This study examines social issues shareholder resolutions filed at S&P 500 companies in 2007. These firms received 86% of all social issues resolutions filed. Findings indicate that green resolutions were the most common single type (30% of social issues resolutions), but nearly one third (32%) of resolutions contained non-traditional content. Firms were more likely to be targeted if they were large in size and demonstrated poor treatment of employees and customers. As might be expected, (...) the primary sponsors of social issues resolutions were socially responsible investment funds, religious groups, and pension funds. Surprisingly, over half (52%) of resolutions made it onto proxy ballots in 2007, while there was sufficient dialogue between the target companies and shareholder activists for filers to withdraw only 29% of the resolutions (although 41% of green resolutions were withdrawn). Resolution content and firm response differed by type of filer. (shrink)

In recent years, the US and the EU have pursued markedly different agendas in the pursuit of board gender diversity. The EU has taken a more pro-active governmental approach of mandated quotas, whereas the US is relying largely on the endogenous mechanism of shareholder diversity proposals. Despite their obvious allure as a means of bringing about rapid change, evidence is mounting that board gender diversity quotas may yield various deleterious side effects; and quotas may not be as successful in (...) their core aim of promoting gender diversity as initial broad statistical measures indicate. In this paper we critique the expanding EU quota regime, and consider US shareholder proposals as an alternative change mechanism for improving gender diversity in corporate boards. As an alternative to quotas, diversity resolutions are often dismissed as ineffective because the vast majority fail to formally pass (with a failure rate close to 95%). However, on closer inspection, this ‘failure’ actually results in success. Contrary to the conventional ‘folk’ wisdom -- in the quest to promote gender diversity on corporate boards, the endogenous (US) mechanism of board diversity proposals has, to date, resulted in similar increases in gender diversity as the exogenous (EU) mechanism of government-mandated gender quotas. Furthermore, the former mechanism is more consistent with recent ‘third-wave’ feminist theory. We conclude with the policy recommendation that, rather than quotas, the EU should focus on removing the regulatory barriers that inhibit shareholder democracy. (shrink)

The conventional view of the relationship between ratings of corporate social responsibility (CSR) and responses to activist shareholder resolutions is that firms with low CSR ratings are likely to resist activist’s pressures to change corporate policies and behavior. By contrast, firms with high CSR ratings are more likely to support such activist shareholder efforts. In the IABS discussionsession and this paper, we argue that the conventional view of corporate responses to shareholder resolutions is inadequate to (...) explain the motivations, strategies, and tactics of firms when they respond to activist shareholders. (shrink)

The purpose of this paper is to analyze from a strategic ethical perspective four selected shareholder resolutions reported by the Social Issues Service of the Investor Responsibility Research Center regarding international labor and workplace standards. Particular attention will be paid to specific employee relations issues at the operating and tactical level of individual multinational firms. The paper concludes with policy recommendations for proxy statements.

This empirical study examines corporate responses to activist shareholder groups filing social-policy shareholder resolutions. Using resource dependency theory as our conceptual framing, we identify some of the drivers of corporate responses to shareholder activists. This study departs from previous studies by including a fourth possible corporate response, engaging in dialogue. Dialogue, an alternative to shareholder resolutions filed by activists, is a process in which corporations and activist shareholder groups mutually agree to engage in (...) ongoing negotiations to deal with social issues. Based on a unique dataset of resolutions filed by member organizations of the Interfaith Center on Corporate Responsibility from 2002 to 2005 and the outcomes of these resolutions, our analysis finds that corporate managers are more likely to engage in dialogue with shareholder activists when the firm is larger, is more responsive to stakeholders, the CEO is the board chair, and the firm has a relatively lower percentage of institutional investors. (shrink)

Current arguments to increase shareholder power in the large public U.S. corporation need to take account of the well-established historical practice of extensive delegation by shareholders of business decision-making and agenda-control to management and the board, what might be characterized as an absolute delegation rule. This practice sharply limits the power of shareholders to put either business or governance proposals to the shareholders for dispositive resolution. The paper, originally published in 1991 but newly relevant, argues that the rule is (...) based on potential pathologies in shareholder voting rather than the inherent information asymmetry between shareholders and managers. Rational shareholders who know of this asymmetry (and know that others know) would simply vote against most shareholder proposals. But shareholder voting gives rise to potential cycling problems, as shifting shareholder majorities vie for preferred policies, and potential opportunism, as shareholders engage in side deals with management and other shareholders to extract rents in corporate decision-making. Since shareholding patterns are in part a response to control rights, deviations from the absolute delegation rule will predictably lead to greater block ownership, for defensive and offensive reasons. These concerns need to be addressed in arguments for the expansion of shareholder power. (shrink)

