Hajin Kim is an Assistant Professors of Law at the University of Chicago Law School. This post is based on her paper forthcoming in the Journal of Legal Studies. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Does Enlightened Shareholder Value Add Value? (discussed on the Forum here) both by Lucian A. Bebchuk and Roberto Tallarita; How Much Do Investors Care about Social Responsibility? (discussed on the Forum here) Scott Hirst, Kobi Kastiel, and Tamar Kricheli-Katz; Companies Should Maximize Shareholder Welfare Not Market Value (discussed on the Forum here) by Oliver D. Hart and Luigi Zingales; and Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee (discussed on the Forum here) by Robert H. Sitkoff and Max M. Schanzenbach.
Expecting Corporate Prosociality
The long-running corporate purpose debate often assumes stakeholder preferences for corporate prosociality are exogenous: Investors, employees, and consumers want corporations to be prosocial or they don’t. My paper, Expecting Corporate Prosociality, on SSRN and forthcoming in the Journal of Legal Studies, develops and empirically tests the idea that rhetoric from the debate itself can influence these preferences and stakeholder demands. I find that expectations of exclusive profit maximization (that firms can and should maximize only profits) can reduce stakeholder demands for corporate prosociality. Such a loss in tangible incentives for corporate prosociality would reduce “win-wins”—what is both profitable and good for society.
Consider two worlds—caricatures to illustrate the point: In Profit Maximization World, people expect that businesses can and should maximize only profits. Paula, an employee for ABC Corp., learns that ABC Corp. will cut down old growth forest for a parking lot. She’s upset but doesn’t object. ABC Corp. must do what is most profitable, so what’s the point in complaining?
