auditors within its list of guidelines to reform US corporations. In a note dedicated to the
use of shareholder resolutions by NGOs as a tool of pressure on corporations, Friends of
the Earth reports that “socially-oriented shareholders often link social issues to corporate
governance issues.” The Rose Foundation for the Communities and the Environment has
recently used its shareholdings in corporations to pressure in favor of social responsibility,
but also for more independent boards. 5
General contempt for corporate malpractices.
Recent corporate scandals have raised awareness among all constituencies that ill-managed
corporations harm both their shareholders and other stakeholders at large. It is widely be-
lieved that Enron CEOs’ did not only breach their fiduciary duty towards shareholders by
misreporting earnings; they also deceived communities and workers by manipulating energy
prices in California and getting rid of their shares right before the company collapsed. These
considerations suggest that shareholders’ and stakeholders’ interests may be more congruent
than received wisdom holds, to the extent that both have a common interest in favoring
better management of corporations.
The paper contributes to the current debate on the stakeholder society (see Hellwig,
2000 and Tirole, 2001), trying to assess who has an interest in endorsing a stakeholder
society concept, whereby managers are intended to have a multiple mission of aiming at
both shareholder value and stakeholder welfare. We wonder whether both stakeholders
and shareholders may not be better off when managers are bound to maximize shareholder
value, while clear covenants restricting the firms’ set of actions are established either by firm
charters or by the law to rule out actions that may impose large negative externalities on
stakeholders. Tirole (2001) argues that putting in place managerial incentives and control
structures that implement the stakeholder society concept may be very costly. Our paper
shows that the decision not to institutionalize stakeholder protection may prove even costlier,
leaving managers with the monopoly of relationships with stakeholders. In other words, the
lack of rules on corporate behavior is not always a synonymous for firm profitability and
shareholder value; often, it is only an excuse for managerial discretion.
Our work is related to Pagano and Volpin (2002a), who analyze the behavior of incum-
bent managers and workers in a firm faced with a hostile takeover threat, and argue that
incumbents are “natural allies” of workers: the former have an interest in offering long-term
contracts to workers so as to discourage the takeover, while the latter are likely to support
a lazy manager prone to low monitoring against a more efficient raider. In their paper,
5See respectively http://www.business-ethics.com, http://www.foe.org, http://www.rosefdn.org