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Source: The Harvard Law School Forum on Corporate Governance, December 21, 2022, posting

Good Corporate Citizenship We Can All Get Behind?: Toward A Principled, Non-Ideological Approach To Making Money The Right Way

Posted by Leo E. Strine, Jr. (University of Pennsylvania), on Wednesday, December 21, 2022

Editor’s Note: Leo E. Strine, Jr. is the Michael L. Wachter Distinguished Fellow at the University of Pennsylvania Carey Law School; Senior Fellow, Harvard Program on Corporate Governance; Of Counsel, Wachtell, Lipton, Rosen & Katz; and former Chief Justice and Chancellor, the State of Delaware. This post is based on his article forthcoming in the Business Lawyer. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and For Whom Corporate Leaders Bargain (discussed on the Forum here) both by Lucian Bebchuk and Roberto Tallarita; Corporate Political Speech: Who Decides? (discussed on the Forum here) by Lucian Bebchuk and Robert J. Jackson, Jr; The Untenable Case for Keeping Investors in the Dark (discussed on the Forum here) by Lucian Bebchuk, Robert J. Jackson Jr, and James Nelson; and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy (discussed on the Forum here) by Leo E. Strine, Jr.



A rancorous debate is raging. Must corporations just seek profits for stockholders? Or may they pursue not just the best interests of all stakeholders, but influence public policy on controversial political issues and tilt the election process toward candidates and causes they favor?

This debate has historical antecedents, as both the left and the right have long been concerned about the legitimacy of corporations using other people’s capital for political and social causes. Each understands that stockholders share only one purpose — a solid return — and have diverse political beliefs. Each understands freedom is imperiled if workplaces become subject to dictated orthodoxies. Each asks: who are CEOs to use other people’s money to advance their own idiosyncratic views of the good?

But, rather than come together to forge constructive solutions, the right and left praise corporations that take policy positions they like, while condemning as illegitimate corporations that disagree with them. That’s natural but unhelpful.

This article seeks to ameliorate this fractious debate threatening to politicize a business world that ought to be open to all Americans of good faith. To this end, the article maps out a non-partisan, principled conception of good corporate citizenship drawing on shared assumptions of the right and the left about the place of corporations in our society and the realities of corporate governance.

That conception concentrates on how corporations affect the best interests of their stockholders, workers, communities of operation, consumers, taxpayers, and the environment. And when corporations take stands on policy issues not intrinsically related to the company’s business, requiring guardrails like approval not just by the board, but stockholders, that create greater legitimacy and increase the likelihood that decisions will reflect consideration of all reasonable perspectives and embody a consensus view of their investors.

In practical terms, that could mean the following road map for good corporate citizenship that builds on what Americans have in common, rather than what divides them:

  • Corporations should focus on how their behavior affects their stockholders, workforce, customers, creditors, and communities of operation. Before corporations address external issues of general public policy, they should be sure they are treating their stakeholders and society with appropriate respect.

  • Examples of policies like this would be:

    • Commitments to pay a living wage to the workforce writ large (including contracted workers) and close the wealth gap through savings help for employees;

    • Opening the company’s employee ranks to everyone, regardless of race, ethnicity, gender or sexual orientation, and serving all communities on a non-discriminatory basis;

    • Ensuring that the workplace is tolerant, safe, and harassment-free, so that employees of diverse backgrounds and beliefs can work productively and enjoyably together;

    • Guaranteeing all employees their access to benefits under their benefit packages, for example, by facilitating reproductive choice by providing travel or other assistance necessary to access, but being sure not to make employees feel that they must embrace any particular view about abortion;

    • Paying expected taxes and refusing to engage in tax arbitrage to avoid school and other taxes as a condition to keeping or locating operations;

    • Setting high standards for product/services reliability, safety, and fairness;

    • Avoiding environmental or other harm that unfairly shifts costs from the company to company stakeholders or society;

    • Supporting institutions essential to civil society, such as schools, the Red Cross, and hospitals in the company’s communities of operations, and ensuring that company facilities create positive, not negative, externalities for the surrounding community; and

    • Refusing to sell certain products or services if the board believes that the harm caused is not consistent with the company’s ethical values or the long-term best interests of investors. This could include decisions not to sell certain firearms, to engage in certain types of lending practices, or to fund industries or projects that generate harmful externalities of the kind the company itself has decided to eliminate. This is an aspect of the board’s decision about the right way to make money, and a traditional aspect of market freedom.

  • If the company takes positions on external public policy, they should result from a deliberative process of the board of directors based on the relevance of the policy question to the company, and not just reflect the personal view of the CEO. Board deliberation increases the likelihood that decisions will accord with a broader consensus of company stockholders and workers, and accountability because the entire board must bear responsibility. The company should make clear that no employee or customer is expected to share the company’s position and that all people of good faith are welcome to work for and patronize the company.

  • As an ideal, corporate political spending should be eliminated, leaving the company’s human stockholders, workers, and customers to be the ones whose voices matter in the political process. In the alternative, corporate political spending should only occur based on a plan approved by a supermajority of stockholders, and that only allows for contributions to candidates and committees consistent with the company’s stated values. The company could only give to candidates based on a specific determination that their overall views were consistent with company policy, in the sense that there is no marked departure on any issue that the company has deemed fundamentally important. This, of course, is not easy in an age of greater polarization, but is necessary for the corporation to try to do if it wishes to avoid legitimate criticism for being hypocritical.

  • If a company’s board wants to boycott an American state, it would also have to obtain supermajority stockholder approval. To boycott an American state is as coercive as flooding a state with political spending. It may involve the company abandoning services to and endangering the employment of state residents who disagree with the state policy that the company opposes. Thus, companies should commit only to take this kind of drastic action with the assent of supermajority stockholders, just as with corporate political spending.

Institutional investors could likewise focus their stewardship efforts in a similar way, by:

  • Identifying expectations for companies to create sustainable value the right way, and the conduct expected of them toward their workforce writ large, their communities of operation, their consumers, and the environment.

  • Channeling engagement toward those inward-facing issues — how is the corporation treating the people its conduct affects? — about which there is less division and over which companies have more responsibility.Use voice and the vote to demand corporations employ guardrails over political and social involvement.

  • Use voice and the vote to demand corporations employ guardrails over political and social involvement.

  • Insisting that corporations that take positions on social issues accord their workforce the freedom to hold contrary views, and honor the viewpoint diversity of their employees and customers, by ensuring a culture of mutual respect welcoming participation by everyone of good faith.

No approach can end all controversy, but corporate citizenship of this kind will channel corporations toward exemplifying their values through their treatment of the people they affect and thus toward shared values held by most Americans. Focusing our corporate governance accountability system on the issue over which corporate leaders and institutional investors have the most responsibility — making money the right way — is one all Americans can get behind.

The full article entitled Good Corporate Citizenship We Can All Get Behind?: Toward A Principled, Non-Ideological Approach To Making Money The Right Way will be published in the Business Lawyer in Spring 2023 and can be accessed here.


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