M-RCBG Faculty Working Paper Series No. 2019-05
Corporate Identity in Play: The Role of ESG Investing
On August 19, 2019, the U.S. Business Roundtable (BR), comprising the CEOs of more than 200 of America’s largest corporations, issued a new mission statement on “the purpose of a corporation” (BR, 2019a). The press release noted that each periodic update on principles of corporate governance since 1997 had endorsed the principle of maximizing shareholder value. In contrast, the new statement commits signatory CEOs “to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders” (BR, 2019b). “[Milton] Friedman must be turning in his grave,” a Fortune magazine article declared (Murray, 2019).
Such shifts are not unprecedented. Indeed, Friedman bore significant intellectual responsibility for the last one. William Allen, a highly regarded former Chancellor of the Delaware Court of Chancery, authored an essay some years ago entitled “Our Schizophrenic Conception of the Business Corporation” (Allen, 1992). Allen’s thesis was that over the course of the twentieth century there were “two quite different and inconsistent ways to conceptualize the public corporation and legitimate its power. I will call them the property conception and the social entity conception” (Ibid, 264). By the property conception he meant that the corporation is literally seen – in the literature and in the courts – as the property of the individuals who constitute the firm. That made perfect sense, Allen affirmed, when the main players actually were a limited number of natural persons who had come together for the purpose of capital formation.1 It began to make less sense, he states, as the scale and scope of the modern corporation grew massively, requiring distinctive management skills and risk sharing through widely dispersed stock holdings.