Corporate governance is on the verge of entering a new stage. Until the 1970s, managerialism dominated the view of the corporation. Managerialism focuses attention on making individual firms thrive, with managers holding the power to choose both strategy and tactics as well as the discretion to balance the interests of shareholders and other stakeholders.   In the 1980s, shareholderism started to supplant managerialism. For shareholderists, the value of a firm to shareholders takes the center stage. With a simpler metric and concern that managers will pursue their self-interest, shareholderism grants far less deference to managers on questions of strategy and tactics, and even less on balancing the interests of shareholders and stakeholders.  The emerging ideology—an ideology we tentatively dub corporate governance “welfarism”—focuses on corporate governance as a means of promoting activities that generate positive externalities and controlling those that generate negative ones.

Corporate governance welfarism comes in three strands: portfolio welfarism, shareholder welfarism, and direct social welfarism. Portfolio welfarism starts from the observation that shareholders’ economic interest lies in maximizing portfolio value not firm value. For diversified shareholders, the value maximizing strategy is often to push companies to refrain from activities that generate negative intra-portfolio externalities even if those activities would raise firm value. Shareholder welfarism resembles portfolio welfarism in that both, while accepting the primacy of shareholder interests, give weight to shareholder interests other than firm value.  While portfolio welfarism goes beyond firm value by taking into account shareholders’ portfolio financial interests, shareholder welfarism goes beyond firm value by also including shareholders’ non‐financial interests, which are viewed as more reflective of social interests than shareholders’ financial interests. Direct social welfarism departs from shareholderism in prioritizing general social welfare over shareholders’ interests.  Unlike managerialism, however, direct social welfarism accords little deference to management and effectively extends the concept of stakeholders from anyone who has dealings with the corporation to anyone who is either alive or yet to be born.

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