Corporate governance and American competitiveness.

• Position: Excerpt from The Business Roundtable's 1990 position paper

Here is an excerpt from The Business Roundtable's 1990 position paper. The competitiveness of the American corporation was a major issue of the day. The BRT emphasized that if U.S. companies were to prosper in global competition, the governance structure must encourage innovation and risk-taking. The shareholder versus stakeholder issue also came up for examination.

Shareholders and Stakeholders

Corporations are chartered to serve both their shareholders and society as a whole. The interests of the shareholders are primarily measured in terms of economic return over time. The interests of others in society (other stakeholders) are defined by their relationship to the corporation.

The other stakeholders in the corporation are its employees, customers, suppliers, creditors, the communities where the corporation does business, and society as a whole. The duties and responsibilities of the corporation to the stakeholders are expressed in various laws, regulations, contracts, and custom and practice.

The central corporate governance point to be made about a corporation's stakeholders beyond the shareholder is that they are vital to the long-term successful economic performance of the corporation. Some argue that only the interests of the shareholders should be considered by directors. The thrust of history and law strongly supports the broader view of the directors' responsibility to carefully weigh the interests of all stakeholders as part of their responsibility to the corporation or to the long-term interests of its shareholders.

Resolving the potentially differing interests of various stakeholders and the best long-term interest of the corporation and its shareholders involves compromises and tradeoffs which often must be made rapidly. It is important that all stakeholder interests be considered, but impossible to assure that all will be satisfied because competing claims may be mutually exclusive.

A classic example of varying interests of constituencies arises when management must consider whether to establish, expand, or dose a plant. For shareholders, customers, and society at large, closing a plant could bring positive results by paving the way for production of better products more economically in a new plant at a new location. It may be only in that way that the...