Question

to whom do corporationsbowe allegiance? stocjhokders , stake holders or the public provide detailed reaction

Answer 1

Most of the groups and individuals affected by the behavior of
American public corporations do not have a voice in their governance. Just
as governments retreat from regulating these entities, whether by political choice or as a result of globalization and regulatory arbitrage,1stakeholders' 2 ability to shape corporate behavior themselves remains weak. Government empowers only one corporate stakeholder group-employees-to bargain with corporations for terms in their own interest.

Unions represent a mere fourteen percent of American workers -and a paltry eight percent of private sector employees.4 Meanwhile, the law
affords but one group of corporate stakeholders, e.g., shareholders, any rights in a corporation's internal governance.5 Those rights, in turn, remain
limited.6 In fact, the force most influential on corporate decision-making is
arguably the so-called market for corporate control, whereby directors will
endeavor to keep stock prices inflated to avoid takeover bids and keep their
jobs (and perhaps to take the best advantage of their stock options).
As a consequence of this corporate law regime, a board of directors is often beholden to short-term stock prices, usually at the expense of other stakeholder interests. Thus, the corporation exists as an amalgamation of
private interests controlled almost exclusively by a board of directors, wielding the wealth and power of a multinational, yet nevertheless enjoying
the rights and liberties afforded individual citizens.' Faced with the waning power of sovereign governments and deregulation, stakeholders are left
with relatively few defenses against abuses of corporate power.8
In contrast, the governance of public corporations in continental european countries forces those corporations to embrace more obligations
to their stakeholders.' For example, in Germany, not only must public corporations support social safety net programs, they must also incorporate
worker viewpoints into their decision-making. Half of their supervisory boards must seat worker representatives, and unions are powerful and institutionalized.'0 Company shares are held en masse by long-term
captured investors: banks, other companies, and wealthy families." As a result, German public companies orient themselves more towards long-
term strategies that are better suited to serve all their stakeholders, including their employees and the surrounding economy. In comparison to
their American counterparts, they are viewed as public and political entities serving larger social interests.
Given the lessening role of the state in protecting stakeholders, many progressive advocates seek to incorporate stakeholder protections into the American corporate governance regime.' 2 These advocates often look to
the German example for reforms. Yet, the wholesale adoption of the german form of corporate governance in America is unrealistic. For reasons explained later in this paper, Germany's corporate governance model is a product of its unique political and economic history. It is also anathema to popular academic, political, and economic thinking in america." Moreover, Germany itself faces pressures to harmonize its corporate governance laws with those found in Anglo-American regimes, both to accommodate its membership in the European Union and to attract foreign minority investors.
A study of stakeholder-oriented corporate governance systems, like that of Germany, may nevertheless prove useful. It suggests another kind of corporate governance model, one that integrates stakeholders in
corporate decision-making while accommodating the shareholder-centric model of the United States, namely, one that empowers corporate stakeholders through their role as corporate stockholders. Stockholders,
already enjoying a foothold in American corporate governance, have the best chance of any corporate stakeholder to influence corporate policy.
Indeed, the increasing prevalence of "activist" union pension fund investors in Britain and, to a lesser extent, the United States, illustrates the growing realization that public corporations need not only serve the bottom lines of their short-term investors. Unable to influence corporate behavior directly, workers and other stakeholders can, and increasingly do, attempt to change corporate policy by throwing their weight around corporate boardrooms, the halls of Congress, 14 and during bureaucratic rulemaking."
This paper will set forth an argument as to why the empowerment of stakeholder investors presents the only currently viable means for stakeholders to influence the behavior of the American public corporation.
It will accomplish its purpose by first exploring the history of the corporation in America and the theories of the firm that describe the laws and policies that govern them. Through this analysis, it will become clear that, of the various interests that have power over corporate decision- making, shareholders can best accommodate stakeholder interests. The paper will then describe the history and policies underlying corporate governance in Germany. The purpose here is to illustrate how stakeholder interests can be represented in corporate management and decision-making.
Next, this paper will analyze corporate governance in the United Kingdom, a regime that is similar to that found in the U.S., but, for reasons that will be explained, is much more favorable to shareholders and therefore to activist stakeholder-shareholders. This analysis will reveal that the empowerment of stakeholder-shareholders can reform corporate governance in the United States. The paper will conclude with an inventory of the current status of stakeholder-shareholder involvement in the governance of public corporations while suggesting some reforms.