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Wednesday, May 14, 2014

Strategic CSR - See you in the Fall!

This will be the last CSR Newsletter of the Spring semester.
Have a great summer and I will see you in August!
I have been doing a lot of thinking recently about the core principles that underpin the concept of strategic CSR. As I mentioned in an earlier Newsletter this semester (Strategic CSR – The End of CSR), the main stimulus for this thinking is a new book I have been invited to write for the United Nations PRME collection (
I will let you all know when this book is published (scheduled for early 2015). For now, however, I wanted to raise the principle that I have been getting the most pushback on – the idea that shareholders do not own the firm.
This position is something I have been researching for the past year-and-a-half and is based on an argument grounded in corporate law. Lynn Stout at Cornell Law School has done particularly good and important work on this issue. This debate has largely missed the management literature (and the rest of the business school, for that matter), but there is a very good 2010 paper in the Academy of Management Review that addresses the issue directly (Lan & Heracleous, ‘Rethinking Agency Theory: The View from Law,’ Vol. 35, Issue 2, pp. 294-314). Writing in Harvard Business Review (, these two authors conclude from their research that:
“Oddly, no previous management research has looked at what the legal literature says about the topic, so we conducted a systematic analysis of a century’s worth of legal theory and precedent. It turns out that the law provides a surprisingly clear answer: Shareholders do not own the corporation, which is an autonomous legal person. What’s more, when directors go against shareholder wishes—even when a loss in value is documented—courts side with directors the vast majority of the time. Shareholders seem to get this. They’ve tried to unseat directors through lawsuits just 24 times in large corporations over the past 20 years; they’ve succeeded only eight times. In short, directors are to a great extent autonomous.”
For those of you interested, I would point you towards this statement of corporate law by The Modern Corporation ( and, if you agree with what it says, to sign the online petition. As the statement concludes:
“Contrary to widespread belief, corporate directors generally are not under a legal obligation to maximise profits for their shareholders. … Where directors pursue [this] goal, it is usually a product not of legal obligation, but of the pressures imposed on them by financial markets, activist shareholders, the threat of a hostile takeover and/or stock-based compensation schemes.”
In terms of pushback when I raise this issue, most people respond by saying that ‘Of course shareholders are the “legally defined” owners of the firm.’ When pushed, however, no one can tell me what law or court decision it is that supposedly determines this fact. If it is so definitively stated in law, then I think it should be relatively easy for someone to be able to point to the relevant law or legal precedent. If that proves to be a challenge, then it seems to me that the issue most people think is decided is, in fact, debatable.
Watch this space for more information about the other nine principles that constitute strategic CSR (and the published book) later this year. And, any thoughts on this issue that you would care to pass on would be gratefully received. I am no corporate legal scholar, but I find the arguments of (a growing number of) legal scholars on this question to be compelling and persuasive.
Have a great summer.
David Chandler & Bill Werther
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