In the face of the COVID-19 pandemic, drastic measures have been taken to reduce infection rates and prevent the economic recession from becoming a global depression. Meanwhile, corporations have been confronted with the challenge of designing special business strategies to deal with the pandemic’s economic and social consequences. To produce value in conditions of financial duress, many companies have adopted innovative business models in a bid to revise their supply chain or restructure their business activities and operations. In a recent paper, I explore the implications of these developments for reforming fundamental tenets of corporate governance.

The Business Innovation Responses to Covid-19 Challenges 

Business innovation is essential to recover from the pandemic’s negative outcomes. This has been evident, in part, in public-private collaborations, and in healthcare workers’ efforts to provide services and keep the economy functioning throughout the crisis. Furthermore, public-private partnerships have generally played a key role in the fight against the global pandemic. These include the creation of open data-sharing platforms that provide access to epidemiological, clinical, and genomics data on the spread of the coronavirus among different parts of the population, and public authorities collaborating with private actors to conduct clinical research and clinical trials on COVID-19. One such initiative is the American Healthcare Coalition that assembles resources and expertise from large healthcare organizations, private industries, academic institutions, and startups. By coordinating the use of data and advanced analytics, this partnership seeks to reduce the infection and mortality rates, and to enable hospitals to respond to patient needs efficiently and equitably.

In addition, frontline workers in healthcare, food service, delivery, and public transportation have been recognized as critical actors in delivering healthcare treatment and the resumption of economic activity. The pandemic has revealed that the ability to generate value in times of crisis depends on labor investments in “home and in schools, such as teaching, childcare and elder care.”

Accordingly, the essential contributions of various stakeholders to the creation of value will arguably involve significant modifications to traditional corporate business models. The pandemic has revealed the interdependency between firms and their stakeholders for the former’s ability to function, let alone thrive, in times of crisis. Consequently, companies are required to redefine the agents who are oversee business activities and are formulating fair arrangements for securing value between the corporation as a separate entity and its stakeholders. Thus, to prepare for a post-pandemic world, corporations must adjust their business models by identifying critical stakeholders whose inputs are needed to produce goods and information flows in order to enhance corporate value and performance.

A Post-Pandemic Agenda for Sustainable Corporate Governance Regimes: The Theoretical Framework

Significant changes to business management in the wake of the pandemic will undoubtedly affect the design of corporate governance arrangements that regulate power relations between company insiders and outsiders. Since such fundamental changes potentially pertain to all the firm’s activities, these changes will likely also require a reformulation of our primary (and traditional) understandings of company law and theory. Arguably, these expected changes may produce a significant harmonization between how business activities are perceived from a managerial perspective and the legal structuring of the relationship between the company and its various constituencies (for performing various business functions).

Until now, the predominant approach to analyzing company power relations has focused on reducing various types of agency costs, preventing rent-seeking behavior, and creating accountable conduct toward shareholders. However, as previously noted, managers’ ability to modernize company business activities to increase its value is highly dependent on the ability of the company to cooperate and exchange resources, knowledge, and expertise with various stakeholders. Therefore, the current discrepancy—between how companies create novel business activities and how the internal power relations between insiders and various constituencies for generating value are regulated—is puzzling. In a post-pandemic world that underscores the values of collaboration and diffusion of knowledge, it is doubtful that the shareholder valuemodel will continue to dominate company law and theory.

Accordingly, an alternative theoretical framework that may emerge in the future will need to examine the legal implications of corporations’ dependency on critical resource contributions of various stakeholders in a bid to create value. The resource dependence theory, for example, considers firms to be “constrained and affected by their environment and act to attempt to manage these resource dependencies” by establishing various forms of interorganizational arrangements. It considers firms’ interdependencies to explain why companies use various inter-organizational arrangements—such as board interlocks, alliances, joint ventures, in-sourcing, and mergers and acquisitions. It focuses on the central role of the board of directors in contracting with the external surroundings to gain access to critical inputs.

Moreover, such a resource-based theory should be combined with the stakeholders’ perspective, which recognizes that in some instances, a company has a duty to share with its stakeholders the value that company has gained as a result of their special contributions. Thus, the company will determine how to share the value produced by its constituencies according to their respective contribution to that value, the parties’ bargaining powers, and the negotiation skills of the stakeholders who control essential inputs. Since combining resource-based theory with stakeholders’ perspectives underlines the significance of critical stakeholders’ contributions, the main role of the board of directors is to reconcile the conflicting interests of stakeholders whose “resources are part of the co-specialized bundle,” to ensure the continuing production of value for the corporation itself.

