market, and this could turn, in my opinion, into a double-edged sword: while they can reduce disparities and “unfair competition” between health-attentive companies and negligent companies, they cannot take into account every factor that conditions the single case and therefore are less adaptable to the individual company. In other words, government measures could result distant from the need of the individual company and lawmakers could not be able to perform a balanced economic calculation adherent to the single business situation. Imposing health measures that necessarily limit the ability of companies to realize profit have the positive effect of ensuring the health of workers and employees but risk causing irreparable economic damage, leaving employees without a job, and leaving clients without a good or service.[32]

In my opinion lawmakers should be very careful in balancing stakeholders’ protection with the profitability of the market. At the same time, as mentioned before, this approach leaves the management free to pursue shareholders’ value maximization, entrusting the validity of government dictated health-measures.[33] This would not be qualified as “stakeholderism” but just compliance to laws meant to limit the spread of the virus; public law measures can be more effective and secure to stop the contagion,[34] and since corporations are an innate part of society where a great number of people are gathered as workers and as clients, these measures would inevitably affect them.

Public safety measures, even if they are top-down and more generalized, should aim at balancing a priori the need for protection of stakeholders to avoid their health damages and the limitation of the contagion, with the profitability of the company, to not cause economic damages to stakeholders through the loss of jobs, contracts, goods and services and drain of capital.

The second approach described in this article “internalizes” within the company the choice of which anti-contagion measures to adopt. In my opinion, an important positive element could be identified in the adherence to the concrete case: the balance between stakeholders’ protection and its costs would be done at the individual company level. In a shareholder-oriented governance, this protection would be only functional but secondary to shareholders’ value maximization, while in a stakeholder-oriented governance this protection would represent the main goal of the company in view of stakeholders’ value maximization.

However, if not mandated (and therefore causing a major and disruptive shift in the modern corporate law landscape), stakeholderism represents a choice of the management. Relying on it (or on the protection of stakeholders as functional to shareholders’ value maximization) can turn out to be insufficient during a pandemic, given the need for decisive actions to limit the contagion;[35] only large companies that have not emerged weakened by this crisis have the economic capacity to promote a paradigm shift that does not reconcile with the urgency (in the short term) to continue to maintain the same profits but that can reverberate in the long term as greater attention to stakeholders.[36] On the other hand, in my opinion, to have some form of voluntary and maybe temporarily stakeholder-oriented governance in markets not regulated by State measures will certainly help to limit the contagion, if governance will still aim at preserving the company efficiency and competitiveness.

In limiting the spread of the virus, however, even stakeholder-oriented companies risk going out of business and cause economic damage to stakeholders through the cessation or restriction of their economic activities.[37]

A balance of the economic damage with the possible health damage is difficult to achieve even at the level of the single company. As already mentioned, company profit is not theoretically incompatible with health measures (given the utilitarian interests of the company in the safety of its stakeholders),[38] but the maximization of these two interests seem to me in conflict, given that generally the full stakeholders’ safety is incompatible with the total un-restrictiveness of the economic activity, namely the absence of any precautionary measure that has a cost.[39]

In an ideal world, incisive and draconian public measures that annihilated the spread of the virus would have re-established, at an immediate cost, market conditions favorable to profitability. The reality has instead shown that the virus coexists with the economies that it continues to affect. In addition to localized measures to avoid the contagion, and widespread measures to protect stakeholders, it cannot be excluded, in my opinion, that to some degree (perhaps in some sectors that will remain profitable) the attention to stakeholders will be eventually internalized at the individual company level through a stakeholder-oriented corporate governance.


[1] Shareholderism is based on two cornerstones: (i) the idea that shareholders are the proprietors of the company (Michael C. Jensen & William H. Meckling, Theory of the firm: Managerial behavior, agency costs and ownership structure, 3 J. Fin. Econ. 305 (1976); and (ii) the idea that the purpose of the company is its shareholders’ value maximization (Milton Friedman, The Social Responsibility of Business is to Increase its Profits, N.Y. Times Mag., Sept. 13, 1970).

[2] Henry Hansmann & Reinier Kraakman, The End of History of Corporate Law, 89 Geo. L.J. 439 (2001). See also Adam Winkler, Corporate Law or the Law of Business?: Stakeholders and Corporate Governance at the End of History, 67 Law & Contemp. Probs. 109 (Autumn 2004).

[3] Edward B. Rock, For Whom is the Corporation Managed in 2020?: The Debate over Corporate Purpose (N.Y. Univ. Sch. of Law Research Paper No. 515/2020), See also Friedman 50 Years Later, PROMARKET, (last visited Sept. 27, 2020) (list of articles published for 50 year anniversary of Friedman, supra n.1).

