Shareholder Primacy vs. Stakeholder Approach: Directors’ Challenges in Indian Corporate Governance

This research paper explores the difference between shareholder primacy and stakeholder approaches within Indian corporate governance, exploring the challenges directors face in reconciling these paradigms. The shareholder primacy model prioritizes maximizing shareholder wealth, a core tenet of global governance frameworks. In contrast, the stakeholder approach supports for broader fiduciary duties, urging directors to consider diverse interests such as employees, customers, suppliers, communities, and environmental concerns. India’s corporate governance, shaped by the Companies Act, 2013, SEBI regulations, and a mix of promoter-driven firms and independent directors, complicates this balance. Directors must navigate shareholder activism, short-term profit pressures, and stakeholder considerations, influenced further by cultural and structural factors like family-owned business dominance. Comparative insights from governance models in the U.S., UK, Germany, Japan, France, and South Africa reveal varying strategies to balance these interests, from the shareholder-centric U.S. approach to stakeholder-oriented models in Germany and South Africa. This paper provides a hybrid governance model for India, inferring on international best practices to foster balanced, sustainable, and inclusive governance. Recommendations emphasize regulatory reforms, and improved board practices to help directors effectively serve both shareholders and stakeholders.