As one of the more progressive facets of the socially responsible investment (SRI) movement, shareholder activism is generally recommended or justified on the grounds that it can create social change. But how effective are different kinds of activist campaigns likely to be in this regard? This article outlines the full range of different ways in which shareholder activism could make a difference by carefully going through, first, all the more specific lines of action typically included under the (...) class='Hi'>shareholder activism umbrella and, second, all of the different ways in which it has been suggested that these could influence the activities of commercial companies. It is argued that – although much more empirical research is needed in the area – there are at least theoretical reasons for thinking that it will be difficult to influence companies through the standard actions of filing or voting on shareholder resolutions. However, some alternative strategies open to activists may allow them to increase their efficacy. It is specifically argued that even individual investors could be able to push for corporate change through devising a radically selfsacrificial campaign that manages to get the attention of powerful forces outside the corporate sphere. (shrink)

This paper examines the motivation theory of Rowley and Moldoveanu (2003) on shareholder activism in the context of shareholder resolution networks. Shareholder resolution filings occur both within subnetworks as well as across subnetworks, indicating these motivations are mixed. I extend the motivational issue by also examining the response of the corporation to such activism. That resolutions might migrate from identity to interest motivated groups is examined as an element of future research.

As one of the more progressive facets of the socially responsibleinvestment movement, shareholder activism isgenerally recommended or justified on the grounds that itcan create social change. But how effective are differentkinds of activist campaigns likely to be in this regard? Thisarticle outlines the full range of different ways in whichshareholder activism could make a difference by carefullygoing through, first, all the more specific lines of actiontypically included under the shareholder activismumbrella and, second, all of the different ways in (...) which ithas been suggested that these could influence the activitiesof commercial companies. It is argued that – althoughmuch more empirical research is needed in the area – thereare at least theoretical reasons for thinking that it will bedifficult to influence companies through the standardactions of filing or voting on shareholder resolutions.However, some alternative strategies open to activists mayallow them to increase their efficacy. It is specificallyargued that even individual investors could be able to pushfor corporate change through devising a radically selfsacrificialcampaign that manages to get the attention ofpowerful forces outside the corporate sphere. (shrink)

The popular view of shareholder activism focuses on shareholder resolutions and the shareholder vote via proxy statements at the annual meeting, which is treated as a “David vs. Goliath” showdown between the small group of socially responsible investors and the powerful corporation. This article goes beyond the popular view to examine where the real action typically occurs – in the Dialogue process where corporations and shareholder activist groups mutually agree to ongoing communications to deal with (...) a serious social issue. Use of the capitalized word “Dialogue” is intended to distinguish this formal process between corporations and shareholders from all the other forms of dialogue or two-way communication exchanged between a corporation and its stakeholders. The phenomenon of Dialogue between a corporation and dissident shareholders has not been analyzed in the academic literature or in the popular press because it occurs behind the scenes and out of sight from media scrutiny. Yet this is where a great deal of social change initiated by shareholder activists is negotiated. This article contributes both theoretically and empirically to the study of Dialogues between shareholder activists and corporations. We explain how Dialogues occur in the context of the shareholder resolution process and examine two Dialogues that focus on international labor issues in two industries. Then data on Dialogues during the period, 1999–2005, from the Interfaith Center on Corporate Responsibility are analyzed. This research contributes to knowledge about the Dialogue process and the emerging literature on corporation–stakeholder engagement. (shrink)

Managers have a unique fiduciary responsibility to shareholders of a firm that implies a set of ethical obligations. At a minimum, managers are required to protect shareholder’s interests when other stakeholders are unaffected by their decision. This ethical imperative has been established in the literature. In cases of conflicts of interest between managers and shareholders, the board of directors of the firm has an ethical obligation to shareholders. The structure of the board can affect its ability to fulfill this (...) obligation. Two specific cases where managerial actions have been argued to be unethical are the adoption of classified boards and poison pills. In this study, we empirically analyze the role of board structure in protecting shareholder rights in the specific case of antitakeover provisions. We test this question on a sample of firms whose shareholders have voted to remove antitakeover provisions and find that independent, focused boards are more likely to accede to shareholder resolutions than are less independent boards. Board size is also important and related to other board structures. We draw implications of this finding for future research on the ethics of board governance.What’s really needed is a change in mindset—one that fosters not only a culture of compliance but also a company-wide environment that fosters ethical behavior and decision-making.—William H. Donaldson, SEC Chairman (2004). (shrink)