[4] See the Action Plan of 2003 (European Commission, Communication to the Council and the European Parliament, Modernising Company Law and Enhancing Corporate Governance in the European Union A Plan to Move Forward, Brussels, 21.5.2003, COM(2003) 284 fin.), which led to the 2007 O.J. (L 184) 17 (CE) Shareholder Rights Directive (Directive 2007/36), and the Action Plan of 2012 (European Commission, Action Plan: European company law and corporate governance a modern legal framework for more engaged shareholders and sustainable companies, Strasbourg, 12.12.2012, COM(2012) 740 fin.), which led to the 2017 O.J. (L 132) 1 (EU) Shareholder Rights II Directive, amending Directive 2007/36/EC as Regards the Encouragement of Long-Term Shareholder Engagement.

[5] Business Roundtable, Statement on the Purpose of a Corporation, August 19, 2019, (last visited Sept. 27, 2020).

[6] Id. (“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to: (i) Delivering value to our customers. … . (ii) Investing in our employees. …. (iii) Dealing fairly and ethically with our suppliers. …. (iv) Supporting the communities in which we work. …. (v) Generating long-term value for shareholders,…. Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”).

[7] Business Roundtable, Statement on the Purpose of a Corporation, Sept. 1997,

[8] Id. (“the principal objective of a business enterprise is to generate economic returns to its owners”).

[9] Lucian A. Bebchuk & Roberto Tallarita, The Illusory Promise of Stakeholder Governance, Cornell L. Rev. (forthcoming Dec. 2020), at 23-37.

[10] World Economic Forum, Davos Manifesto 2020: The Universal Purpose of a Company in the Fourth Industrial Revolution,

[11] Michael C. Jensen, Value Maximization, Stakeholder Theory, and the Corporate Objective Function, 14 J. Applied. Corp. Fin. 13 (Fall 2001).

[12] See, for the history of stakeholderism as in opposition to shareholderism: R. Edward Freeman, Managing for Stakeholders,

[13] See Joe Nocera, Pandemic Could End Shareholder Supremacy for Good: The coronavirus crisis appears to be transforming how corporate America treats its workers, customers and communities. Can it last?, Bloomberg Op. (Apr. 17, 2020), (last visited Sept. 27, 2020); see also Sanford Lewis, Stakeholder Capitalism and the Pandemic Recovery, Harv. L. Sch. Forum on Corp. Gov’nce (June 8, 2020), (last visited Sept. 27, 2020); Jessica C. Pearlman, COVID-19 Pandemic Highlights Need for Stakeholders to Be Considered, BusinessLawToday (Apr. 14, 2020) (last visited Sept. 27, 2020).

[14] As mentioned in the beginning of this article, the debate is still open. See Colin Mayer, Shareholderism Versus Stakeholderism – a Misconceived Contradiction. A Comment on “The Illusory Promise of Stakeholder Governance” by Lucian Bebchuk and Roberto Tallarita (ECGI., Working Paper No. 522, 2020), or the debate between Professor Lucian A. Bebchuk of the Harvard Law School and  Professor Colin Mayer of Saïd Business School (Oxford), Oxford Answers, (last visited Sept. 27, 2020).

[15] The Anglo-American corporate law is deeply infused by a tradition of shareholderism (Christopher M. Bruner, Power and Purpose in the “Anglo-American” Corporation, 50 Va. J. Int. L. 3, 579-653 (2010)), while some continental European jurisdictions are more stakeholder-oriented (famously Germany, see  Franklin Allen et al., Stakeholder Capitalism, Corporate Governance and Firm Value, ECGI, Working Paper No. 190, 2007, but also Netherlands, see Christoph Van der Elst & Anne Lafarre, Shareholder Stewardship in the Netherlands: The Role of Institutional Investors in a Stakeholder Oriented Jurisdiction, ECGI, Working Paper No. 492, 2020, and Austria and the Nordic Countries, see Paul Krüger Andersen & Evelyne J.B. Sørensen, The Principle of Shareholder Primacy in Company Law from a Nordic and European Regulatory Perspective, Nordic & Eur. Co. Working Paper No. 10-34, 2012). However, as reported supra n.4 of this article, the European Union has undergone a shareholder-centric cycle of harmonization; meanwhile, in the United States the intellectual ferment for stakeholderism keeps on growing (see Andrew R. Keay, Moving Towards Stakeholderism? Constituency Statutes, Enlightened Shareholder Value and All That: Much Ado About Little?, 22 Eur. Bus. L. Rev. 1 (2011)). For these reasons, some form of idiosyncrasy can be registered, see John M. Conley & Cynthia A. Williams, An Emerging Third Way?: The Erosion of the Anglo-American Shareholder Value Construct, 38 Cornell Int. L. J. 2 (2005).

