Shareholder Value, Emerging Economies and the Need to Reconcile the Corporate Objective with Sustainable and Inclusive Goals

Abstract

The years preceding the wave of US corporate scandals at the turn of the century showed a high degree of convergence in corporate governance ideology and in its practice at the global level. The convergence corresponded with the perceived supremacy of the business model adopted in the US and UK based on shareholder value, on the growth of widely-held firms and the overall reliance on market mechanisms for the regulation of corporate governance. This convergence was due to a number of factors. These can be recognised firstly, with an intellectual dimension, which advanced the application of neoliberal principles in the area of corporate law and governance. This became particularly evident with the implementation of the Washington Consensus policies in areas of market liberalisation and corporate governance and with the direct influence on policymaking exerted by IMF and World Bank. Secondly, at a more practical level, the globalisation of Anglo-American legal, consulting and accounting services prompted the application of shareholder value to businesses in emerging economies, regardless of the underlying socio-economic reality.The sequence of corporate and financial scandals that occurred over the past fifteen years contributed to stir academic debates over the validity of the shareholder value paradigm. Despite much criticism however, the business model centred on the pursuit of share value for the benefit of stockholders has remained the guiding criteria of corporate success. Moreover, neoliberal policies have extended beyond corporate governance, to fundamental areas of market regulation, disregarding relevant institutional factors typical of most emerging economies, such as underdeveloped financial markets or inadequate property rights. This has resulted in institutional arrangements whereby corporate activities have promoted the interests of one constituency – shareholders – ahead of other key social and economic concerns which have been left lacking adequate protection. In the context of emerging economies this problem is accentuated, because the privatisation of large utilities and natural resources companies has attracted foreign investors whose interests are not naturally aligned with local and environmental priorities.This chapter reconceptualises the critique of shareholder value in light of the specific context of emerging economies. It focuses on the necessity to take account of the different nature of large corporations that, due to the nature of their activities and externalities, affect the interests of a wide range of societal interests. The chapter proposes a new institutional framework for the specific regulation of the corporate objective of large public firms.