This Article explores the relationship between shareholder ethical responsibility and corporate law. Shareholder responsibility is a neglected aspect of the debate about corporate social responsibility. In that debate, conservatives defend the view that corporate law obligates management to pursue stockholders' profit without regard to ethical considerations or social responsibility except insofar as the latter might affect profits. Even some critics of profit maximization concede the accuracy of the conservatives' description of management's corporate law duties, and blame those duties for corporations' antisocial behavior. The truth is, however, that corporate law does not preclude the independent consideration of ethics or social responsibility. In this Article, I argue that if the critics are correct that corporate power is used unethically and irresponsibly in the pursuit of greater profits, it is not so much because of corporate law as because of the self-interest and inertia of shareholders, for whom the maximization of their profits is congenial.
The "responsible" shareholder is therefore important because with such shareholders, rather than with corporate managers alone, rests any hope one might have for greater corporate social responsibility.
Curiously, however, many academic corporate lawyers are dismissive or suspicious of the notion of ethical investment decision-making, by which I mean the making of investment decisions at least partly on the basis of considerations other than profit or other self-interested objectives. Ethical investment decision-making is, I argue, unimpeachable from the standpoint of the conception of the corporation that now predominates in the corporate law academy-the view that the corporation is best thought of as a "nexus of contracts" among the various participants. However, ethical investors are awkward for those academic corporate lawyers who subscribe to the view that corporations should be managed exclusively with a view to the maximization of stockholder profits, a normative position not entailed by the "nexus of contracts" conception. In this Article, I suggest that it is misguided to respond to this tension, as some prominent theorists of the corporation have done, by disparaging ethical investment decision-making.
The Article is organized as follows. In Part I, I outline the debate concerning the legality and desirability of corporate social responsibility and discuss the underlying theoretical framework. In Part II, I articulate the view that shareholders have a degree of responsibility for the conduct of incorporated business, because they are the people for whose benefit the conduct occurs, and no one forces them to invest. In Part III, I discuss the relationship between shareholder responsibility and the conventional theoretical framework for the normative analysis of corporate law.
In Part IV, I discuss the implications of the foregoing for three specific questions arising in the context of ethical investing, namely (a) whether corporate management should be permitted (or required) to take into account the expressed ethical views of groups of shareholders; (b) whether corporate law should filter out ethically-motivated shareholder proposals; and (c) whether disclosure of matters relevant to ethical analysis of corporate conduct should be mandatory.
Two qualifications about the scope of this Article are in order before proceeding further. First, the focus of this Article is on shareholders in widely-held corporations, and so I will not discuss "socially responsible" investments in anything other than publicly traded shares. second, I assume an individual shareholder investing for his or her own account, and do not discuss pension funds, socially responsible mutual funds, or other intermediaries, as I want to focus on corporate law issues and leave to one side, for present purposes, issues arising under the law of trusts. …