The popular view of shareholder activism focuses on shareholder resolutions and the shareholder vote via proxy statements at the annual meeting, which is treated as a "David vs. Goliath" showdown between the small group of socially responsible investors and the powerful corporation. This article goes beyond the popular view to examine where the real action typically occurs-in the Dialogue process where corporations and shareholder activist groups mutually agree to ongoing communications to deal with a serious (...) social issue. Use of the capitalized word "Dialogue" is intended to distinguish this formal process between corporations and shareholders from all the other forms of dialogue or twoway communication exchanged between a corporation and its stakeholders. The phenomenon of Dialogue between a corporation and dissident shareholders has not been analyzed in the academic literature or in the popular press because it occurs behind the scenes and out of sight from media scrutiny. Yet this is where a great deal of social change initiated by shareholder activists is negotiated. This article contributes both theoretically and empirically to the study of Dialogues between shareholder activists and corporations. We explain how Dialogues occur in the context of the shareholder resolution process and examine two Dialogues that focus on international labor issues in two industries. Then data on Dialogues during the period, 1999-2005, from the Interfaith Center on Corporate Responsibility are analyzed. This research contributes to knowledge about the Dialogue process and the emerging literature on corporation-stakeholder engagement. (shrink)

The popular view of shareholder activism focuses on shareholder resolutions and the shareholder vote via proxy statements at the annual meeting, which is treated as a “David vs. Goliath” showdown between the small group of socially responsible investors and the powerful corporation. This article goes beyond the popular view to examine where the real action typically occurs – in the Dialogue process where corporations and shareholder activist groups mutually agree to ongoing communications to deal with (...) a serious social issue. Use of the capitalized word “Dialogue” is intended to distinguish this formal process between corporations and shareholders from all the other forms of dialogue or two-way communication exchanged between a corporation and its stakeholders. The phenomenon of Dialogue between a corporation and dissident shareholders has not been analyzed in the academic literature or in the popular press because it occurs behind the scenes and out of sight from media scrutiny. Yet this is where a great deal of social change initiated by shareholder activists is negotiated. This article contributes both theoretically and empirically to the study of Dialogues between shareholder activists and corporations. We explain how Dialogues occur in the context of the shareholder resolution process and examine two Dialogues that focus on international labor issues in two industries. Then data on Dialogues during the period, 1999–2005, from the Interfaith Center on Corporate Responsibility are analyzed. This research contributes to knowledge about the Dialogue process and the emerging literature on corporation–stakeholder engagement. (shrink)

Lietuvos, kaip ir kitų Europos valstybių, teisės aktai numato bendrovės visuotinio akcininkų susirinkimo sprendimų teisėtumo užtikrinimo priemonę – tokių sprendimų pripažinimo negaliojančiais institutą. Civiliniame kodekse išvardijami teisiniai šio instituto taikymo pagrindai. Kita vertus, visuotinio akcininkų susirinkimo sprendimų pripažinimo negaliojančiais pagrindų sistemos skirtingose valstybėse skiriasi. Šiame straipsnyje siekiama pateikti bendrą įstatymo numatytų bendrovės visuotinio akcininkų susirinkimo sprendimų pripažinimo negaliojančiais pagrindų Lietuvos teisėje apžvalgą, minėtų pagrindų sistemą lyginant su užsienio valstybių teisiniu reglamentavimu.

We compare the traits of companies receiving social policy shareholder resolutions with those of a set of matching firms. We show that targeted firms tend to be much larger and riskier, less profitable and less socially performing than their counterparts. The five largest investors in firms receiving social proxies tend to hold a lower stake in those firms vis‐à‐vis the matching firms. Firms in both samples, however, are not statistically different in terms of percentages of shares held by (...) institutional and insider investors. We provide possible explanations for our results. (shrink)

There is limited evidence that socially responsible investment (SRI) strategies can resolve persistent concerns brought up in scholarship on the industry, particularly as it relates to considerations of justice. It is critical that SRI initiatives be interrogated about their broader impacts on environmental inequality and justice in the context of global power relations. Drawing upon environmental justice (EJ) theory, we propose a framework for transformative investment to halt the exploitation of humans and environment in pursuit of profit. We posit that (...) transformative investment initiatives, including those related to strategies of screening and shareholder resolutions, would reflect three general conditions of environmental justice. They would require (1) cumulative responsibility that focuses on holistic gains so that investment initiatives do not replace one harm with another; (2) embedded accountability that is rooted in the decision-making and concerns of directly impacted communities; and (3) counter-hegemonic practices that are integrated with broader strategies and movements that challenge structures of oppression and exploitation. Through these principles, we address problems with SRI that have already been identified in scholarship on the subject. Moreover, we draw upon Antonio Gramsci’s concept of ‘strategic power’ to conceptualize the conditions and actions necessary for transformative investment to take root. (shrink)

