With the recognition that adequate externality regulation is unlikely to be forthcoming, legal scholars, politicians, major shareholders, and corporate stakeholders have joined in urging companies to practice corporate citizenship. In this Article, I explain why much of this advocacy is unlikely to alter corporate decisionmaking to the desired extent. In particular, proponents of corporate social responsibility ask fiduciaries to operate against a deeply-ingrained incentive structure that pushes them to maximize shareholder wealth as a first priority.

This Article proposes a way forward that works within the wealth-maximization framework, but could, under certain circumstances, encourage corporations to prioritize stakeholder goals. More specifically, individuals could use “corporate social responsibility bonds,” to offset costs associated with prosocial corporate decision-making. The intuition is as follows: if it is welfare-maximizing for individuals to see corporations make public-interested choices, there should be a possible Coasian bargain between those individuals and the corporation. In such situations, an issuer could create bond to finance a predetermined public-interested corporate decision, thereby turning stakeholders into creditors with governance rights. Any individual for whom the choice is welfare-maximizing could participate; their loan would be forgiven if the decision was made, and if it is not, the individuals would get their money back plus interest.

More broadly, the insight that the individuals with the strongest interest in seeing corporations pursue corporate social responsibility goals are not always the shareholders has consequences for corporate law and corporate governance. In particular, it cautions that we should recognize the limits of corporate law and shareholder activism to achieve socially optimal levels of corporate responsibility. The more difficult question is whether and how to reorient our corporate law system away from shareholders and toward other constituencies. As that project forges on, this Article proposes action that could allow corporate outsiders to influence corporate behavior without any delay—one decision at a time.


Business Law, Public Responsibility, and Ethics | Business Organizations Law | Law | Law and Economics

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