Corporate Law, Profit Maximization and the "Responsible Shareholder"

Abstract

The article concerns the theorization of shareholder responsibility and ethical investing. The article develops the following arguments, among others:\nIf public corporations pursue stockholder profits “pathologically,” as claimed by some critical scholars, it is not because of any obligation arising under corporate law, but because the pursuit of stockholder profits is congenial to the stockholders.\nFor this reason (and others discussed in the article), shareholders have an ethical stake in the conduct of corporate business, quite apart from any notion that shareholders “own” the corporation.\nA phenomenon which the article terms “bounded empathy,” analogous to “bounded rationality”, can help to explain why, in practice, shareholders’ sense of ethical engagement is more limited than one might wish.\nAlthough unimpeachable from the standpoint of the “nexus of contracts” conception of the corporation, the concept of ethical investing is awkward for corporate law theorists who advocate a rule of exclusive profit-maximization.\nThese theorists respond by characterizing ethical investing as either irrational and aberrant, or else rational and pernicious, both of which characterizations are misguided.\nThe article also considers the implications of the foregoing for two concrete questions arising under corporate law in connection with ethical investing, specifically (a) whether the law should filter out ethically-motivated shareholder proposals; and (b) whether disclosure of matters relevant to ethical analysis of corporate conduct should be mandatory.

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