Question

Discuss the pros and cons of the shareholder-primacy and director-primacy models of corporate governance.

Answer 1

Both shareholder primacy and director primacy models are effective ways to describe the basic features of corporate governance. Corporate governance depicts a set of rules and policies which are developed to control corporate organizations. Shareholder primacy is a set of rules and concepts. On the contrary, the director primacy model is a corporate board, centric model.  

Shareholder primacy

Pros of shareholder primacy are as follows:

• It sets corporate laws and regulations in the organization

• It evaluates profit margins of shareholders and aims to maximize profit

• It is an applied approach to create issue resolution

• All the corporate rules and standards accurately qualify one another

• It is an organizational law that correctly mentions fiduciary duty.

Cons of shareholder primacy are as follows:

• Shareholder primacy does not have any legal status from the organization

• It is a legal obligation or set of rules instead of ideal corporate laws

• It cannot develop any steady regulations for multiple stakeholders of an organization

Directory primacy

Pros of director primacy are as follows:

• Rules of directors primacy secure shareholders wealth

• It helps to maximize shareholder returns

• It eases decision-making capability

• It has the power to review corporate culture

Cons of director primacy are mentioned below:

• It cannot expand the role of shareholders

• It does not have mu h real-world relevance

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