Who is the corporation really for? For much of the twentieth century, corporate governance was guided by a simple principal: maximise shareholder value, and broader social benefits will follow. But in an era defined by sustainability, ESG expectations, and growing demands for accountability, that assumption is increasingly being questioned.

Corporations shape far more than markets. They influence employment, communities, and the environment in ways that extend well beyond balance sheets. As these impacts become more visible, the question of corporate purpose is no longer theoretical – it is central to how businesses create long-term value and legitimacy in society.

Profs. Tanusree Jain, Copenhagen Business School, and Adrian Zicari, ESSEC Business School, revisit this foundational debate and explore how corporate governance is shifting toward a broader concern with social welfare and stakeholder value.

*The Corporation, Corporate Governance and the Sustainable Transition, Tessa Tilde Barnow, Benjamin Ask Popp-Madsen, and Mathias Hein Jessen, Emerald Publishing 2026. Who Is the Corporation Really For? Rethinking governance in the age of sustainability by CoBS Editor Hari Chandana Chinni.

The Shareholder Bargain and its Limits

For decades, corporate governance was largely built on the foundations of agency theory. This perspective framed the relationship between shareholders and managers as one of potential conflict, where managers were assumed to pursue their own interests unless constrained by strong governance mechanisms. Boards, financial markets, executive compensation and the threat of takeover therefore evolved as tools to ensure that managers acted in the interests of shareholders.

Within this framework, shareholder value maximisation became the central objective of the firm. The underlying assumption was that profits would ultimately benefit society through investment, employment and economic growth. And if corporations created wealth for their investors, the gains would eventually spread across the broader economy.

Jain and Zicari’s chapter included in the book The Corporation, Corporate Governance and the Sustainable Transition (Emerald, 2026) questions how reliably this logic translates into social welfare: decisions that increase shareholder value can simultaneously generate costs for other stakeholders. Factory closures that protect profitability may devastate local communities. Financial market discipline can encourage cost reductions that affect wages and job security. And Environmental damage created by short-term profit seeking may also impose long-term societal costs.

These tensions suggest that a governance system focused exclusively on shareholder value struggles to address the broader responsibilities increasingly expected of corporations.

Rethinking the Corporation through Stakeholders

In response, Profs. Jain and Zicari explore the rise of stakeholder agency theory. This perspective begins from a different understanding of the firm. Corporations are not isolated economic actors, but organisations embedded within networks of relationships involving employees, suppliers, customers, communities and the natural environment.

From this viewpoint, governance is not only about disciplining managers on behalf of shareholders. It is about structuring organisations so they can respond to the interests and expectations of multiple stakeholders.

Stakeholder-oriented governance therefore reframes the objectives of the corporation. Rather than maximising value for a single group, companies increasingly face pressure to balance financial performance with social and environmental responsibilities.

Corporate Governance beyond the Boardroom

Corporate governance operates through both internal and external mechanisms.

Internally, governance structures shape corporate behaviour through board composition, ownership structures and executive incentives. Indeed, research has shown that factors such as board independence, gender diversity, long-term shareholding structures and board-level sustainability committees are associated with stronger social and environmental performance.

Externally, an expanding network of institutional pressures is currently reshaping corporate behaviour. Sustainability reporting requirements, ESG rating agencies, regulatory initiatives and socially responsible investors are all functioning as governance mechanisms in their own right. Together they raise expectations around corporate accountability and increase the reputational and financial costs of irresponsible behaviour.

Corporate governance is therefore evolving from a narrow managerial control system into a broader institutional framework linking corporations to society.

Four Pathways toward Social Welfare

Jain and Zicari identify four ways through which stakeholder-oriented governance can contribute to social welfare.

• CSR as Strategy

The most widely recognised pathway involves integrating CSR (Corporate Social Responsibility) directly into business strategy. In this approach, social and environmental commitments are not treated as philanthropic add-ons but are embedded in the competitive logic of the firm.

