Taking Shareholders' Social Preferences Seriously: Confronting a New Agency Problem

U.C. Irvine Law Review (2019, Forthcoming)

Bar Ilan University Faculty of Law Research Paper No. 18-18

33 Pages Posted: 18 Aug 2018

See all articles by Adi Libson

Adi Libson

Bar-Ilan University - Faculty of Law; Van-Leer Institute

Date Written: August 6, 2018

Abstract

Nobel Laureate in Economics for 2016, Oliver Hart, and economist Luigi Zingales recently published an article justifying companies' pursuit of social objectives at the expense of profits from within the shareholder primacy framework. This Essay highlights an important consequence of this approach: a new agency problem between managers and shareholders regarding social preferences. This Essay provides two possible solutions to this agency problem: a bottom-up solution focused on shareholder ability to submit proposals on such issues and a top-down solution based on an independent board sub-committee intended to identify social objectives and forward them for shareholder approval.

Keywords: corporate social responsibility, agency problem, agency costs, shareholder primacy, stakeholder primacy, shareholder proposals

JEL Classification: G30, G32, G34, G38, J33, K22, M14

Suggested Citation

Libson, Adi, Taking Shareholders' Social Preferences Seriously: Confronting a New Agency Problem (August 6, 2018). U.C. Irvine Law Review (2019, Forthcoming), Bar Ilan University Faculty of Law Research Paper No. 18-18, Available at SSRN: https://ssrn.com/abstract=3226767

Adi Libson (Contact Author)

Bar-Ilan University - Faculty of Law ( email )

Faculty of Law
Ramat Gan, 52900
Israel
97225631156 (Phone)

Van-Leer Institute ( email )

43 Jabotinsky Street
POB 4070
Jerusalem, 91040
Israel
9725631156 (Phone)

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