Serving Two Masters: Incorporating Social Responsibility into the Corporate Paradigm

Pennsylvania Journal of Business Law, Vol. 11, p. 631, 2009

44 Pages Posted: 3 Dec 2012

See all articles by Barnali Choudhury

Barnali Choudhury

University College London - Faculty of Laws

Date Written: November 27, 2008

Abstract

The debate concerning the purpose of the corporation has pervaded modern corporate law for three-quarters of the last century. Yet today, both the purpose of the corporation and the beneficiaries of fiduciary duties remain unsettled matters. Instead, the law has adopted an ambiguous position, neither fully accepting the shareholder primacy model nor any other corporate governance model.

However, the lack of clarity within corporate law’s purpose has created an element of discretion within the corporate paradigm. Corporate managers, accordingly, have the choice to purpose corporate goals either towards shareholders interests or other interests. In essence, then, the ambiguities in corporate law allow corporate decision-making to incorporate the interests of corporate constituents, besides shareholders. More importantly, this discretion provides corporate managers with the ability to undertake socially responsible actions, a discretion, which I argue, should be exercised.

Using the business judgment rule, fiduciary duties and shareholder proposals, I contend that the discretion created by corporate law’s ambiguities is exercisable within the current corporate structure without a need to reformulate corporate governance models. Moreover, although the idea of profit maximization remains an important, presumptive duty of corporations, where market morality or obligations flowing from the concepts of fairness or social norms demand it, a second duty to temper profit maximization actions may also arise, which overrides the first.

Keywords: Corporate law, corporate social responsibility, fiduciary duties, business judgment rule, shareholder proposal

Suggested Citation

Choudhury, Barnali, Serving Two Masters: Incorporating Social Responsibility into the Corporate Paradigm (November 27, 2008). Pennsylvania Journal of Business Law, Vol. 11, p. 631, 2009. Available at SSRN: https://ssrn.com/abstract=2181383

Barnali Choudhury (Contact Author)

University College London - Faculty of Laws ( email )

Bentham House, Endsleigh Gardens
London, WC1E OEG
United Kingdom

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