Why we need a theory of stakeholder governance - and why this is a hard problem

Corporate governance is an important topic for both scholars and practicing managers. To date, most work on this subject has focused on how to resolve potential conflicts of interest between a firm’s senior managers and its shareholders in how firms create and distribute economic value. Work on using governance to resolve possible conflicts between senior managers and shareholders has largely developed separately from governance questions focused on the broader relationships between a firm and its multiple stakeholders.This is ironic since some of the earliest work on agency theory conceptualized a firm as “a nexus for a set of contracting relationships among individuals” (Jensen & Meckling, 1976: 310). These individuals, including “individuals” as legal fictions, can be viewed as a firm ’s stakeholders. However, instead of examining how governance could enable a firm to work with all of its stakeholders in creating and distributing economic value, agency theorists have mostly focused on governing the relationship between managers and only a single stakeholder: shareholders. An idea whose time has come is that of considering more directly the governance of relations between a firm and its multiple stakeholders and not just with its shareholders.