Pragmatic Approaches to Corporate Stakeholder Protection:Reiterating Shareholder Primacy
The Chinese Company Law,as revised in 2023,explicitly mandates that companies should adequately consider the interests of various stakeholders including employees,consumers and the environment in their operation,yet the relationship between the consideration of stakeholder interests and the entrenched principle of shareholder primacy remains ill-defined.Advocates for a stakeholder-oriented governance framework argue for a departure from the tradi-tional maxim of shareholder value maximization in favor of a mandate requiring directors to bal-ance the interests of all stakeholders.However,empirical observations from various jurisdictions that have adopted distinct approaches to the stakeholder-oriented governance model within their corporate laws-including multiple U.S.states,India,and Germany-highlight the practical challenges and limitations of implementing such models.In particular,if this model is adopted by merely modifying the standards of conduct of directors absent distinct socio-economic and his-torical contexts,the stakeholder orientation will yield minimal real effect in stakeholder protec-tion,reducing the adoption of this model to a mere public-relation activity;if such orientation is enforced by hard rules,such as the mandatory social responsibility expenditure obligation in In-dian law,there is a substantial risk of disproportionately undermining shareholder interests and destabilizing the capital market.Given these insights,Chinese lawmakers should not rely on forcibly reshaping corporate purpose or directors'fiduciary duty to bolster stakeholder protec-tions.Rather,within the realm of corporate law,it should move from the illusory imagination of stakeholder orientation towards a more pragmatic approach based on the fundamental principles of maximizing shareholder value and autonomy of will in the protection of stakeholders.For con-ventional profit-driven companies dominated by traditional investors,improving mandatory dis-closure requirements of economically material ESG information can help align stakeholder inter-ests with the goal of maximizing long-term shareholder returns,while the efficiency of a uniform and standardized mandatory disclosure regime of ESG information still lacks empirical support.Conversely,the legal framework should accommodate the innovation of public benefit corpora-tions,enabling ESG-oriented investors to override traditional assumptions of wealth maximiza-tion through private ordering.This corporate form,which has been introduced in several U.S.states as well as Italy and France,permits investors to craft a corporate purpose in the articles of association that seeks a harmonious balance between long-term investment returns and sustain-able social benefits.The conventional wisdom of shareholder value maximization still holds true in the context of public benefit corporations but is reinterpreted to encompass the pursuit of ESG goals,aligning them with broader shareholder interests and values.
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