The Common Good of Shareholders: a Normative Examination of the Diversity Among Shareholders

Most of the scholarship on corporate governance treats shareholders as a unified block. However, shareholders have different and often conflicting interests: some only care about financial returns, others want their companies to serve society; some are diversified, others undiversified; some invest for the short term, others for the long term. The few scholars who have problematized this diversity of interests have typically proposed that managers should balance and mediate among these diverse interests, taking into account the proportion of shares that they own. A normative examination of the issue, however, reveals that this approach is sometimes misguided because not all the interests of shareholders should be promoted. For starters, managers should only serve the preference of shareholders that pass ethical muster. In addition, managers should only pursue policies that promote the common good of shareholders and should, therefore, only pay attention to differences among shareholders when such differences are relevant to the joint project in which they have invested. It follows from this that managers should not serve the interest of diversified shareholders and should not respond to the demands of majority, controlling, or insider shareholders when these demands promote their private interests. Finally, managers should only serve shareholders who buy shares with a view to the company’s long-term success. I conclude the paper by showing that different normative theories of corporate governance have substantially different implications concerning the kinds of shareholders that managers should serve and laying out the difficulties of applying the normative conclusions described in this paper.