Can a Broader Corporate Purpose Redress Inequality? The Stakeholder Approach Chimera

46 J. Corp. L. 1 (2020)

73 Pages Posted: 8 Apr 2020 Last revised: 13 Jan 2021

See all articles by Matteo Gatti

Matteo Gatti

Rutgers, The State University of New Jersey - Rutgers Law School

Chrystin D. Ondersma

Rutgers University School of Law

Date Written: March 4, 2020

Abstract

Economic inequality is soaring and the consensus in some circles is that corporations’ myopic focus on profits is largely to blame. At first glance a stakeholder approach would seem an appealing solution: surely if the purpose of corporations were not wealth maximization for shareholders but rather to create value for all constituents — thus including employees, customers, suppliers, and communities — we would make strides towards combating inequality, the theory goes. Corporations themselves, through their powerful lobbying group, the Business Roundtable, recently disclaimed shareholder primacy and embraced stakeholder theory. However, far from successfully redressing inequality, a stakeholder approach is unlikely to achieve meaningful redistribution of power and resources to weaker constituents and would likely work in the opposite direction. We suggest that a stakeholder approach gives corporate executives both a sword and a shield with which to preserve their advantageous status quo. First, executives can justify stepped up lobbying efforts as part of their mandate to consider the interests of all constituents, capturing the agenda with respect to distributing more power and resources to weaker constituents. Second, because a switch to a stakeholder approach would appear as a significant change — despite not actually accomplishing meaningful redistribution — it would require significant political capital to be adopted, and once adopted would occupy an out-sized portion of legislative and regulatory space, depleting energy and resources necessary to pass reform that is more likely to actually impact inequality. In fact, in reviewing the likely drivers of inequality, we find that key factors include higher concentration leading to the shrinking of the labor share and increased monopsony in labor markets, the gradual weakening of worker protections from labor market institutions, and giving up on progressive taxation as a re-distributive mechanism. Broadening corporate purpose alone would do next to nothing to impact these fields, so to address rampant economic inequality corporate scholars will need to eschew the academic silo and reach across disciplines to identify more effective policies.

Keywords: Stakeholders, Directors, Fiduciary Duties, Stakeholder Approach, Corporate Purpose, Corporate Law, Corporate Constituencies, Corporate Governance, Shareholder Primacy, Lobbying, Antitrust, Labor Market Institutions, Progressive Taxation, Inequality

JEL Classification: D21, G32, G34, G38, K22

Suggested Citation

Gatti, Matteo and Ondersma, Chrystin D., Can a Broader Corporate Purpose Redress Inequality? The Stakeholder Approach Chimera (March 4, 2020). 46 J. Corp. L. 1 (2020), Available at SSRN: https://ssrn.com/abstract=3547791 or http://dx.doi.org/10.2139/ssrn.3547791

Matteo Gatti (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Law School ( email )

Newark, NJ
United States

Chrystin D. Ondersma

Rutgers University School of Law ( email )

180 University Avenue
Newark, NJ 07102
United States

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