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U.S. politicians are actively "marketcrafting": the passage of the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act collectively mark a new moment of robust industrial policy. However, these policies are necessarily layered on top of decades of shareholder primacy in corporate governance, in which corporate and financial leaders have prioritized using corporate profits to increase the wealth of shareholders. The Administration and Congress have an opportunity to use industrial policy to encourage a broader reorientation of U.S. businesses away from extractive shareholder primacy and toward innovation and productivity. This Article examines discrete opportunities within the major policy programs for rule-makers to include corporate guardrails to prevent public funds from flowing mainly to shareholders, to encourage gainsharing with multiple corporate stakeholders, and to ensure that the public interests embedded in industrial policy are met. [ABSTRACT FROM AUTHOR]

When corporations inflict injuries in the course of business, shareholders wielding environmental, social, and governance ("ESG") principles can, and now sometimes do, intervene to correct the matter. In the emerging fact pattern, corporate social accountability expands out of its historic collectivized frame to become an internal subject matter--a corporate governance topic. As a result, shareholder accountability surfaces as a policy question for the first time. The Big Three index fund managers, BlackRock, Vanguard, and State Street, responded to the accountability question with ESG activism. In so doing, they defected against corporate legal theory's central tenet, shareholder primacy. Shareholder primacy builds on a pair of norms. The first is substantive and concerns purpose--the firm should be managed for the shareholders' financial benefit. The second norm is procedural and concerns power--shareholders should be able to tell managers how to run the firm. Once put into operation, the two norms are supposed to ensure that market control over production, and hence economic efficiency, is maximized. Prior to the Big Three's turn to ESG activism, the two norms operated in tandem--power on the ground assured shareholder value maximization in the boardroom toward the generally accepted efficiency goal. But power on the ground now also triggers questions about shareholder accountability, and the Big Three, upon switching into activist mode to address those questions, put the two norms out of synch, causing the directive of management for the shareholders' financial benefit to lose focus and compromising shareholder primacy in the performance of its mission. This Article looks closely at this confrontation between shareholder primacy and shareholder accountability, asking three questions: (1) whether investment institutions can legitimately sacrifice their investors' financial returns in connection with the installation of socially responsible business practices at operating companies; (2) whether assuming ESG concerns take a permanent place at the top of the corporate governance agenda, shareholder primacy can continue to provide a viable cornerstone for corporate legal theory; and (3) whether recent institutional interventions in the name of ESG herald a structural shift toward a welfarist corporation. The Article answers all three questions in the negative. The sequence of questions and answers delivers us to an unsatisfactory destination riven by contradiction and tension. [ABSTRACT FROM AUTHOR]

Scholars who favor shareholder primacy usually claim either that managers should not fulfill corporate duties of beneficence or that, if they are required to fulfill them, they do so by going against their obligations to shareholders. Distinguishing between structurally different types of duties of beneficence and recognizing the full force of the normative demands imposed on managers reveal that this view needs to be qualified. Although it is correct to think that managers, when acting on behalf of shareholders, are not required to fulfill wide duties of charity, they are nevertheless required to fulfill a variety of narrow duties of beneficence. What is more, the obligation to fulfill these duties arises precisely because they are acting on behalf of shareholders. As such, this article 1) refines our understanding of the duties of corporate beneficence and 2) helps to identify which duties of beneficence are imposed on managers when they are acting on behalf of shareholders. [ABSTRACT FROM AUTHOR]

The article analyzes potential of systemic stewardship with tradeoffs among portfolio companies and the extent to which universal owners can and should be expected to sacrifice single firm value. Topics discussed are potential benefits of systemic stewardship, single firm focus and egalitarian focus of corporate law, shareholder primacy and stakeholderism, climate stewardship, and conflict between tradeoff strategy and universal owners' business model and legal obligations to clients.

The distinction between what I call nonelective obligations and discretionary obligations, a distinction that focuses on one particular thread of the distinction between perfect and imperfect duties, helps us to identify the obligations that carry over from principals to agents. Clarity on this issue is necessary to identify the moral obligations within "shareholder primacy" (i.e., "shareholder theory"), which conceives of managers as agents of shareholders. My main claim is that the principal-agent relation requires agents to fulfill nonelective obligations, but it does not always require (and sometimes actually prohibits) discharging discretionary obligations. I show that the requirement to fulfill nonelective obligations is more far-reaching than has been acknowledged by most defenders and critics of shareholder primacy. But I also show that managers are not bound by certain discretionary obligations like charity, showing that their moral obligations are more circumscribed than the obligations that apply to human beings in general. [ABSTRACT FROM AUTHOR]

Oliver Hart, Nobel Laureate in Economics for 2016, and economist Luigi Zingales recently published an article justifying companies’ pursuit of social objectives at the expense of profits from within the shareholder primacy framework. This Article highlights an important consequence of this approach: a new agency problem between managers and shareholders regarding social preferences. This Article provides two possible solutions to this agency problem: a bottom-up solution focused on shareholders’ ability to submit proposals on such issues and a top-down solution based on an independent board sub- committee intended to identify social objectives and forward them for shareholder approval.

