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Controversies over the right way to handle shareholder and stakeholder relations have never been deeper despite decades of debate. These controversies are not limited to the halls of academia. CEOs of leading U.S. companies flex their corporate muscles for social causes such as gay and transgender rights notwithstanding a clear legal injunction, at least in Delaware, to focus on promoting shareholder welfare.

In this study, we set out to examine the hotly-debated issue of the relative importance of legal versus cultural institutions and of personal values for strategy formation and corporate governance. We hypothesize and show that a director’s strategic choice is anchored firstly in her personal values; it may be affected by her cultural heritage; and it could also be sensitive to applicable law. The more compatible her values and social institutional background are with an entrepreneurial conception of equity investment, the more likely she is to side with shareholders.

We first show that directors hold a principled, ideology-like stance towards shareholders and stakeholders, called shareholderism, that associates positively with a personal value profile expressing self-enhancement and entrepreneurship (power, achievement, self-direction) and negatively with universalism. At the institutional level, we find that a common law legal origin is unrelated to shareholderism. Among particular legal regulations, creditor protection correlates negatively with directors’ shareholderism, as one would expect, whereas legal shareholder- and employee protection are unrelated to it. We observe negative links between shareholderism and cultural embeddedness, harmony, and (more weakly) with egalitarianism. These cultural orientations discourage exploitation and dynamic development, promote self-restraint, and endorse a view of all persons as moral equals, respectively. The general social structure in cultures that de-emphasize these orientations thus may be more conducive to shareholderist strategic choices.

For law- and policy-makers, the finding that directors’ values and culture exert such a profound effect on their likely strategic decisions warrants humility in designing corporate governance reform programs through legal amendments. Any attempt to significantly change the corporate governance system of a country or a firm must take into account the informal nine tenths of the institutional iceberg.

For firms, this study underscores the complexity of the mechanisms involved in strategic management of shareholders and other stakeholders. More than anything, this points to the utmost importance of the personal makeup of boards of directors. Who sits on the board (or in the corner office) matters at least as much as the formal rules she is expected to follow and the price signals she receives from the market.

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