Repurposing the Corporation Through Stakeholder Markets
55 UC Davis Law Review 1445 (2022
76 Pages Posted: 24 Mar 2021 Last revised: 2 Mar 2022
Corporate social responsibility (CSR) is immensely popular. