How Does a Corporation Do? CSR and ESG: Doing Well by Doing Good? Doing Good by Doing Well?

Abstract Corporations are often urged to embrace some version of stakeholder or constituency theory rather than the shareholder primacy norm. Recent developments, including the Business Roundtable’s 2019 ‘Statement on the Purpose of a Corporation’, have stimulated considerable interest and debate on this issue. The usual non-shareholder constituents identified as deserving of care and attention are creditors, employees, suppliers, and customers. But the list may be extended to include, for example, retired employees, the local community, and, of course, the natural environment. This chapter discusses the potential impact on the duties of the modern corporate director of broad notions of corporate social responsibility (CSR) or integration of environmental, social, and governance (ESG) factors in corporate decision-making. Many advocates of ESG (and CSR) have argued that, properly understood, pursuit of apparently non-financial goals actually benefit corporations in the long term; or, specifically in the case of ESG, are important elements in any prudent corporate risk management programme. But there are at least two practical difficulties that are routinely identified with a broad-minded corporate stakeholder approach. The first is the accountability problem flagged by Adolf Berle almost a century ago. Corporate directors and officers who are not accountable to a single identifiable constituency (namely, shareholders) are effectively accountable to no one, since it is always possible for directors and officers to justify virtually any action by pointing to its potential benefits to at least one group of stakeholders. The second well-understood problem is that there is no way to calibrate and thereby fairly balance competing loyalties.