The Directors’ Role Amid Debates over Corporate Purpose, Stakeholders and ESG

The age-old debate over the purpose of for-profit corporations has reignited, with two rival theories on offer: shareholder primacy and stakeholder parity. The first posits that the primary purpose of corporations is to maximize shareholder value, while the second urges the equal interests of all other constituents, especially employees, customers, and communities.

While the debate can seem complex and polarizing, the reality for corporate directors is simple and subtle: directors’ legal duties run to shareholders, but directors may promote the interests of others when those are rationally related to shareholder interests. If prevailing debate sometimes suggests a stark choice between shareholders and other stakeholders, the reality is that their interests are more aligned than it may seem and directors continue to operate accordingly.

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