Final answer:
Stakeholder theory challenges the shareholder primacy model by advocating for corporate responsibility to all stakeholders, not just shareholders. Traditional corporate governance structures like boards of directors should consider the broader implications of corporate decisions. The debate between shareholder and stakeholder interests continues to shape corporate governance norms.
Step-by-step explanation:
The concept in question, which contrasts with shareholder primacy, is stakeholder theory. Stakeholder theory posits that a corporation should be accountable to a wider group than just its shareholders, including employees, customers, and the community, and that decisions should aim to balance the interests of all these parties. This theory responds to the ethical considerations regarding who should have influence over corporate decisions, given that corporate actions impact a broad array of individuals and groups beyond the shareholders. In light of historical shifts and the increased focus on corporate social responsibility, societal expectations of corporate governance have expanded to consider a broader spectrum of stakeholder interests.
The board of directors, auditing firms, and outside investors are traditional mechanisms of corporate governance, but there have been notable failures in this system, as evidenced by events like the Lehman Brothers collapse. The board, although elected by shareholders, is expected to operate with a degree of impartiality to ensure decisions benefit not just shareholders but also other stakeholders. This highlights the ongoing debate over the extent to which corporations should be held accountable to their shareholders versus the broader array of stakeholders.