The Debate on the Company Purpose

The modern-day corporation is under extensive pressure to shift its primary purpose from protecting the primacy of shareholder value to directing its core operations for the benefit of the public at large. One clear manifestation of this trend is the recent statement on corporate purpose by the Business Roundtable, which is made up of the CEOs of the 200 largest U.S. public firms. Although attending to stakeholders’ interests is undoubtedly a valuable policy goal, it is far from clear how these interests should be incorporated in the day-to-day decision-making. To address this concern, I consider three possible models for incorporating the stakeholders’ agenda in business decision-making.

Weak Stakeholderism

weak stakeholderism model perceives stakeholders’ interests as being entitled to legal protection—not for their own sake, but to increase profits for shareholders, and to safeguard their preferences. According to this approach, stakeholders’ views are instrumental to protecting only the interests of shareholders. Furthermore, as maintained by the weak stakeholderism approach, the law recognizes that producing profits is the result of the inputs of various investors and stakeholders, but equates maximizing the value of the firm with shareholder value. In doing so, this model assumes that shareholders are a homogenous constituency with similar interests, values, and preferences. However, a large body of literature has demonstrated that this premise does not hold up in practice. In particular, shareholders differ from one another in several respects—such as whether or not they have a business relationship with the firm; have long-term or short-term investment horizons; use derivatives to decouple voting from financial rights; and are inclined to engage in shareholder activism, or to focus on a political or corporate social agenda that is not in line with the interests of the firm’s other shareholders.

Robust Stakeholderism

This model considers shareholder primacy to be a primary contributor to income inequality and the unjust distribution of resources in society. Consequently, it argues that companies’ business activities should be aimed not only at increasing financial value, but also at addressing public issues that transcend national borders by providing independent protection of stakeholders’ interests for their own sake. Therefore, according to the robust stakeholderism model, companies mustprotect stakeholders’ interests as part of a general tackling of the great challenges facing society as a whole—such as promoting equality, access to healthcare services, fighting poverty, and preventing the degradation of the natural environment and climate. This view has gained significant recognition in the wake of the COVID-19 pandemic which revealed major inequalities and discrimination regarding access to healthcare and securing employment and decent housing in times of crisis.

However, the ability of corporate governance to resolve such grand societal challenges is often limited and can be counter-productive. For example, management might employ the stakeholders’ perspective to promote their own interests by expanding their business discretion and insulating themselves from shareholder pressure—thereby undermining firm value. Because robust stakeholderism obliges managers to consider the interests of multiple and conflicted constituencies without any overarching moral or economic guidance or enforcement measures, it may impair the company’s ability to engage in effective decision-making.

In light of these difficulties of the weak and robust models of stakeholderism, I propose a moderate model of stakeholderism. This model allows the interests of stakeholders to be taken into account when they align with the interests of the firm, in a bid to increase its social and financial value in line with innovative changes to its business model.

Moderate Stakeholderism

This model stipulates that the structure, functions, and activities of the company should not be confined exclusively to increasing shareholder or stakeholder value, but rather they should promote distinct interests of the firm—namely to increase its own value and improve its performance. This framework implies that management can take into account the interests of the diverse constituencies that it interacts with, as long as these have a direct and fundamental bearing upon the value of the company as a distinct and independent legal entity. Accordingly, company’s leaders cannot accept the predominance of shareholders’ or stakeholders’ interests with respect to business resolutions, but rather must direct the company’s business activities to maximize its own value, and not necessarily that of any of its constituencies.

The innovation strategy—incorporated into the company’s business model—entails identifying the value that the company wishes to maximize, and how it would be allocated between the firm and its various constituencies that contribute to value production. It considers the interests of various stakeholders only if these correspond with the interests of the company.

