Summary

Stakeholder-shareholder contradictions experienced by managers are embedded in complex corporate governance systems that are composed of firm-level corporate governance bundles as well as higher-level institutional arrangements. This is known as the paradox perspective. This relationship is also knotted with other contradictions. To effectively manage stakeholder-shareholder contradictions, boards should seek to create and maintain a balance of power between stakeholders’ and shareholders’ interests within the totality of the corporate governance system, and not just within the governance bundle. To do so, they must design firm-level governance bundles to complement existing institutional arrangements. Because stakeholder-shareholder contradictions are highly complex, boards should govern them by establishing “learning spiral” processes in which they experiment and use trial-and-error learning to progressively adjust the governance bundle. While learning spiral processes will tend to involve learning by testing and produce incremental changes in governance bundles, exogenous shocks and changes to the distribution of power within the board can result in learning by discovery and more significant changes in governance arrangements. Firm-level mechanisms that provide managers discretion while also holding them accountable for achieving particular outcomes are more likely to stimulate learning spirals than are policies that prescribe particular structures, processes, or practices. So, too, government policies that combine discretion with accountability will be more effective than more prescriptive policies. Finally, paradox research suggests that boards under pressure to prioritize one pole of the contradiction (either stakeholders’ or shareholders’ interests) over the other rather than maintaining a continuous balance between the two poles can do so—as long as they employ deliberative spaces to engage in learning spiral processes that restore dynamic equilibrium in the long term.