Corporate law scholarship revolves around two polar conceptions, known as "shareholder primacy" and "corporate social responsibility." This Article takes the literature in a new direction, arguing that the current dichotomy misses a crucial aspect of corporate law: its norm of legal primacy. Any pursuit of profit. by the corporation, is legally permitted only within the bounds of full compliance with non-corporate positive law. When the corporation acts unlawfully, corporate law provides a powerful, and until now undertheorized, set of remedies against its fiduciaries and shareholders. As this Article demonstrates, the most effective way to promote socially desirable corporate behavior is by utilizing the legal primacy devices that corporate law already offers, while continuing to strengthen non-corporate law. Connecting legal primacy with corporate practice, this Article discusses a number of doctrines, some ofwhich have recently become high-profile topics of litigation and scholarship: the fiduciary duty of good faith; directors' oversight duties; the mandatory limits on dividends and buybacks; the shift in corporate purpose in the vicinity of insolvency; the seniority of preferred and trust shareholders; and the judicial dissolution of law-breaking corporations. The analysis offered in this Article can help shape the law to better protect stakeholders (without departing from rule of law principles, or the rights that entities and shareholders do have), and chart a more nuanced trajectory for broader discourse on business law, private law, and public regulation. [ABSTRACT FROM AUTHOR]

Under the traditional shareholder primacy doctrine, corporate decisions were to be made with a single objective: the maximization of shareholder welfare. Paradoxically, that self-regarding view did much to maximize social welfare, because the corporate directors and officers knew full well that they had to do business with suppliers, customers, employees, and the public at large to achieve that end. The recent environment-social-governance model seeks to upend that model by seeking to make officers and directors answer to these many masters. That movement believes that shareholders want boards to take into account social values. Surely they do, but there is no agreement which values count and to what extent. The key advantage of the shareholder primacy model is it lets these divergent views be expressed at the shareholder level, so as to tamp down the negative effect on corporate performance in dealing with conflicts of interest on social issues. [ABSTRACT FROM AUTHOR]

Delaware Supreme Court Chief Justice Leo Strine and Nicholas Walter have recently published an article arguing that the U.S. Supreme Court’s decision in Citizens United v. FEC undermines a school of thought they call “conservative corporate law theory.” They argue that conservative corporate law theory justifies shareholder primacy on grounds that government regulation is a superior constraint on the externalities caused by corporate conduct than social responsibility norms. Because Citizens United purportedly has unleashed a torrent of corporate political campaign contributions intended to undermine regulations, they argue that the decision undermines the viability of conservative corporate law theory. As a result, they contend, Citizens United “logically supports the proposition that a corporation’s governing board must be free to think like any other citizen and put a value on things like the quality of the environment, the elimination of poverty, the alleviation of suffering among the ill, and other values that animate actual human beings.”This essay argues that Strine and Walker’s analysis is flawed in three major respects. First, “conservative corporate law theory” is a misnomer. They apply the term to such a wide range of thinkers as to make it virtually meaningless. More important, scholars who range across the political spectrum embrace shareholder primacy. Second, Strine and Walker likely overstate the extent to which Citizens United will result in significant erosion of the regulatory environment that constrains corporate conduct. Finally, the role of government regulation in controlling corporate conduct is just one of many arguments in favor of shareholder primacy. Many of those arguments would be valid even in a night watchman state in which corporate conduct is subject only to the constraints of property rights, contracts, and tort law. As such, even if Strine and Walker were right about the effect of Citizens United on the regulatory state, conservative corporate law theory would continue to favor shareholder primacy over corporate social responsibility.

