Shareholder or Stakeholder Model of Corporate Governance: Which One Should Ethiopia Choose?

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In whose interests should a corporation be run? Should corporate governance focus on protecting the interests of only shareholders or should it expand its focus and consider the interests of other stakeholder groups? For decades, debate has been made on this question among scholars of corporate governance. Corporate governance literature commonly divides the world into two spheres: the Anglo-American “outsider” system and the continental Europe or German-Japanese “insider” system, each with a characteristic set of structural elements, ownership patterns, and strengths and weaknesses. The traditional “Shareholder Model”, which predominantly exists in Anglo-America countries, argues that a firm should primarily focus on shareholders’ wealth maximization. On the other side, the “Stakeholder Model”, which exists in German, Japan and other Continental Europe, contends that a firm has other purpose in a society than maximization of shareholders wealth so that it should focus not only on the interests of shareholders but also on employees, customers, suppliers, local communities and other stakeholders. The purpose of this research paper is to introduce each model and the theoretical debate that exists between them with a final recommendation of the appropriate model for Ethiopia. It tries to evaluate both models generally and in light of Ethiopia’s corporate governance environment. The paper recommends that Ethiopia should follow an eclectic approach in choosing between the two models which can be represented by the “Enlightened Shareholder Value” approach.



Corporate Governance,Corporate Governance