Objectives of socially responsible investment (SRI) are discussed with reference to the two main mechanisms of the SRI ‘movement’: shareholder advocacy and managed investments. We argue that in their current forms, both mechanisms lack the power to create significant corporate change. Shareholder advocacy has been largely unsuccessful to date. Even if resolutions were successful, shareholder advocacy may still be ineffective if underlying economic opportunities remain. Marketing material and investment prospectuses issued by socially responsible mutual funds (SRI (...) funds) commonly contain the claim that, by affecting corporations' access to capital funding, SRI funds can change corporate practices. This paper makes a contribution by presenting the market share of SRI funds in the regions where they are most developed, being Europe, the U.S. and Australia, to show that this claim is unlikely to eventuate. SRI funds also commonly claim that they will outperform conventional active mutual funds. That the economic performances of both are similar might be explained by their similar portfolio compositions. The paper makes an innovation in the SRI literature by adopting a legitimacy framework to explain the continued presence of SRI funds. To achieve desired social and environmental outcomes, SRI funds are urged to address issues at a more systemic level. A suggested mechanism is the collective lobbying of corporations and, especially, governments. (shrink)

The discussion about the relationship between tone at the top and financial reporting practices has been primarily focused on the oversight role played by the board of directors and other structural elements of corporate governance. Another relevant determinant of tone at the top is the corporate narrative language, since it is a fundamental way in which the chief executive officer enacts leadership. In this study, we empirically explore the association between financial reporting aggressiveness and five thematic indicators capturing different traits (...) of ethical leadership from 535 annual letters to shareholders. We find that aggressive financial reporting is positively associated with CEO letters using a language which is resolute, complex, and not engaging. Our empirical findings highlight the importance of examining discretionary corporate narratives for the auditing process and the role of tone at the top in influencing accounting practices. (shrink)

This article examines the empirical association between analyst coverage and corporate social responsibility (CSR) by investigating their simultaneous and causal effects, and its joint effects of CSR engagement and analyst coverage on firm risk. We find a positive association between the level and change of CSR engagement and the level and change of analyst coverage after considering simultaneity and causality. Based on the first-difference approach, we further find that the change in analyst following from the previous year affects the change (...) in CSR in the current period, whereas the change in CSR from the previous period does not influence the change in analyst following in the current period. Furthermore, we find that the change in CSR engagement as well as the interaction effect of changes in CSR and analyst coverage reduces the change of firm risk. When we examine the CSR strengths and concerns separately, analyst following does not significantly influence firms’ CSR strength but CSR concern activities decreases significantly as firms have more analyst followings. We further find the mediating role of financial analysts between CSR concerns (but not CSR strengths) and firm risk. We maintain that analysts provide indirect but additional social pressure to the firms to eventually reduce their irresponsible activities. Taken together, we interpret these results to support the stakeholder theory-based conflict-resolution explanation that considers CSR engagement as a vehicle to reduce conflicts of interest between managers and noninvesting stakeholders but not the overinvestment hypothesis that views CSR as a waste of valuable resources at the cost of shareholders. (shrink)

Facing an increasing number and variety of issues with social salience, firms must determine how to engage with issues that likely have a significant impact on them. Integrating issues management and salience theories, the authors find that firms engage with socially contested issues—where there is a high degree of societal disagreement—in a different manner from issues that have social consensus, or high agreement. Examining social issue resolutions filed by shareholders from 1997 to 2009, the study finds that socially contested (...) issues, as well as those issues with social consensus, are both likely to result in engagement by the firm. For social issues with consensus, a firm is more likely to opt for a low level of shareholder engagement whereas resolutions regarding contested issues lead to engaging shareholders at a higher level. These findings shed new light on the IM and issue salience literature streams that have suggested firms will react differently to these types of issues, even while they remain largely untested. Finally, firms become less engaged with perennial issues over time. rather than more, providing new guidance to researchers, shareholder activists, and firms alike. To the authors’ knowledge, such fined-grained insight into expected levels of firm engagement with social issue salience has not been put forth previously. (shrink)

