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    Unlike shareholder value maximization (SV), which merely calls on corporate leaders to maximize shareholder value, enlightened shareholder value (ESV) combines this prescription with guidance to consider stakeholder interests in the pursuit of long-term shareholder value maximization. ESV is being increasingly embraced by many actors: it was adopted by the U.K. Companies Act, is being considered for inclusion in the Restatement of Corporate Governance Law, and is broadly supported by both corporate leaders and institutional investors. This article examines whether replacing SV with ESV can be expected to benefit stakeholders or society. We begin by arguing that the appeal of ESV and the enthusiasm for it among supporters is grounded in a misperception about how frequent "win-win situations" are. In reality, corporate leaders often face significant trade-offs between shareholder and stakeholder interests, and such situations are exactly those for which the specification of corporate purpose is important. Furthermore, we explain that, under certain standard assumptions, SV and ESV are always operationally equivalent and prescribe exactly the same corporate choices. We then relax these assumptions and consider arguments that using ESV is beneficial in order to (i) counter the tendency of corporate leaders to be excessively focused on short-term effects, (ii) educate corporate leaders to give appropriate weight to stakeholder effects, (iii) provide cover to corporate leaders who wish to serve stakeholders, and/or (iv) protect capitalism from a backlash and deflect pressures to adopt stakeholder-protecting regulation. We show that each of these arguments is flawed. We conclude that, at best, replacing SV with ESV would create neither value nor harm. However, to the extent that ESV would give the false impression that corporate leaders can be relied on to protect stakeholders, the switch from SV to ESV would be detrimental for stakeholders and could impede or delay reforms that could truly protect them. This paper is part of a larger research project of the Harvard Law School Corporate Governance on stakeholder capitalism and stakeholderism. Other parts of this research project include The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita, Will Corporations Deliver Value to All Stakeholders? by by Lucian A. Bebchuk and Roberto Tallarita, For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita, Stakeholder Capitalism in the Time of COVID by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita, and The Perils and Questionable Promise of ESG-Based Compensation by Lucian A. Bebchuk and Roberto Tallarita.

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    Corporate purpose is now the focus of a fundamental and heated debate, with rapidly growing support for the proposition that corporations should move from shareholder value maximization to “stakeholder governance” and “stakeholder capitalism.” This Article critically examines the increasingly influential “stakeholderism” view, according to which corporate leaders should give weight not only to the interests of shareholders but also to those of all other corporate constituencies (including employees, customers, suppliers, and the environment). We conduct a conceptual, economic, and empirical analysis of stakeholderism and its expected consequences. We conclude that this view should be rejected, including by those who care deeply about the welfare of stakeholders. Stakeholderism, we demonstrate, would not benefit stakeholders as its supporters claim. To examine the expected consequences of stakeholderism, we analyze the incentives of corporate leaders, empirically investigate whether they have in the past used their discretion to protect stakeholders, and examine whether recent commitments to adopt stakeholderism can be expected to bring about a meaningful change. Our analysis concludes that acceptance of stakeholderism should not be expected to make stakeholders better off. Furthermore, we show that embracing stakeholderism could well impose substantial costs on shareholders, stakeholders, and society at large. Stakeholderism would increase the insulation of corporate leaders from shareholders, reduce their accountability, and hurt economic performance. In addition, by raising illusory hopes that corporate leaders would on their own provide substantial protection to stakeholders, stakeholderism would impede or delay reforms that could bring meaningful protection to stakeholders. Stakeholderism would therefore be contrary to the interests of the stakeholders it purports to serve and should be opposed by those who take stakeholder interests seriously.