Shareholder primacy or stakeholder governance?

• Externalities happen largely in the private sector. • Shareholder and stakeholder governance models are compared. • It appears that stakeholder-driven companies have more sustainable outcomes. • Corporate governance should be adjusted to adopt the stakeholder model. Externalities happen largely in the private sector and cannot be fully separated from production decisions. Decision-making in companies thus co-determines the degree of sustainability of an economy. Advances in impact valuation allow us to express the stakeholder interests in finance and valuation terms. We can thus compare investment decisions and payout decisions for three types of models: the shareholder value model, the shareholder welfare model, and the stakeholder model. Our results show that stakeholder-driven companies are better able to pursue a sustainable economy. Corporate governance should be adjusted accordingly.