Corporate social responsibility (CSR) is a relatively undeveloped concept despite its increasing importance to corporations. One difficulty is the possible inexactness of CSR. Another is the apparent reluctance by regulatory authorities and policy makers to intervene in the area. This is largely a result of inhibitions created by traditional approaches to company law with emphasis on shareholder protection and financial disclosure. The consequence is the stultification of independent development of CSR by tying social issues to financial performance. This attitude (...) might not be unconnected to the theoretical and practical challenges in justifying CSR and defining its scope. The underlying impediment is a factual and theoretical failure to distinguish ‘instrumental’ and ‘pure’ (ethical) CSR. This article demonstrates that ethical CSR highlights the role of regulation, and a principal stance is that regulation is neither incompatible nor irreconcilable with ethical CSR. The article argues that cognizance of the intrinsic moral justification of ‘pure’ CSR is required for delineating the scope of CSR as well as for clarifying the desirability and extent of its regulation. It argues that the dynamic history and visage of multinational corporate corruption illuminates the fluidity of the regulation–CSR relationship. The current and widening backlash against transnational corporate corruption is, arguably, a demonstration of the position that regulation and CSR are not mutually exclusive and absolute concepts. This article submits that recognition and application of this ‘ethical’ and ‘instrumental’ CSR distinction is fundamental to the development of CSR and resolution of connected questions of regulation. (shrink)

Shareholder activism has been largely neglected in the few available studies on corporate governance in sub Saharan Africa. Following the recent challenges posed by the Cadbury Nigeria Plc, this paper examines shareholder activism in an evolving corporate governance institutional context and identifies strategic opportunities associated with shareholders’ empowerment through changes in code of corporate governance and recent developments in information and communications technologies in Nigeria; especially in relation to corporate social responsibility in Nigeria. It is expected that the (...) paper would contribute to the scarce literature on corporate governance and accountability in Africa. (shrink)

This article argues that shareholder primacy cannot be defended on the grounds that there is something special about the position of shareholders that grounds a right to preferential treatment on part of management. The notions of property and contract, traditionally thought to ground such a right, are now widely recognized as incapable of playing that role. This leaves shareholder theorists with two options. They can either abandon the project of arguing for their view on broadly deontological grounds and (...) try to advance consequentialist arguments instead, or they can search for other morally relevant properties that could ground shareholder rights. The most sustained argument in the latter vein is Marcoux’s attempt to show that the vulnerability of shareholders mandates that managers are their fiduciaries. I show that this argument leads to the unacceptable conclusion that it would be unethical for corporations to make incomplete contracts with nonshareholding stakeholders. (shrink)

ABSTRACT:Many scholars and managers endorse the idea that the primary purpose of the firm is to make money for its owners. This shareholder wealth maximization objective is justified on the grounds that it maximizes social welfare. In this article, the first of a two-part set, we argue that, although this shareholder primacy model may have been appropriate in an earlier era, it no longer is, given our current state of economic and social affairs. To make our case, we (...) employ a utilitarian moral standard and examine the apparent logical sequence behind the link between shareholder wealth maximization and social welfare. Upon close empirical and conceptual scrutiny, we find that utilitarian criteria do not support the shareholder model; that is, shareholder wealth maximization is only weakly linked to social welfare maximization. In view of the dubious validity of this sequential argument, we outline some of the features of a superior corporate objective—a variant of normative stakeholder theory. In the second article, we will advance and defend our preferred alternative and then discuss some institutional arrangements under which it could be implemented. (shrink)

The expansion of extractive corporations’ overseas business operations has led to serious concerns regarding human rights–related impacts. As theseapprehensions grow, we see a countervailing rise in calls for government intervention and in levels of socially conscious shareholder advocacy. I focus on the latter as manifested in recent use of the shareholder proposal mechanism found in corporate law. Shareholder proposals, while under-theorized, provide a valuable lens through which to consider the argument that economic behaviour is embedded within social (...) relations. In doing so, I situate my analysis within Third World Approaches to International Law (TWAIL) scholarship. Elsewhere, I have supported the use of corporate law tools in advancing the international human rights enterprise and argued that investment activism can be an essential component of this advancement. This paper represents a reflexive pause. Using the case study of a recent proposal submitted to Goldcorp Inc., I seek to problematize the shareholder proposal as a human rights advocacy tool and to examine it as a site of contestation. (shrink)

This article draws on the moral philosophy of Immanuel Kant to explore whether a corporate ‘duty of beneficence’ to non-shareholders is consistent with the orthodox ‘shareholder theory’ of the firm. It examines the ethical framework of Milton Friedman’s argument and asks whether it necessarily rules out the well-being of non-shareholders as a corporate objective. The article examines Kant’s distinction between ‘duties of right’ and ‘duties of virtue’ (the latter including the duty of beneficence) and investigates their consistency with the (...) shareholder theory. The article concludes that it is possible within the ethical framework of shareholder theory for managers to pursue directly the happiness of non-shareholders. Furthermore, shareholders have a duty to hold management to account for the moral consequences of the firm’s activities on non-shareholding stakeholders. (shrink)

