Humanizing the Law of Business Corporations for Good Management Practices

Abstract

The human side of business has been a significant point of controversy throughout the history of corporate governance. It is encapsulated in the never-ending debate on whose interests are to be served by managers in the performance of their duties for the corporation. Should the purpose of the corporation be to solely make profit for shareholders, or is a wider scope allowed where profits may be sacrificed in order to serve the needs of non-shareholders? Peter Drucker predicted the problems of management and governance of corporations early on and emphasized the importance of including other stakeholders’ interests in corporations. Drucker carried out the message that business and society should not clash. The current law of business corporations contains various flaws as it focuses almost entirely on the narrow-minded concept of shareholder value maximization thereby undermining the human character of the business profession and corporate law.

1. Law schools – next to business schools – participate in teaching students that shareholder value maximization is the leading paradigm in corporate law 2. The law provides managers with incentives to maximize shareholder value by means of aligning the conflicting interests of managers and shareholders through stock-based executive compensation. 3. According to the law, shareholders are allowed and mostly supposed to look only after their own interests.

The law of business corporations needs to be humanized by ending the currently prevailing doctrine of shareholder value maximization.

Keywords: shareholder value maximization, law, Peter Drucker, management, corporate governance, business corporations

JEL Classification: K20, L21