The right to decide: A decision‐based perspective on corporate stakeholder governance

Research Summary Complications arise when stakeholders with heterogeneous and potentially misaligned preferences are considered in corporate decisions. This paper examines how high‐level decision‐making corporate forums, such as boards, can address such heterogeneous claims. We identify three corporate stakeholder governance types depending on the externalities that they generate (which can consider the contributing stakeholders or encompass a broader set of stakeholders affected by the company's operations) and, based on three critical governance attributes (allocation of control rights, corporate objectives, and deliberation mechanisms), identify governance structures that generate benefits to the targeted stakeholders (based on the generated externalities) at a lower governance cost. We also propose that structures managing broad externalities facilitate problem formulation (besides solving) and more effectively deal with contexts involving ill‐defined problems. Managerial Summary In the corporate governance of for‐profit firms, there have been calls to consider the demands of multiple stakeholders and even engage them in the decision‐making process. However, dealing with multiple stakeholders is costly; their perspectives often differ markedly, creating conflict and risking impasse. Focusing on three critical attributes of boards (decision rights, corporate objective, and decision‐making mechanisms), we identify three main types of stakeholder‐oriented corporate governance structures that increasingly broaden the set of stakeholders considered while keeping decision‐making costs manageable. We argue that structures accommodating broader stakeholder interests, although costly, are relatively more effective when board members face problems that are difficult to characterize and that may require different opinions and perspectives.