Strudler rejects shareholder primacy and argues that, once contractual obligations have been fulfilled and shareholders have received a reasonable return on investment, corporate executives may use corporate wealth for the general good. He seeks to establish this claim via an argument that, contrary to the received view, shareholders do not own corporations. After raising some questions about the latter argument, this commentary goes on to argue that the question of corporate ownership is a red herring. The argument for (...) class='Hi'>shareholder primacy that Strudler wants to reject does not rely on the premise that shareholders own the firm. (shrink)

The primary objective of this article is to develop a framework for analyzing the ethical foundations and implications of shareholder wealth maximization (SWM). Distinctions between SWM and the more widely examined construct of profit maximization are identified, the most significant being the central role played in SWM by the market mechanism for pricing the corporation''s securities. It is argued that empirical tests concerned with evaluating the ethical implications of SWM will almost surely involve a joint hypothesis. A number of (...) recent empirical studies aimed at testing hypotheses with explicit ethical content are reviewed. (shrink)

We study 944 shareholder proposals submitted to 343 U.S. firms on climate change issues during 2009–2022. We use logistic and two-stage regression to estimate the propensity for a firm to be targeted or subjected to a vote at the annual general meeting and, for voted proposals, the determinants of that vote. We also examine whether climate-related proposals affect investor returns and how they relate to firms’ future environmental performance and greenhouse gas emissions. Compared to a matched sample, we first (...) find that activists target larger, more carbon-intensive, and less R&D-active firms. Second, voting likelihood is higher for firms with repeated and operations-related proposals and lower pre-proposal environmental ratings. By contrast, disclosure-related proposals are likelier to be negotiated and withdrawn. Third, repeated and operations-related proposals receive higher votes in favor, whereas votes on carbon-intensive firms do not. Fourth, building on the theory that investors act as if they distinguish among the different shareholder proposals based on the expected cost to the firm, we find evidence to support this idea. We find that investors respond negatively to ex-ante costlier proposals, such as those that relate to emissions reduction and target carbon-intensive firms. Fifth, targets’ future environmental performance rating is almost twenty percent higher after a proposal than before compared to the matched sample, whereas emissions do not budge appreciably. (shrink)

This paper examines the shareholder primacy norm as a widely acknowledged impediment to corporate social responsibility and explores the role of business schools in promoting the SPN but also potentially as an avenue for change by addressing misconceptions about shareholder primacy and the purpose of business. We start by explaining the SPN and then review its status under US and UK laws and show that it is not a likely legal requirement, at least under the guise of (...) class='Hi'>shareholder value maximization. This is in contrast to the common assertion that managers are legally constrained from addressing CSR issues if doing so is inconsistent with the economic interests of shareholders. Nonetheless, while the SPN might be muted as a legal norm, we show that it is certainly evident as a social norm among managers and in business schools—reflective, in part, of the sole voting rights of shareholders on corporate boards and of the dominance of shareholder theory—and justifiably so in the view of many managers and business academics. We argue that this view is misguided, not least when associated with claims of a purported legally enforceable requirement to maximize shareholder value. We propose two ways by which the influence of the SPN among managers might be attenuated: extending fiduciary duties of executives to non-shareholder stakeholders and changes in business school teaching such that it covers a plurality of conceptions of the purpose of the corporation. (shrink)

The article presents an analysis and critique of Milton Friedman’s argument that the social responsibility of business is merely to increase its profits. The analysis uncovers a central claim that Friedman implies, but does not explicitly defend, namely that the shareholders of a corporation have no duty to direct that corporation’s management to exercise social responsibility. An argument against this claim is then advanced by way of a convergence strategy, whereby multiple influential moral approaches are shown to align themselves against (...) Friedman. The convergence strategy shows that Friedman’s position lies on the lonely fringes of Western moral thought, and that at least some of Friedman’s professed adherents appear to offer incoherent moral views. The convergence strategy is shown to suggest, but not entail, a stakeholder model of the corporation. The article concludes by considering two objections. (shrink)

Institutional investors are increasingly becoming active owners through voting their shares and engaging in dialogue with investee companies to improve corporate environmental, social and corporate governance (ESG) performance. This article applies a model of stakeholder salience to the shareholder context, analysing the attributes of power, legitimacy and urgency, to determine the factors that are likely to enhance shareholder salience. It is found that a strong business case and the values of the managers of investee companies are likely to (...) be the most important contributors to shareholder salience. (shrink)

This paper contrasts the normative foundations of the stakeholder and shareholder theories of the firm. It demonstrates how the shareholder theory of the firm appears to have at least as much normative support as stakeholder theory and suggests that a way forward may be for a variant of pure shareholder theory to emerge.