[16] After all, stakeholderism is a way in which the corporation is run. See Alberto Chilosi & Mirella Damiani, Stakeholders vs. Shareholders in Corporate Governance, 2, 49 (2007),

[17] For an overview, see Thankom Arun & Peterson K Ozili, Spillover of COVID-19: Impact on the Global Economy (2020),

[18] See the set of tools recommended in the WHO report Strengthening and adjusting public health measures throughout the COVID-19 transition phases. Policy considerations for the WHO European Region (April 24, 2020).

[19] See Ashley Nunes, How Covid-19 will change air travel as we know it, BBC (July 10, 2020),

[20] Shareholderism does not incorporate labor-related issues directly within corporate governance: on the opposite, it insulates corporate law from labor law. See Peer Zumbansen, The Parallel Worlds of Corporate Governance and Labor Law, 13 Ind. J. Glob. Legal Studies 1, 261-312 (2006).

[21] For the difference between shareholder value and stakeholder value, see Gérard Charreaux & Philippe Desbrières, Corporate Governance: Stakeholder Value Versus Shareholder Value, 5 J. Mgmt. and Governance 2, 107–128 (2001).

[22] See Zumbansen, supra, note 20.

[23] Stakeholders’ protection regulations can spare from labor law for employees, safety standards for clients, environmental law for communities, and during a pandemic, health measures for every of the three above.

[24] This can be applied also where health measures are only recommended, without binding force. For both legal and recommended measures see Interim Guidance for Businesses and Employers Responding to Coronavirus Disease 2019 (COVID-19), May 2020, CDC (May 6, 2020), (last visited Sept. 27, 2020).

[25] See Business Roundtable, Statement on the Purpose of a Corporation, (1997) (“the interests of other stakeholders are relevant as a derivative of the duty to stockholders”).

[26] The attention to stakeholders is consistent with the benefit of shareholders, see Morris G. Danielson et al., Shareholder Theory – How Opponents and Proponents Both Get it Wrong (2008),

[27] See generally Alexander Cheema-Fox et al., Corporate Resilience and Response During COVID-19 (Harv. Bus. Sch. Acct. & Mgmt. Unit, Working Paper No. 108, 2020); Elena Pérez Carrillo, Corporate Governance: Shareholders’ Interests and Other Stakeholders’ Interests, 4 Corporate Ownership & Control 4, Summer 2007, at 92-102.

[28] Stakeholders-oriented governance relates to how the directors manage the company, orienting it towards the purpose of stakeholders’ wealth. See Martin Lipton et al., Wachtell Lipton on the Purpose of the Corporation, The CLS Blue Sky Blog (May 27, 2020),

[29] In this case, a general provision would need to be included in the law, see the interpretative doubts raised by a provision such as Section 172 of the UK Companies Act. Georgina Tsagas, Section 172 of the UK Companies Act 2006: Desperate Times Call for Soft Law Measures, Oxford Bus. L. Blog (Sept. 1, 2017),

[30] In regard to the purpose of the corporation, see Jill E. Fisch & Steven Davidoff Solomon, Should Corporations have a Purpose?, (ECGI L., Working Paper No. 510, 2020).

[31] External measures, however, alter shareholders’ value maximization. See Sanjai Bhagat & R. Glenn Hubbard, Should the Modern Corporation Maximize Shareholder Value?, The CLS Blue Sky Blog, (May 18, 2020),

[32] For an overview of the economic damage caused by the pandemic, see Nuno Fernandes, Economic Effects of Coronavirus Outbreak (COVID-19) on the World Economy (Mar. 22, 2020),

[33] Since government measures exists in every context in which companies do business, the shareholders-oriented model already coexists with such regulations.

[34] See Nikos Askitas et al., Flattening the COVID-19 curve: What works, (June 5, 2020),

[35] See Benjamin Born et al., The effectiveness of lockdowns: Learning from the Swedish experience, (July 31, 2020),

[36] For an overview of the companies that grew in the first months of the pandemic, see Rohit Arora, Which Companies Did Well During The Coronavirus Pandemic?, Forbes (June 30, 2020),

[37] The effect of the pandemic on bankruptcies is already beginning to manifest itself. See Mary Williams Walsh, A Tidal Wave of Bankruptcies Is Coming, The New York Times (June 18, 2020),

[38] In general, it is claimed that stakeholders’ empowerment can be beneficial to shareholders themselves. See Martin Whittaker, Is COVID-19 Killing Shareholder Primacy?, Forbes (Apr. 9, 2020),

[39] Taking the concept to the extreme, the maximum possible safety is achieved by not engaging in a certain economic activity at all (e.g. closing a factory or letting the customers out). There are costs in doing, and costs in not doing. See Peter Dorman, The Economics of Safety, Health, and Well-Being at Work: An Overview 2 (ILO Infocus Safework Working Paper May 1, 2000),–en/index.htm.


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