• Governance;
  • shareholder value;
  • stakeholder society;
  • control rights;
  • managerial incentives


  1. Top of page
  2. 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.

  1. The paper builds on the author's Presidential Address for the Econometric Society, delivered in 1998 in Montreal, Lima, Berlin, and Dehli. This address also formed the basis for the John von Neumann lecture given on September 24, 1998 at Rajck Laszlo College, University of Budapest. I am very indebted to Bengt Holmström for many discussions on the topic of this address. I also borrow substantially from joint work with him, Philippe Aghion, Mathias Dewatripont, and Patrick Rey. I am grateful to Philippe Aghion, Jean-Jacques Laffont, Fausto Panunzi, Andrei Shleifer, and two referees for helpful comments on an earlier draft, and to several members of the Institut D'Economie Industrielle (IDEI) for guidance during the preparation of the address.