This article advances the idea that shareholders who seek to influence corporate behaviour can be understood analytically as norm entrepreneurs. These are actors who seek to persuade others to adopt a new standard of appropriateness. The article thus goes beyond studies which focus on the influence of shareholder activism on single instances of corporate conduct, as it recognises shareholders' potential as change agents for more widely shared norms about corporate responsibilities. The article includes the empirical example of US internet (...) technology companies who, in their Chinese operations, face conflicts of norm systems in regard to freedom of expression on the internet. Shareholders have been active in seeking to persuade these companies to adopt a norm of adhering to global standards for human rights over restrictions implied by authoritarian regimes to which they deliver services. (shrink)

This paper contrasts the normative foundations of the stakeholder and shareholder theories of the firm. It demonstrates how the shareholder theory of the firm appears to have at least as much normative support as stakeholder theory and suggests that a way forward may be for a variant of pure shareholder theory to emerge.

The question of whether, and to what extent, business managers have obligations to stakeholders has been the principal theme in much of recent business ethics literature. The question of whether shareholders have obligations to stakeholders, however, has not been addressed sufficiently. I provide some needed attention to this matter by examining the positions of shareholders in the contemporary world of investing. Their positions are considerably different than that often envisioned by business ethicists and economists where shareholders determine the directions of (...) corporate activities through their voting decisions. Typical contemporary investors rarely control corporate activities. If they own corporate securities directly, generally they own too small an interest to exercise control. And, in most cases, they do not even own corporate securities directly, but, rather, own shares in funds. Because of the positions of shareholders today, it is highly questionable whether most have obligations to stakeholders. This has a significant implication for business managers. Whether or not shareholders have obligations to stakeholders, business managers have a greater obligation to educate shareholders about how corporate activities affect stakeholders. I provide a justification for that obligation and comment on how business managers might begin to fulfill it. (shrink)

We study behind-the-scenes investor activism promoting environmental, social, and governance improvements by means of a proprietary dataset of a large international, socially responsible activist fund. We examine the activist’s target selection, forms of engagement, impact on ESG performance, drivers of success, and effects on the targets’ operations and value creation. Target firms are typically large and visible, perform well, and have high liquidity and low ESG performance. Engagement induces ESG rating adjustments: firms with poor ex ante ESG ratings experience a (...) ratings increase after complying with the activist’s demands, whereas firms with high ex ante ESG ratings experience a ratings decrease following the revelation of their ESG problems. Activism that is focused on environmental and social issues is more likely to succeed if targets are ESG-sensitive. Successful engagements boost targets’ sales. Risk-adjusted excess stock returns of successful engagements outperform those of unsuccessful engagements by 2.7%. Results are especially strong for firms with low ex ante ESG scores. Specifically, targeted firms in the lowest ex ante ESG quartile outperform matched peers by 7.5% in the year after the end of the engagement. Our results thus suggest that the activism regarding corporate social responsibility generally improves ESG practices and corporate sales and is profitable to the activist. Taken together, we provide direct evidence that ethical investing and strong financial performance, both from the activist’s and the targeted firm’s perspective, can go hand-in-hand together. (shrink)

This paper contrasts the normative foundations of the stakeholder and shareholder theories of the firm. It demonstrates how the shareholder theory of the firm appears to have at least as much normative support as stakeholder theory and suggests that a way forward may be for a variant of pure shareholder theory to emerge.

This study surveyed investors to determine the extent to which they preferred ethical behavior to profits and their interest in having information about corporate ethical behavior reported in the corporate annual report. First, investors were asked to determine what penalties should be assessed against employees who engage in profitable, but unethical, behavior. Second, investors were asked about their interest in using the annual report to disclose the ethical performance of the corporation and company officials. Finally, investors were asked if they (...) felt that ethics reports should be audited.The survey results indicate that many shareholders (42%) do not expect a high level of ethical behavior from corporate employees or officers. There is a significant amount of interest in disclosure of ethical issues (72%) and unwillingness to trust management to provide unbiased reports of ethical behavior. If such reports are included with the financial statements, 32 percent of the investors surveyed would prefer to have them audited to provide independent verification. (shrink)

In response to the growing criticisms to shareholder primacy, Oliver Hart, a Nobel Economics Prize recipient, and Luigi Zingales, a very well-known finance professor, have offered a revision to Milton Friedman’s dominant account. Seeking to incorporate social and moral concerns into the objective function of the firm, they have proposed that managers should maximize shareholder welfare instead of shareholder value. Their account has been highly influential and reflects many of the substantive and methodological assumptions of corporate governance (...) scholars within the law and economics literature. In this paper, we engage closely with their account from a normative perspective, unearthing and criticizing the implications of many of these assumptions. In doing so, we also formulate a set of principles necessary to ensure the ethical legitimacy of any proposal that puts shareholders at the center of the firm’s objective function. (shrink)