This Article identifies and analyzes the de facto and de jure end of lawyers' exclusivity over the practice of law in the United States. This development will have profound implications for the legal profession, the careers of individual lawyers, and the justice system as a whole. First, the Article argues that various financial products that have recently flooded the legal market are functionally equivalent to investing in and owning law firms and create all the same governance challenges as allowing nonlawyers to directly own stock in law firms. Second, the Article analyzes Arizona's groundbreaking legalization of nonlawyer participation in law firms, effective January 1, 2021, and the effects it will have nationally. Third, the Article explains that the drawbacks of liberalizing the practice of law are rooted in the conception of shareholder primacy, a bedrock principle of corporate law. This principle would encourage lawyers to prioritize profit maximization for the benefit of their investors over the interests of clients and the courts. Fourth, despite the apparent dangers, there are reasons to celebrate the end of the era of the legal practice as the exclusive purview of lawyers. Lawyers' monopoly on the practice of law hinders inclusion and diversity and, counterintuitively, undermines practitioners' dignity and well-being. Fifth, the apparent dangers of liberalization can be avoided if states follow Arizona in allowing nonlawyer participation in the practice of law but condition it on organization as an Alternative Business Structure with certain professional responsibilities. More specifically, the Article proposes a type of "benefit entity," which I call "legal benefit entity" (LBE). LBEs will be required to privilege the interests of clients and the courts over those of investors. The final Part explains what an LBE should look like. [ABSTRACT FROM AUTHOR]

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Any model of corporate governance must answer two basic sets of questions: (1) Who decides? In other words, when push comes to shove, who has ultimate control? (2) Whose interests prevail? When the ultimate decision maker is presented with a zero sum game, in which it must prefer the interests of one constituency class over those of all others, whose interests prevail? On the means question, prior scholarship has almost uniformly favored either shareholder primacy or managerialism. On the ends question, prior scholarship has tended to favor either shareholder primacy or various stakeholder theories. In contrast, this author has proposed a “director primacy” model in which the board of directors is the ultimate decision maker but is required to evaluate decisions using shareholder wealth maximization as the governing normative rule. Shareholder primacy is widely assumed to be a defining characteristic of New Zealand company law. In assessing that assumption, it is essential to distinguish between the means and ends of corporate governance. As to the latter, New Zealand law does establish shareholder wealth maximization as the corporate objective. As to the former, despite assigning managerial authority to the board of directors, New Zealand company law gives shareholders significant control rights. Comparing New Zealand company law to the considerably more board-centric regime of U.S. corporate law raises a critical policy issue. If the separation of ownership and control mandated by the latter has significant efficiency advantages, as this article has argued, why has New Zealand opted for a more shareholder-centric model? The most plausible explanation focuses on domain issues, which suggest that there are a small number of New Zealand firms for which director primacy would be optimal. The unitary nature of the New Zealand government may also be a factor, because the competitive federalism inherent in the U.S. system of government promotes a race to the top in which efficient corporate law rules are favored.

A high-profile public debate is taking place over one of the oldest questions in corporate law, namely, "For whom is the corporation managed?" In addition to legal academics and lawyers, high-profile business leaders and business school professors have entered the fray and politicians have offered legislative "fixes" for the "problem of shareholder primacy." In this essay, I take this debate to be an interesting development in corporate governance and try to understand and explain what is going on. I argue that, analytically and conceptually, there are four separate questions being asked. First, what is the best theory of the legal form we call "the corporation"? Second, how should academic finance understand the properties of the legal form when building models or engaging in empirical research? Third, what are good management strategies for building valuable firms? And, finally, what are the social roles and obligations of large publicly traded firms? I argue that populist pressures that emerged from the financial crisis, combined with political dysfunction, have led to the confusion of these different questions, with regrettable results. [ABSTRACT FROM AUTHOR]

Employing utilitarian criteria, Jones and Felps, in "Shareholder Wealth Maximization and Social Welfare: A Utilitarian Critique" (Business Ethics Quarterly 23[2]:207-38), examined the sequential logic leading from shareholder wealth maximization to maximal social welfare and uncovered several serious empirical and conceptual shortcomings. After rendering shareholder wealth maximization seriously compromised as an objective for corporate operations, they provided a set of criteria regarding what a replacement corporate objective would look like, but do not offer a specific alternative. In this article, we draw on neo-utilitarian thought to advance a refined version of normative stakeholder theory that we believe addresses a major remaining criticism of extant versions, their lack of specificity. More particularly, we provide a single-valued objective function for the corporation—stakeholder happiness enhancement—that would allow managers to make principled choices between/among policy options when stakeholder interests conflict. [ABSTRACT FROM AUTHOR]

Non-financial reporting reforms have moved ahead around the world as governments work to advance sustainable development and improve environmental, social, and governance ("ESG") risk management by firms and investors In the United States, however, non-financial reporting reforms face resistance and have lagged behind. This article offers an overview of the state of non-financial reporting in the U.S. and explains why the U.S. approach still diverges so visibly from the reform path adopted by other governments around the world. It then suggests potential directions for non-financial disclosure reform that take account of the U.S. institutional context. The article concludes by considering the implications of the United States' market-driven approach for non-financial reporting reform and for the future of sustainable finance more broadly. [ABSTRACT FROM AUTHOR]

