'Shareholders and the Pursuit of Happiness: A Unifying Understanding of the Corporation'

In this article, the authors contend that the interests of shareholders must be the paramount concern of the corporation, an implication arising from the status of shareholders as being the 'owners' of the corporation — the corporation being a legal entity comprised of shares for which shareholders have a proprietary interest in. According to the authors however, giving primacy to the interests of shareholders in the context of corporate law and governance does not necessarily involve undermining or ignoring the interests of other stakeholders such as creditors, employees and other participants in society. Nor does it mean that the corporation is simply a legal construct devoid of any social role or influence. Rather, due to the enormous amount of economic activity for which corporations are responsible and the vast number of people employed by, or dependent on the financial success of corporations, the corporation must inevitably be seen as a social institution. Further, as the authors will argue, if we go back to basics and recognise that shareholders are individuals, and each and every aspect of individual activity- including the purchase and disposal of shares- is guided by the pursuit of personal happiness (either explicitly or implicitly), then corporations can give primacy to the interests of shareholders, and still act in the best interests of other stakeholders (such as employees, creditors and the community in general). Recent empirical studies show that there is (at best) a weak correlation between personal happiness and levels of material wealth. Corporations can still give primacy to the interests of shareholders whilst not having to explicitly set out to maximise profits. Once we appreciate the simple yet undisputable point that the corporation is just another form of human activity carried out to assist in the fulfilment of personal happiness, complex theories of the firm and books and articles pondering over how companies can manage shareholder interests can be assigned to the dustbin of legal history