Corporate governance may be on the verge of entering a new stage. After the managerialism that dominated the view of the corporation into the 1970s and the shareholderism that supplanted it, we may be witnessing the emergence of a new paradigm: corporate governance welfarism.
Welfarism departs from shareholderism in embracing goals that are much broader than shareholder value as a means to promote overall welfare. It departs from managerialism in looking beyond the single firm and in relying on shareholder and stakeholder pressure rather than on managerial discretion to balance the interests of shareholders in firm value maximization and broader objectives.
Indicators that welfarism is on the rise include the growing power of highly diversified institutional owners with a multi-firm focus; the increased importance shareholders accord to non-economic interests; the embrace of stakeholderism by top executives, major shareholders, and important politicians at least at the rhetorical level; and the rise of disclosure regulations that serve social goals in addition to investor protection. While there are barriers to the rise of welfarism, there are good reasons to believe that these trends will take hold, grow, and, over time, generate a welfarist turn in corporate governance.
Will such a welfarist turn deliver on the promise of enhancing overall welfare by inducing corporations to take the lead when our elected representatives fail? We have too much faith in the power of capital markets to predict that welfarism will succeed economically. But we are more optimistic than those who would argue that welfarism is a dangerous placebo that diverts energy from pursuing more effective political change. Rather, we see the promise of welfarism as playing out in the political realm by potentially changing the political economy of social regulation and thereby facilitating needed regulatory change. While welfarism looks to the corporate sector to substitute for the regulation of externalities blocked by political dysfunction, it may ultimately have a greater impact on improving our politics than on changing private enterprise.