Ownership in the global equities markets is dominated by large institutions that manage the savings of beneficiaries with long investment horizons. These asset managers rely on incomplete investment models that betray the interests of their beneficiaries and threaten their collective future. The models encourage individual companies to compete without regard for health of the critical social and environmental systems that support the long-term value of those beneficiaries' diversified portfolios and lived experience. These naïve models ignore the growing cost of profit-driven negative externalities. This article examines the latest models of benefit corporation law, a new form of governance that overturns the rule of shareholder primacy, and argues that their principles should be expanded to cover the entire chain of investing, from savers to funds to asset managers and finally to the real economy. [ABSTRACT FROM AUTHOR]

For generations, scholars have debated the purpose of corporations. Should they maximize shareholder value or balance shareholder interests against the corporation's broader social and economic impact? A longstanding and fundamental premise of this debate is that, ultimately, it is up to corporations to decide. But this understanding is obsolete. Securities law robs corporations of this choice. Once corporations go public, the securities laws effectively require that corporations maximize share price at the expense of all other goals. This Article will be the first to identify the profound impact that the securities laws have on the purpose ofpublic firms--a phenomenon that it calls "de facto shareholder primacy. ". The Article will make three primary contributions to the literature. First, it will provide a rich and layered account of de facto shareholder primacy. The phenomenon is not the result of considered legislation and regulatory decision. Rather, hedgefund activists leverage the transparency that the securities laws afford to identify, and force companies to adopt, strategies that increase share prices. Their activities cast a shadow over the public market. Because firms must maximize share prices or face costly, disruptive, and protracted battles with activist hedge funds, they preemptively focus solely on stock values. The activists ' novel and opportunistic use of the securities laws has transformed the regulatory apparatus into a powerful lever of shareholder primacy. Second, this Article will show how this distortion of the regulations causes harm. Activist interventions bring the laws into conflict with principles of federalism and private ordering, which hurts entrepreneurs, investors, and equity markets. Finally, to address these concerns, this Article will recommend that hedge funds report their holdings in target firms earlier than currently required. This small change to the securities laws would end hedge-fund activism and thereby disentangle the securities laws from corporate purpose. [ABSTRACT FROM AUTHOR]

The article focuses on history of the shareholder primacy norm and the need for management to act and earnings per share (EPS) guidance and the notion of short-termism and mentions content of the required disclosures, including the disclosure of forward-looking information.

The article argues whether corporate purpose is determined by the shareholders themselves, or imposed by the law. It mentions reason to believe that shareholders would not uniformly choose a corporate purpose of maximizing longterm shareholder wealth, even at the expense of other social goals. It also mentions increasing shareholder assertiveness may heighten the tension between actual, expressed shareholder preferences.

The article focuses on development of shareholder democracy in the U.S. Topics discussed include recent resurgence of shareholder democracy, including monumental governance reforms and shareholder proxy access; path taken by certain shareholders to avoid the regular corporate governance regime and instead lobby for individual or special interest preferences; and shareholder primacy to managerial capitalism and managerialism.

Copyright of Universidad & Empresa is the property of Colegio Mayor de Nuestra Senora del Rosario and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The article focuses on coherent legal theory of shareholder primacy which cannot be stated as a pithy rule of law and enforceable sanction. It mentions form would irreconcilably conflict with other foundational rules of corporate law and corporate governance and exists as a filament of the corporate system and architecture of the corporate system. It also mentions normative theory of shareholder wealth maximization or the idea that shareholder primacy promotes an equitable or ethical society.

Globalization and the growth of multinational enterprises (MNEs) have been accompanied by an increasing call for corporations to take responsibility for their environmental and social impacts, and for greater corporate disclosure and transparency with regard to nonfinancial risks (collectively known as corporate social responsibility or CSR). At the same time, governments have increasingly turned to mandatory obligations for formerly voluntary CSR engagement, a trend we call the legalization of CSR. This article analyzes the “hardening” and legalization of CSR, and considers what this process tells us about norms and assumptions regarding the social responsibility of firms in the United States and around the world. Through our analysis of corporate trends, regulations, and case law from the United States, European Union, China, and India, we argue that the process of legalization and redefinition of CSR through a shareholder primacy lens may, troublingly, undermine the very notion of CSR. In the face of these trends, this article concludes with a redefinition of CSR that includes an express commitment to corporations’ social and ethical responsibility to society. [ABSTRACT FROM AUTHOR]

