Do shareholders by being residual claimants facilitate stakeholder value?

Abstract

The thesis is built upon the ever-going debate of finding the true purpose of companies in our modern-day world, an equitable form of corporate governance and balancing the interests between various stakeholders. The study goes through the understanding of residual claimant position of shareholders, new paradigm shift regarding the corporate governance and the real risk positioning of each stakeholder. It shows that shareholders are not capable of promoting stakeholder value despite their residual claim, which is inferior to contractual claim. Every person who can be affected by the well-being of a company is under potential risk of finding himself in the position of a residual claimant. This is especially explicit with the case of employees and creditors, owing to ESOPs, incomplete contracts, firm-specific investments, the impossibility of portfolio hedging and the risk of fraudulent conveyance. The same is true for other stakeholders like suppliers, tort claimants, governments, and so forth. The research concludes with the necessity of legislative and educative measures. On the one hand, CEOs and other members of corporate governance have to change the long-standing view of shareholder primacy and be inclined to create shared value. At the same time, introducing the necessity of considering the interests of all stakeholders in the legislation, as in the case of the UK, would significantly contribute to achieving a better form of corporate governance.