Governance structures play an important role in enabling this integration. Board independence, diverse leadership teams and incentives linked to environmental and social performance can encourage managers to consider long-term stakeholder impacts alongside financial outcomes.

When CSR becomes part of corporate strategy, companies may pursue initiatives that strengthen both competitiveness and social outcomes. For example, firms may invest in cleaner production technologies, develop more sustainable supply chains or design products that address social needs while maintaining commercial viability. Governance mechanisms that support longer investment horizons are particularly important in sustaining such strategies.

• CSR as Innovation

A second pathway treats social and environmental challenges as opportunities for innovation. Rather than focusing only on mitigating harm, companies can develop new products, services and technologies that address societal problems directly. Responsible innovation may involve improving resource efficiency, developing greener technologies or designing products that expand access to essential services.

From a governance perspective, this pathway highlights the role of corporate leadership and stakeholder engagement in encouraging experimentation and long-term problem solving. Firms that align innovation efforts with social needs may simultaneously create new markets and strengthen their competitive position. In this way, value creation for the company and value creation for society can become mutually reinforcing.

• ESG Performance

A third pathway operates through external governance pressures, particularly those associated with environmental, social and governance (ESG) performance. ESG frameworks increasingly shape how investors, regulators and other stakeholders evaluate corporate behaviour. Rating agencies, sustainability indices and disclosure requirements provide information that allows stakeholders to assess whether companies are managing environmental and social risks responsibly.

These mechanisms extend governance beyond the boardroom. Indeed, institutional investors, activist shareholders and civil society organisations can use ESG information to influence corporate strategies and demand greater accountability. Although ESG metrics do not guarantee substantive change, they represent a growing set of external governance tools that encourage firms to align their operations with broader societal expectations.

• Revisiting Corporate Purpose

The fourth and most fundamental pathway involves reconsidering the purpose of the corporation itself. In this view, profit is not the ultimate objective of the firm but a means of sustaining its broader mission. Corporate purpose reflects the underlying societal need that the organisation exists to address.

A purpose-oriented corporation therefore seeks to create value for multiple stakeholders rather than focusing exclusively on financial returns. This perspective has gained visibility through initiatives such as the Business Roundtable’s endorsement of stakeholder governance and growing discussions around stakeholder capitalism. When corporate purpose is clearly defined and embedded within governance structures, it can guide strategic decisions, shape organisational culture and connect business activities more closely to societal priorities.

Together, these four pathways illustrate how corporate governance can influence the ways in which firms respond to evolving societal expectations and contribute to broader social welfare.

Corporate Governance and the Implications for the Sustainable Transition

The historical perspective presented in Jain and Zicari’s chapter suggests that corporate governance is already undergoing a gradual transformation. While shareholder value remains influential, governance frameworks are increasingly incorporating stakeholder interests and sustainability concerns.

At the same time, stakeholder governance introduces new challenges. Balancing competing stakeholder interests is complex, and social welfare objectives are often less measurable than financial returns. As a result, governance reforms alone may not fully address these tensions.

Profs. Tanusree Jain and Adrian Zicari therefore highlight the importance of complementary public policies and regulatory frameworks. Together with evolving corporate governance practices, these institutional pressures are likely to play an important role in shaping how corporations contribute to the sustainable transition.

And finally, today’s context is witness to a sizable amount of sustainability backlash. Given this, there is a weakening of institutions and their role in enforcing and regulating sustainability. In such scenarios, the role of corporate governance has become even more important for sustainability. 

Useful links:

• Link up with Profs. Tanusree Jain and Adrian Zicari on LinkedIn
• Read related articles: A Look at the Corporate Governance-CSR Interface and Beyond the Balance Sheet: Accounting for sustainability
• Discover ESSEC Business School France–Singapore–Morocco
• Apply for the ESSEC Global MBA or Executive MBA.

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