Shareholder primacy distorted “the business of business” by financializing it. A successful business must, of course, be profitable. The prioritization of shareholder returns, however, turned many corporations into a shareholder wealth mint, encouraging regulatory and tax arbitrage as well as opaque financial structures, gutting and outsourcing the labor force, ignoring the impact on the environment and communities, and neglecting long term investments.

For decades, few dared to question the mantra of shareholder primacy, but as Lenore Palladino suggests, a change—stakeholder governance—is back on the agenda. The consensus on shareholder primacy began to crack after the global crisis, but the Business Roundtable’s recent announcement (distancing themselves from shareholder primacy) is a powerful sign that change is, indeed, in the air.

Importantly, shareholder primacy has never meant effective shareholder control over the board of directors.

But before considering the benefits or opportunities of stakeholder governance, a brief recap of corporate governance under shareholder primacy is in order. Because, importantly, shareholder primacy has never meant effective shareholder control over the board of directors, nor through it the company management. While shareholder “voice” in the corporation has certainly been strengthened over the past several decades, corporate management has continued to resist it. Even today management has strong influence over the selection of the directors who govern them.

Fiduciary duties also have less bite than is often assumed. In terms of case law, the “duty of loyalty” remains powerful, but “duty of care” violations are difficult to get into court given the procedural and doctrinal entry barriers that have been erected. This will hardly change with plans such as Palladino’s to broaden the stakeholders to which directors and officers owe their fiduciary duties.

Stakeholder governance will require not just tinkering with existing structures, but a fundamental re-orientation of a corporation’s goals as well as holding management accountable to these goals. There are at least six important factors to keep in mind.

First, changing the corporate board by giving seats to stakeholder representatives is at best a partial answer. Given how difficult it has been for (dispersed) shareholders to exert control through the board, it is hard to see how labor would do better. Boards can exert some governance, but they cannot rule against management and other stakeholders that support it.

Second, ownership—the identity of owners and the distribution of shares—matters more than board representation alone. Shareholders, of course, are no longer the disempowered owners without control as in the Berle and Means prototype. They have fought back and have weaponized their “exit power” to a point where this now threatens the viability of “their” firms. Large institutional investors, including pension funds and asset managers have emerged even in the United States, but they serve their own investors; they are highly diversified and less committed to any individual firm than the textbook controlling shareholder. Any corporate governance reform must therefore include a reform of these investors.

Third, an expansion of stock-ownership to regular employees—as Palladino suggests—may have salutary effects on corporate governance. It would ensure that employees share in the profits and thus strengthen the commitments to their firms; in addition, it would buffer against the short termism demanded by institutional investors. Extant corporate governance scholarship warns that employees are too heterogenous to be effective governors. But shareholders too have become increasingly heterogenous. More generally, the management of a major corporation has always been a complex affair and had to balance multiple and often conflicting interests. The attempt to reduce complexity to a single shareholder value objective has been at best illusory and at worse a pretense to shift the risks of doing business to others—and often to the weakest among the stakeholders.

Fourth, ensuring that specific stakeholder interests are better reflected in the actual management of the business is the most difficult task. It will require more than diversifying the ownership structure of firms or board membership, or a commitment to a public purpose by a self-identified public-benefit corporation. These are governance tools that work only if these objectives are built into the actual operation of the company. It is difficult to see employees becoming effective agents of governance under conditions of employment at will, to give just one example.

Corporate governance is multifaceted and cannot be changed with a silver-bullet.

Fifth, individual corporations on their own will have difficulties effectuating change in corporate governance as competition in the financial marketplace will quickly bring them back into line. There is no change without costs. Ideally, stakeholder governance models will produce real and more equally distributed benefits to all relevant stakeholders over time, but the immediate costs will be borne by the beneficiaries of the current system. Shareholders will vote with their feet, a costly proposition for the affected firms. This remains true even if large corporations do not return to stock markets frequently to raise fresh funds, as Palladino correctly points out, because losing shareholders is costly. Moreover, trade and financial creditors also rely on the information conveyed by share prices. Firms in need of major restructuring sometimes go private and delist to accomplish their goals. This may work for some, but not for all firms. Other firms will likely need intervention by legislatures to coordinate their actions.

Sixth, while little will happen without the commitment of top management, their words alone should not be counted on. CEOs, like all agents, need to be held accountable, but not every accountability mechanism works equally well for every stakeholder cause. Shareholders have often been more effective in using their exit option or informal pressure on management to govern than the board room. Highly skilled employees may also be able to leverage their exit options, but this is not true for most other employees. Employee ownership funds along the model under discussion in the UK might help, but without an exit option they will have to rely on voice. Their bargaining power might be enhanced by encouraging the emergence of new sector wide or even cross-sectoral labor organizations. For other stakeholder interests, such as the environment, the law governing public-benefit corporations offers possible solutions. These companies are required to subject themselves to audits to ensure that they meet the public-benefit objectives they committed to.

Whether all this is better achieved under a federal charter or should be left to state legislatures and state courts is a difficult question. Palladino seems to favor central intervention, but plurality tends to be more conducive to innovation than centralization. Regulatory competition can be turned by companies into a weapon against reform, however, as they might simply opt into the least demanding legal regime that states offer. An alternative to centralization might be to limit the ability of companies to opt out of (decentralized) state rules they don’t like. The commerce clause of the constitution imposes limits, but they are porous.

In sum, corporate governance is multifaceted and cannot be changed with a silver-bullet. Legislatures can encourage change, offering legislative and regulatory support. They should remove legal and regulatory obstacles to change and alter rules that are heavily biased in favor of shareholder primacy, but they cannot dictate a new governance model. This will require the efforts of all relevant stakeholders, both individually and jointly, and an overhaul of the governance that extends well beyond the corporation.