Corporate Purpose and Democratic Theory: A Governance Trilemma

Area of Science:

• Business and Economics
• Corporate Governance

Background:

• Growing demand for corporate purpose beyond shareholder value maximization.
• Debate on corporate governance models: stakeholder vs. shareholder primacy.
• Tension between board independence and board responsiveness in purpose-driven firms.

Purpose of the Study:

• To analyze the corporate governance trilemma involving shareholder, stakeholder (independent board), and stakeholder (responsive board) governance.
• To elucidate the trade-offs between minimizing externalities, collective decision-making costs, and agency costs.
• To guide choices in corporate governance for achieving corporate purpose.

Main Methods:

• Conceptual analysis of corporate governance models.
• Exploration of the trilemma framework.
• Discussion of trade-offs in decision-making costs and agency costs.

Main Results:

• Identified a trilemma in corporate governance choices.
• Highlighted trade-offs between board independence, responsiveness, and shareholder interests.
• Demonstrated the complex interplay of externalities, decision-making costs, and agency costs.

Conclusions:

• Corporate purpose is best achieved through a balanced approach to board independence and responsiveness.
• Navigating the trilemma requires careful consideration of competing values.
• Strategic board composition is crucial for effective corporate purpose implementation.