Taking Shareholders' Social Preferences Seriously: Confronting a New Agency Problem
U.C. Irvine Law Review (2019, Forthcoming)
33 Pages Posted: 18 Aug 2018
Date Written: August 6, 2018
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: Suggested Citation