The UArizona Freedom Center Justice, Law, and Capitalism Speakers Series presents an in-depth examination of ESG through the insights of nationally renowned scholars. They will explore the multidisciplinary dimensions of ESG, as an instantiation of private law embodying justice concerns, and address both its legitimacy and broader social and economic implications. These talks are open to faculty, students, and the public, but space is limited.
William Bratton is recognized internationally as a leading writer on business law. He brings an interdisciplinary perspective to a wide range of subject matters. He will be discussing his paper:
Shareholder Primacy Versus Shareholder Accountability, published in the European Corporate Governance Institute ECGI Working Paper Series in Law.
Abstract: When corporations inflict injuries in the course of business, shareholders wielding ESG principles can, and now sometimes do, intervene to correct the matter. In the emerging fact pattern, corporate social accountability comes out of its historic collectivized frame to become an internal subject matter—a corporate governance topic. As a result, shareholder accountability emerges 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 a run of 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–the shareholders should have the power to tell managers how to run the firm. The two norms, once put into operation, are supposed to assure 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 at an unsatisfactory destination riven by contradiction and tension.
The Speakers Series is curated by Saura Masconale, Freedom Center Associate Director and Assistant Professor of Political Economy and Moral Science, and Simone Sepe, Freedom Center Faculty, Chester H. Smith Professor, and Professor of Law and Finance.
For more information, contact Saura Masconale.
