The Corporate Objective – By Andrew Keay

• Published date: 01 September 2012
• Author: Taekjin Shin
• Date: 01 September 2012
• DOI: http://doi.org/10.1111/j.1467-8683.2011.00904.x

Book Review

Andrew Keay, The Corporate Objective, Edward Elgar Publishing, Northampton, MA, 2011, 360

pp, ISBN 978-1-84844-771-4

What should be the fundamental objective of publicly

traded corporations? Perhaps we are living in a his-

torical moment when this perennial question has become

more important than ever. In this era of economic recession

and sustained unemployment,the role of corporations in the

economy and society is at the center of debate among schol-

ars, policymakers, and the public. In his new book The Cor-

porate Objective, Professor Andrew Keay investigates this

timely topic with utmost scholarly rigor. As he acknowl-

edges, this is neither the f‌irst nor is it likely to be the last

book written on this topic. The unique contribution of the

book is the new theory Professor Keay proposes: the entity

maximization and sustainability model (EMS). Keay pro-

vides great detail about the new theory and presents well-

organized evidence in support of its value and feasibility.

The discussions in the book are based on a diverse set of

national systems around the world, but most heavily focus

on the UK, US, and Australian settings. The book presents

detailed discussions about theory and (legal) practice, but

has relatively little empirical evidence from scholarly

research in f‌ields other than law (e.g., management).

In the f‌irst half of the book (Chapters 1 to 3), Professor

Keay sets up the context and reviews the existing debate.

The f‌irst chapter provides information on the institutional

context and theoretical background. In the next two chap-

ters, Keay reviews and contrasts two existing models of

corporate objectives: the shareholder primacy model and the

stakeholder model. This is perhaps one of the most compre-

hensive and complete reviews ever written on this topic.

Keay carefully dissects each model’s theoretical assump-

tions, philosophical foundations, pragmatic assertions, and

empirical evidence. He does an excellent job performing a

balanced evaluation, discussing both the strengths and

weaknesses of each model. The shareholder primacy model

views the objective of corporations to be the maximization of

shareholder wealth. Keay summarizes the critiques against

this model based on the argument that it does not provide

concrete guidelines about how the company should be

managed, is narrowly focused on shareholder wealth and

economic eff‌iciency,and ignores values other than eff‌iciency,

such as fairness, equality, and justice. Keay presents equally

critical points against the stakeholder model, which argues

that the corporate objective should be creating value for all

stakeholders, including employees, customers, suppliers,

creditors, communities, and shareholders. The major weak-

nesses of the stakeholder model include a lack of clarity

about who constitutes stakeholders, the nearly impossible

task of balancing conf‌licting interests among stakeholders,

and diff‌iculties in implementing and enforcing the model in

the real world.

In the second half of the book, Professor Keay proposes an

alternative framework, which he calls the entity maximiza-

tion and sustainability model (EMS). The EMS model has

three elements. First, the model views the corporation as a

real entity. This concept about the nature of the f‌irm is

sharply different from both the view that sees corporations

as a legal f‌iction or a nexus of contracts and the view that

considers the f‌irm as a simple aggregation of individuals. As

an entity, the corporation has its own identity and interests

that are distinct from those of its managers or shareholders.

Second, the objective of the corporation is to maximize the

wealth of the corporation as an entity and to sustain the

company as a going concern. This is the core element of

EMS, and is valid only under the aforementioned premise

that the corporation is an entity. Third, pursuing the afore-

mentioned objective (i.e., maximizing the value and sustain-

ability of the entity) may not necessarily maximize the

interests of, nor even benef‌it, those who have an interest in

the company, who Keay refers to as “investors” but are really

quite synonymous with stakeholders in at least some ver-

sions of stakeholder theory.

Chapter 4 explains the basic elements of the EMS model in

great detail, and Chapter 5 discusses how EMS can be

enforced. Professor Keay argues that among several options

for enforcement, derivative action in the court is the most

appropriate, as long as the lawallows the process to be open

to more than just shareholders. In Chapter 6, Keay discusses

a diverse group of “investors” (or stakeholders) in the EMS

model. While EMS does not aim to maximize the interests of

the investors, unlike in the stakeholder model, Keay argues

that EMS is likely to benef‌it the investors in the long run.

Chapter 7 discusses the roles of the managers and directors

responsible for the implementationof EMS. Keay argues that,

while the existing institutional devices may not be perfect, a

combination of various devices is reasonable for achieving

managerial accountability in the successful implementation

509

Corporate Governance: An International Review, 2012, 20(5): 509–510

© 2012 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2011.00904.x