The relationship between corporate executives and shareholders has riveted the attention of business ethicists since the inception of the field. Most ethicists agree that corporate executives owe their investors the duties of loyalty, candor, and care. These fiduciary duties undergird the promises made to shareholders at the time of incorporation, placing on executives moral obligations to engage in fair dealing and to avoid conflicts of interest.We concur that executives owe all of their existing shareholders both promise-keeping and fiduciary duties and (...) argue that some corporateexecutives violate these responsibilities by attempting to withhold information from or limit information to some shareholders while courting others. We analyze the ethical implications of six techniques and tools that executives use to attract certain types of shareholders while deterring others. We conclude with recommended structural and behavioral changes to these current managerial and investor practices. (shrink)

The relationship between corporate executives and shareholders has riveted the attention of business ethicists since the inception of the field. Most ethicists agree that corporate executives owe their investors the duties of loyalty, candor, and care. These fiduciary duties undergird the promises made to shareholders at the time of incorporation, placing on executives moral obligations to engage in fair dealing and to avoid conflicts of interest.We concur that executives owe all of their existing shareholders both promise-keeping and fiduciary duties and (...) argue that some corporateexecutives violate these responsibilities by attempting to withhold information from or limit information to some shareholders while courting others. We analyze the ethical implications of six techniques and tools that executives use to attract certain types of shareholders while deterring others. We conclude with recommended structural and behavioral changes to these current managerial and investor practices. (shrink)

The role of a corporation is often debated as a mutually exclusive choice between economic responsibility to shareholders and social responsibility to society. An evolving viewpoint embraces an integrated approach focused on long-term value creation for shareholders which benefits other stakeholders. Maximizing long-term shareholder value as a corporate objective can be compatible with stakeholder theory when an enlightened shareholder maximization strategy is embraced. Firms implementing an enlightened shareholder maximization strategy are expected to make decisions and use resources (...) which achieve long-term value-creating outcomes. However, critics of enlightened shareholder maximization as a corporate goal contend this strategy conflicts with maximizing shareholder value. This study explores whether firms which embrace a balanced enlightened shareholder maximization strategy indeed create long-term value which does not sacrifice shareholder wealth. (shrink)

We examine the impact on firm bribery of two corporate governance devices heavily studied in corporate governance research—i.e., separation of ownership and control, and equity share of the largest shareholder. In addition, we investigate the impact of the principal–owner’s gender on firm bribery. From agency theory, we predict that firms with the owner also acting as a manager (owner–manager) are more likely to engage in bribery compared to their counterparts with separation of ownership and control. We argue that an (...) increase of the equity share of the largest shareholder can either increase or decrease firm bribery likelihood depending on the net cost-benefit effect of such bribery actions. In addition, we predict that bribery is more likely to occur when the principal–owner is male rather than female. Using a rich dataset of the World Bank Enterprise Surveys of 2002–2005, we find that the equity share of the largest shareholder is negatively and male principal–owner is positively associated with the likelihood of firm bribery. Furthermore, we reveal that owner–manager is more likely to bribe when the principal–owner is male rather than female. We also observe that the effect of owner–manager is smaller as the equity share of the largest shareholder increases. (shrink)

The managers of colleges and universities have to make decisions on a wide range of issues with regard to goals and how they may be pursued. “Managers” refers to such positions as the president, provost, vice president dean, and director of a university. This paper lays out the theoretical basis for the right answer for these decisions. It does so by setting out the fundamental function of an academic institution, linking this function to a duty, and explaining how to satisfy (...) this duty in hard cases. This article’s thesis is that university managers have a duty to shareholders alone. Shareholders are those who own the university. This duty is satisfied when managers satisfy the fundamental project shareholders assign to a university. My overall argument supports two theses: the shareholder theory is true and university managers’ duty is to satisfy the fundamental function shareholders assign to a university. The argument for the first thesis rested on the notion that a university needs a fundamental function if managers are to have a defensible criterion by which to make decisions and that the shareholder theory best accounts for that function. Along the way, the stakeholder theory were found to be inadequate. The second thesis applies the first thesis. The article then considered some objections. With regard to the shareholder theory, one objection is that the shareholder theory suggests that a manager owes duties to a university’s owner, and not its students, and this is distasteful. A second is that on the shareholder theory, a university can have as a fundamental function something like maximizing the endowment associated with the university, maximizing profits, or promoting a Christian lifestyle, rather than focusing on creating or distributing knowledge. A third is that a university manager has role-based duties. None of these objections is fatal to shareholder theory. (shrink)