Finding out how business can be a part of the shift to sustainability has never been more crucial. This article starts out by presenting the results of a multi-jurisdictional comparative analysis of corporate law, seeking to investigate the barriers, to and possibilities for, sustainable business in the dominant business form -- the corporation. The social norm of shareholder primacy is identified as a major barrier to sustainability. Shareholder primacy has taken over the space that corporate law leaves open for the discretion of the individual corporate board. The financial risks of ignoring the impacts of unsustainability have the potential to bring sustainability into the core of the profit-seeking purpose of the corporation. The article concludes with a brief presentation of a work-in-progress -- a Sustainable Governance Model -- which can be used as a starting point for businesses wishing to transition towards sustainability. The model can also form the basis of a corporate law reform proposal, which is arguably a necessary step to shift business away from the unsustainable 'business as usual' approach and onto a sustainable path. [ABSTRACT FROM AUTHOR]

This study finds that CEOs' and CFOs' voluntary certification of internal controls over financial reports (ICFR) in Australia are associated with higher quality earnings, suggesting that disclosures are credible. The results are robust to two-stage regression analysis, propensity score matching, and alternative measures of earnings quality. We use three-stage regression modeling to address the issue of the joint effects of ICFR and audit fees on accruals quality and the demand effect of corporate governance on audit fees. Using audit fees as a determinant of credible ICFR certification, we find that auditors charge lower fees for firms with good ICFR. Such firms are also associated with better corporate governance. The findings of our study have implications for policymakers, regulators, and capital market participants [ABSTRACT FROM AUTHOR]

In an assessment of Lawson's social ontological analysis of the modern corporation, we consider what is marginalized: the significance of the status and the effects of the separate legal entity (SLE). The SLE is conceived as a specific type of construct that is ascribed particular properties through its stabilization within and between different (legal and economic) discourses. By showing how the SLE, as a reified construct, is rendered meaningful, real and/or consequential, we illustrate how the 'social ontology' of the modern corporation is radically contingent and inescapably contested. Given that the social ontology of the corporation defies definitive specification, we regard the prospect of the completeness of its disclosure (e.g. by foregrounding a specific referent) as problematic. Indeed, any account of social ontology that foregrounds a specific referent is seen to obscure a political process in which the stabilization of the SLE rests on the contingent foregrounding of particular priorities. This leads us to reflect on the power-inflected social organization of knowledge generation. Key to the explication of social ontology, and with specific reference to the corporation, is not, as Lawson contends, the concept of 'community' but the inescapability of contestation within relations of power that translate ontological openness into specific but precarious forms of ontic closure. [ABSTRACT FROM AUTHOR]

The article discusses the author's views about his decades-long career as a teacher at Washington and Lee School of Law, and it mentions the scholarly work that the author has conducted in collaboration with Professor Lyman Johnson, as well as information about the history of U.S. corporation law. Social costs and shareholder wealth maximization (shareholder primacy) are addressed, along with the historical aspects of hostile takeovers and corporate social responsibility.

The article discusses the author's views about progressive corporate law as of 2017, and it mentions shareholder primacy, the historical relationship between corporate law and economics, and potential changes involving corporation law. Corporate Social Responsibility (CSR) and the theory of the firm are addressed, along with stakeholder theory and a call for structural corporate law reform. Creditors and consumer protection laws are assessed.

The article discusses American corporate law in relation to a debate about the allocation of power between corporate boards and shareholders, and it mentions how shareholders face problems such as adverse selection and managerial moral hazard. The views of shareholder advocates are examined, along with issues involving shareholder removal, market prices, and shareholder primacy. Shareholder-manager relations are assessed.

The article examines proxy rules and restrictions on shareholder voting rights. Topics discussed include evolution of discretionary voting power under the proxy rules; mechanisms that can be used to prevent the transfer of discretionary voting authority from shareholders to management; and restriction imposed by management on shareholder proposals concerns advance notice requirements.

This paper offers a new model of corporate purpose and applies it to the emerging legal form of the benefit corporation. First, corporate purpose is applied to the two currently dominant models of shareholder and stakeholder focus. Both are found inadequate to promote positive social and environmental impact because they remain anchored in a profit-seeking corporate purpose. Second, we offer an alternative model of Integrative Corporate Purpose (ICP). Third, we apply ICP to benefit corporations as an ethically superior model for promoting the common good. The benefit corporation offers four advancements: (1) positive duties to stakeholders; (2) legal protections for managers and directors to manage for the common good; (3) a requirement to have a purpose geared toward public benefit; and (4) required reporting of benefits to stakeholders and the environment. The implications of benefit corporations are discussed within the larger arena of corporate social responsibility. [ABSTRACT FROM AUTHOR]