In a response to my recent post, Lipton on the Problem of Benefit Corporations Making a Credible Commitment to Being Beneficial, Brett McDonnell wrote:
One mechanism would be to give stakeholders whom one desires to protect actual power within the company. Most obviously, that would give them the power to elect a certain number of directors. Alternatively, it could be a degree of power over a more limited number of decisions of particular concern to them (e.g., works councils for employees). More weakly, they could be given an advisory role through stakeholder advisory councils given extensive information. An alternative mechanism would be to give them standing to sue.
All of these have costs, but the fact that benefit corporations do not seem to even seriously consider them suggests the limits of their concerns for stakeholders. Founders and investors may genuinely want to help, but only on their terms, with no willingness to commit themselves.
I have written on this: "From Duty and Disclosure to Power and Participation in Social Enterprise," https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3217159
Which called to mind an earlier post, Do the Socially Responsible Walk the Talk?, in which I wrote:
I've spent part of the summer working on a law review article on the Business Roundtable's August 2019 statement on corporate purpose. A new paper by Professors Raghunandan and Rajgopal is going to feature prominently as support for mu argument that the statement is mostly puffery:
Several companies and funds claim to be socially responsible. We confront these high-minded ideals with the data in two settings. In the first setting, we examine the August 2019 declaration by the Business Roundtable (BRT) that a corporation’s purpose is to deliver value to all stakeholders, rather than to solely maximize shareholder value. Relative to within-industry peer firms, publicly listed signatories of the BRT statement (i) commit environmental and labor-related compliance violations more often (and pay more in compliance penalties); (ii) have higher market shares; (iii) spend more on lobbying policymakers; (iv) report lower stock returns alphas and worse operating margins. Investors can vote with their feet to enforce managers’ statements on corporate purpose. Hence, in the paper’s second setting, we study the largest ESG ETF and mutual fund, respectively: the KLD 400 Social ETF and the FTSE4Good US Select index. There is barely any correlation between the initial list of stocks in these funds and additions thereto with “fundamental” ESG data, which we measure using federal environmental and labor-related compliance violations. A key takeaway of our study is that investors ought to be vigilant when assessing claims of stakeholder-oriented practices by firms and ESG funds.
Raghunandan, Aneesh and Rajgopal, Shivara, Do the Socially Responsible Walk the Talk? (May 24, 2020). Available at SSRN: https://ssrn.com/abstract=3609056
Which raises a research question: How much corporate social responsibility is just window dressing?
