Short-Term Demands and Long-Term Commitments: A Temporal Model of Stakeholder Governance

Current scholarship offers divergent views on whether broadening stakeholder governance creates joint gains or redistributes value away from equity holders. To address this tension, we develop a temporal model of stakeholder governance that specifies how these gains are distributed over time. We argue that broadening stakeholder governance initially reduces rewards for equity stakeholders because coordination costs rise and value is reallocated toward contracted stakeholders. However, over time, diminishing coordination costs and increasing returns from firm-specific investments increase rewards for equity stakeholders. Additionally, because contracted stakeholders make firm-specific investments, they may be willing to compromise their claims on firm resources when their firms face economic difficulties. Given these dynamics, we argue that broadening stakeholder governance is likely to increase firm survival. To test these arguments, we analyze longitudinal data for French firms with varying governance structures. Overall, our findings suggest that broadening stakeholder governance produces a dynamic balance in which stakeholders protect their interests yet deepen their commitments over time. In this way, we elevate survival as a primary outcome of stakeholder governance and offer guidance on the design of resilient democratic governance.