1. The primary aim: Criticism of the standard view Make you acquainted to the criticism of the shareholder value model in corporate governance Prepare you to alternative views of corporate control discussed in the fourth section.

2. Shareholder value model (stand. appr.) founded on incompleteness of contracts A firm or an organization is regarded as a nexus of contracts Difficult to set up contracts that determine exactly how resources owned by a contractor shall be controlled Power: Control over valuable resources over and above that determined through explicit contracts in a competitive market Power or residual control rights (rights to make decisions in circumstances not fully foreseen by the contract) should be allocated to the owners (shareholder).

3. The Shareholder value model…….. While the shareholders bear the risk, they should be the residual claimants The companies should be run in their interests and the rights to control management should be in their hands.

4. Berle and Mean (1932) about shareholder control: Legal order affirms shareholder sovereignty This order a relict from the classical firm Courts by nature unable to handle management problems The role of the board: ‘diciplinary’ tool (the shareholder value model) or strategic body helping management in its choices? Employees take risks: growing liquidity of stock markets implies that shareholder risk is at a lower level

5. Alternatives to shareholder control? B&M: the right to control a company is given to those, who are affected by the operation of the company (“stakeholder control”) Ownership is depersonalized and the corporation is transformed into an institution similar to the state. Power is given to professional management Power is given to ”third party” (the board of directors)

6. Criticisms of the shareholder value perspective Legal systems unable to handle management problems: shareholders should accept the loss of control in exchange for greater liquidity Concerns about efficient and competitive business enterprise Interests of non-investing parties should be better represented The nature of the firm has changed

7. Internal risk to the workforce In the new enterprise residual decision rights should be given to employees who personify the human capital

8. Tirole´s Stakeholder model: Contractual perspective on firms Incentive systems to discipline managements Implicit incentives: economic agents’ desires to signal characteristics to his or her labour market (all those people, who take actions that impact on the agent’s benefits) Shared or undivided control?

9. High costs of collective decision-making: Undivided control in combination with contractual protections for the non-controlling parties: Limitations on actions that are expected to create strong externalities for other stakeholders. Exit options (workers, who become unemployed when a company closes down, have right to general training, retirement etc.)