Volume 73, Issue 6, 1697-1760
In the past few years, there has been a dramatic increase in shareholder support for proposals on political, environmental, ethical, and social issues, from climate change and employee diversity to animal welfare and corporate political spending (“social proposals”). But why do investors in a business corporation concern themselves with socially relevant issues? And how should corporate and securities law address this phenomenon?
Based on the analysis of more than 2,900 social proposals submitted from 2010 to 2021, this Article argues that shareholder activism on socially relevant issues (“stockholder politics”) cannot be entirely explained by financial motives or by special interest capture, as the traditional theories hold. Rather, stockholder politics should be understood as a matchmaking enterprise in which a relatively small number of specialized actors (“stockholder politics specialists”) connect shareholders with prosocial and expressive motives on one side with corporate stakeholders, citizens, and social and policy activists on the other side. Specialists “sell” information, monitoring, and voting opportunities to shareholders interested in socially relevant issues, and they “sell” corporate voice externally to outside actors, including employees, consumers, and citizens concerned about corporate externalities.
This complex phenomenon has both potential benefits and costs for corporate governance. On the one hand, it constrains managerial discretion and reduces managerial agency problems on socially relevant issues by monitoring corporate activities and eliciting shareholder preferences. On the other hand, it can engulf corporate decision-making with multidimensional decisions with no clear equilibrium, and it can exacerbate the agency problems of institutional investors.
Keywords: corporate governance, corporate social responsibility, ESG, shareholder proposals, corporate democracy.
JEL Classification: D21, D23, G30, G34, G38, K22.