What responsibility do corporations have to society (if any)? How should they balance environmental, social, and governance factors? Here at Bite-Sized Business Law, we’ve already covered corporate social responsibility and environmental social governance (ESG) from a few different perspectives. Today, we unpack a straightforward defense of shareholder primacy, or in other words, the idea that pursuing any corporate aim that does not maximize shareholder value conflicts with the legal and practical purposes of a corporation. Here to unabashedly defend this concept is one of the foremost American experts in corporate governance and the William D. Warren Distinguished Professor of Law at UCLA School of Law, Stephen Bainbridge. Stephen is a business law professor and one of the most cited scholars in corporate governance law. His new book, The Profit Motive, argues that shareholder wealth maximization is not only “required by law, but what the law ought to require.” In this episode, Stephen addresses questions surrounding corporate purpose using historical, legal, economic, and social perspectives and explains why he believes that shareholder primacy is inevitable. To find out how we can reconcile ESG initiatives with shareholder value creation, tune in today!

Key Points From This Episode:

• The role of the Business Roundtable in prompting Stephen to write The Profit Motive.
• Lessons about shareholder primacy from the Dodge v. Ford case of 1919.
• Whether or not the Milton Friedman Doctrine is still relevant in the 21st century.
• The problem with asking corporations to help governments solve social issues.
• Insight into the extent of greenwashing and the challenges of juggling competing pressures.
• How the story of Etsy illustrates the threat of hedge fund activism.
• Public benefit corporations and whether they alleviate the ESG/shareholder primacy tension.
• Why shareholders can’t change the fundamental nature of the businesses they invest in.
• The realities of “shareholder voice”.
• Ways that organizations are struggling to navigate the political polarization of ESG.
• Stephen’s win-win scenario: give directors wide discretion that they use toward the long-term benefit of shareholders.
• Why Leo E. Strine, Jr. is the perfect example of who The Profit Motive was written for.
• How to reconcile broader social interests with corporate interests: be more like Bill Gates!
• Ways that Stephen subscribes to the “think globally, act locally” philosophy.

Links Mentioned in Today’s Episode:

Stephen Bainbridge

The Profit Motive

Stephen Bainbridge Blog

Stephen Bainbridge on Twitter

Stephen Bainbridge on LinkedIn

Business Roundtable

Fordham University School of Law Corporate Law Center