Many thanks to Alan for pushing me, both in this symposium and elsewhere on the Court's view of the social ends to which corporate funds can be put. Alan characterizes two different versions of corporate social responsibility.
The first, "weak" version allows managers to pursue policies that reduce profits, so long as shareholders expressly agree. Under this approach altruistic shareholders may authorize managers to divert corporate profits to charity, thereby enhancing shareholder welfare. Such an approach treats shareholder welfare, not profit, as the proper corporate maximand and thus furthers the shareholder primacy norm. The second "strong" brand contemplates that managers can pursue policies that reduce profits so as to improve the overall welfare of society, to the detriment of shareholder welfare if necessary. Under this latter approach managers can donate corporate funds to charity or overpay employees without shareholder approval even if the managers are certain that shareholder welfare will suffer as a result. Shareholders’ only remedy is to sell their stock or elect new directors. Friedman, it should be noted, objected to this latter form of CSR in his famous 1970 essay.
The rub for me is that how differently CSR plays out in the closely-held (whatever that means) context versus the big public corporations we generally associate with CSR. When, if ever, will a large public corporation say: "We are going green because, to heck with the shareholders, it's the right thing to do?"
Please. The managers will say some variation of "this is good for the bottom line, it's good for branding, and long-term it's good for us all." In short, they will say they are serving shareholders BY serving the common good. Take as a given that most public firm CSR policies are justified in this way. I think it is only in the private Hobby Lobby firm that we are likely to see an admission of true charity where we can easily apply Alan's strong or weak form of CSR, and even ask the question of whether the shareholders consented to the policy.
The question from Alan's point of view would then become, I think, how to separate those public-firm CSR policies that are really disguised social welfare schemes from those that are genuine--even if misguided--attempts to further corporate interests by way of doing good. I suppose that's why Alan argues for a profit-maximizing default that shareholders can opt out of, rather than the opposite default.
As a normative matter I believe the default rule should be one of profit maximization. Whether I am correct is a topic for a different symposium. But here again, our essay was somewhat more guarded. In particular we said: “While some case law [citing Dodge v. Ford] suggests that fiduciaries must unalterably maximize shareholder profits, we believe that shareholders can waive any such rule, like other default rules.”
But Dodge v. Ford doesn't really say you have maximize shareholder profits, just that you can't ignore shareholders and run a semi-eelemosynary1 institution. Of course I agree with Alan that you can waive the rule, but the question is where the default is. And it seems to me that, given the wide berth the business judgment rule affords managers, the default is probably to allow for CSR as long as it's in some way justifiable as long-term wealth maximizing. The question is why shareholders who are suspicious of corporate-Samaritan managers don't create firms that opt out of CSR entirely, and forbid managers from anything approaching CSR?
1 I love that word, and I only get to say it in this context.
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