Moderate stakeholderism acknowledges that the design and implementation of an innovative business model involves articulating the values that the company must maximize for its own benefit. Nevertheless, since choosing the company’s course of action may align with the interests of some shareholders, but not others, further principles are needed to guide company’s leaders on how to strike the right balance between promoting financial and social values—for the company’s own benefit. While the traditional debate over corporate purpose perceives it to be constant (and identical) throughout all stages of its life cycle, we must acknowledge the dynamic and multi-level nature of business activities by adopting a contingent attitude. Specifically, there are two critical aspects that policymakers (and company’s leaders) must consider to reach a meaningful tradeoff between morality, fairness, efficiency and social policy considerations as part of maximizing company’s benefit:

Life cycle 

Depending on a stage in the development of the company’s business, companies will strike a different balance between financial and social values. Since the company’s development depends on contributions from its various stakeholders, management must take into account considerations pertaining to the constituencies whose contributions are critical to generating value at each stage of its life cycle. For example, since at the formation stage of the company managers are concerned mainly with ensuring its survival, they should give significant priority to the interests of investors and creditors whose financial contributions are essential to the company. However, as the company grows and expands its business activities, it must recognize the valuable contributions of other stakeholders to the production of value—such as employees, suppliers, and local communities. Thus, the balance between moral, fairness, efficiency, and social policy considerations is dependent on the particular stage that the company is in in its life cycle, based on the relative importance of the respective contributions by its various constituencies to its production of value.


The nature and scope of the company’s interactions with various constituencies in different industries have significant implications for conceptualizing the company’s goals and internal governance norms. Cases in point are the financial services sector and high-tech. 

Financial services sector

Generally, under Anglo-American law, the purposes and governance norms dictating the operations of financial institutions are aimed exclusively at maximizing the return for shareholders—to which end the stakeholders’ interests are also enlisted. However, as several commentators have argued, shareholder primacy in the governance of financial institutions can have significant and systematic adverse effects on the rest of the economy—especially in times of crisis. In such cases, the entire economy bears the residual risks of the corporation’s failure, and unlike creditors or employees, the economy as a whole cannot negotiate for contractual protections. Thus, during financial crises, fiduciary duties—duties of care and loyalty owed by directors and officers to shareholders—should be extended to encompass the interests of the broader economy as well. Assigning importance to the type of industry involved in each case indicates that in times of acute economic crisis such as a pandemic, financial institutions should adopt more inclusive objectives for their business functions and activities. In particular, the companies should consider the interests of various constituencies that collaborate with them in generating value for the corporation, even at the expense of its short-term financial performance.


Unlike established public firms, a key feature of the business activities of privately held companies in the high-technology industry is resource scarcity, which hampers their entrepreneurial activities and contributes to the failure of many start-ups. Thus, it is commonly accepted that the main inputs necessary for achieving innovation and generating value are financing, human capital, knowledge, and physical infrastructure. While financing can and is primarily provided by private investors such as venture capitalists and angel investors, knowledge and training at the nascent stages of development and the availability of other sources of inputs is dependent on the economic and institutional conditions of a given market.

In the first years of a company’s activities, the separation between ownership and control is less clear-cut, because the entrepreneurs/CEOs typically own a significant portion of the company’s equity. As a result, there is less concern that the founder might engage in opportunistic behavior. However, because high-potential innovative startups generally need far more resources than founders and financiers can deliver, they seek additional sources of inputs that produce complex ownership structures with preferred rights, varying investment time-horizons, and exit preferences.

Moreover, since the later stages of company’s development require further and diverse inputs for innovation, restricting company’s business activities in a bid to enhance shareholder value hampers the company’s efforts to generate value for its own benefit. Stakeholders who are aware of the conclusive priority given to their interests will refrain from providing the company with essential resources it needs unless they are provided valuable guarantees that secure their rights and interests. However, securing shareholders’ interests by designing governance norms for their ultimate protection—without allowing stakeholders to take part in the company’s decision-making—may result in entrenching the position of the entrepreneur/CEO, who refuses to surrender control, even if it damages value.

Since the growth of high-tech is highly dependent on considerable contributions of various sources of inputs, current prevailing interpretations of the company’s goals are at odds with the fluid nature of its business needs. By reflecting the unique business challenges associated with company operations in each industry, a more accurate balance between shareholder and stakeholder interests can be achieved to increase company value as a discrete legal entity.


By obliging companies to adopt an innovative approach to tackling financial and social challenges, the COVID-19 pandemic has significantly changed how companies are run. The debate surrounding company goals should therefore be reformulated by acknowledging the dynamic nature of business activities, especially in times of crisis. In particular, a flexible approach that takes into account the company’s entire life cycle and the industry in which it operates may strike a more meaningful balance between the interests of the corporation’s many constituencies in its quest to generate value for the company as an independent and discrete legal entity.

Dr. Leon Anidjar is Assistant Professor at the IE University School of Law, Madrid. 

This post is adapted from his paper, Innovation in Times of Global Pandemic and the Debate on the Company Purpose,” available on SSRN.

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