182 Reconsidering shareholder dominance.

In my view, a first key question that is left open by the partnership perspective is whether investors of financial capital should be considered as the only authoritative partners of the corporation. In principle, the partnership perspective does not imply that corporate governance should be oriented towards shareholders only, since all strategic stakeholders could be considered as partners of the corporation.1 Governance rights could therefore be allocated to any of those strategic stakeholders, not just to investors of financial capital. The allocation of governance rights only to investors of financial capital therefore requires further argumentation.

The contemporary argument offered by agency theorists is that investors of financial capital are able to govern the corporation at the lowest cost compared to other stakeholders, due to their ability to diversify residual risks and to lower agency costs by pursuing the single homogenous objective of profit maximization.2 Since investors of financial capital only receive the residual profit after all other financial claims have been fulfilled, all stakeholders are expected to benefit from allocating governance rights to investors of financial capital. At the outset, this is a weighty argument as is evidenced by the unprecedented economic growth in the past decades.3 However, recent developments suggest that the market mechanism may not be able to deliver on the promise of this argument, as the price mechanism of the market proves difficult to be fully inclusive of all social and ecological interests involved.4 The costs burdened by social and ecological stakeholders of the corporation may not be sufficiently included in the governance by investors of financial capital in a market environment.5 This challenges the argument that governance by investors of financial capital would benefit all stakeholders and reopens the question of which other partners should receive the governance rights of the corporation.

In my view, the basic assumptions of the partnership perspective allow for a more nuanced approach in which other arguments are provided for allocating governance rights to other partners of the corporation.6 For example, the difficulty in evaluating and defining the social and ecological costs involved in the corporation may allow for social and ecological stakeholders to be preferred holders of governance rights due to the open-endedness of their stake in the corporation.7 Another argument may be based on the shifting scarcity of resources on which the corporation depends.8 Historically, financial resources used to be the main bottleneck for corporate growth, yielding greater power to providers of financial capital compared to other resource providers. However, the current shift in scarcity towards social and ecological resources may provide an argument for social and ecological stakeholders to receive more power in the governance of the corporation.

My intention is not to say that these arguments should be unequivocally adopted, as they do create new problems particularly in relation to the identification and representation of relevant social and ecological interests. However, I do argue that the narrowing down of the contemporary partnership perspective to the shareholder-oriented approach by which it has become defined merits reconsideration. The historic partnership perspective expresses a fundamental fact about the nature of corporations as cooperative vehicles between free individual partners negotiating the reciprocal terms of their engagement (quid pro quo). As suggested by De Jongh, the partnership constitutes the archetype of diversity, of the individual who cooperates for explicit self-interest, of acknowledging conflicting interests through the protection of the individual partner, and of the transient nature of cooperation based on a contract.9

The contractual nature of this cooperation invites principles of contract law into corporate governance, particularly the requirement of voluntary consensual agreement (wilsovereenstemming) based on a transparent sharing of information (informatieplicht) and the notion that no contractual partner may be burdened with costs to which it has not agreed (schadevergoedingsplicht).10 In my view, unnecessarily narrowing down this fundamental approach to mere shareholder-oriented corporate governance risks losing the opportunity to integrate the powerful notion of contract in the reform towards more social and ecological corporate governance. Simply put, sticking to shareholder dominance may risk throwing out the baby with the bathwater in an attempt to reform corporate governance. Instead, the notions of contract offered by the partnership perspective remain valuable for such reform, particularly to maintain the values of individual liberty and the freedom of contract. In response to this, I argued to alter the label of shareholder-oriented corporate governance to efficiency-oriented corporate governance. This label would capture the need for corporations to efficiently create value for all of the partners involved, including social and ecological stakeholders.11 Meanwhile, the label of efficiency would signal the fundamental nature of corporations as market actors in a competitive market environment, required to achieve sufficient efficiency in order to outcompete their competitors.12 By thus altering the orientation of corporate governance towards efficiency instead of shareholders, the insights offered by the partnership perspective remain relevant for the discussion of corporate legal reform.