Modern U.S. corporate law has compelled corporate directors to make decisions that maximize share value regardless of the effect they have on the firm’s other stakeholders, like employees, creditors, and suppliers.
While shareholder primacy is the norm in the United States, there are competing theories, mainly the stakeholder model, that have cognizable influence not only in the United States but also in foreign states.
Both theories have their drawbacks, but the “short-termism” associated with shareholder primacy can damage a firm’s health. Directors make decisions that benefit the firm in the short term but often wipe out long-term value.
This Note proposes a novel solution to this problem that looks to minimally disrupt current practices while also exacting considerable changes to the decision-making process for directors: promulgating a federal rule through the Securities and Exchange Commission to create an “observing board,” which will represent specific stakeholder groups.