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Corporations are under pressure to use their outsized power to benefit society, but this advocacy is unlikely to result in meaningful change because corporate law’s incentive structure rewards fiduciaries who maximize shareholder wealth. Therefore, this Essay proposes a way forward that works within the wealth-maximization framework and yet could result in dramatic social change. The idea is simple: Use private debt markets to provide incentives for public-interested corporate action. Specifically, individuals who value prosocial corporate decisions could finance them by contributing to corporate social responsibility (CSR) bonds that would offset the corporation’s implementation costs. To provide an incentive to depart from wealth maximization, the bond would stipulate that the contribution would be forgiven when the decision is implemented by the corporation — a key difference from existing prosocial financial instruments.

More broadly, the insight that the individuals with the strongest interest in seeing corporations act responsibly are not always the company’s shareholders has consequences for corporate law and corporate governance. In particular, it cautions that we should recognize the limits of shareholder activism to achieve socially optimal levels of corporate responsibility. The more difficult questions are whether and how to reorient our corporate law system away from shareholders and toward other constituencies. As that project forges on, this Essay describes a tool that would enable stakeholders to influence corporate behavior without any delay.


Business Organizations Law | Law


This article originally appeared in 121 Colum. L. Rev. 1617 (2021. Reprinted by permission.