Corporate Political Agency

37 Pages Posted: 26 Feb 2015 Last revised: 6 Nov 2015

See all articles by Ilan Benshalom

Ilan Benshalom

Hebrew University of Jerusalem - Faculty of Law

Date Written: February 1, 2015

Abstract

This Essay explains why the investor-shareholder relationship gives rise to political agency problems that neither the Law and Economics nor the critical Corporate Social Responsibility literature have acknowledged. The corporate separation between ownership and management results in many social benefits, but imposes costs on the democratic process. The corporate structure requires managers, as agents, to maximize their principal shareholders’ wealth. This requirement is insensitive to the principals’ political preferences on how profits should be pursued, and may therefore result in an overall decrease in shareholders’ welfare. This Essay suggests that these costs could be reduced by disclosing information about the impact of corporate activities on issues of political concern. Using insights from financial markets theory, it points out how disclosure of non-financial information would help to ensure a better alignment of corporate actions with the political preferences of shareholders, their rational passivity and apathy notwithstanding.

Suggested Citation

Benshalom, Ilan, Corporate Political Agency (February 1, 2015). Hebrew University of Jerusalem Legal Research Paper No. 15-28. Available at SSRN: https://ssrn.com/abstract=2569508 or http://dx.doi.org/10.2139/ssrn.2569508

Ilan Benshalom (Contact Author)

Hebrew University of Jerusalem - Faculty of Law ( email )

Mount Scopus
Mount Scopus, IL 91905
Israel

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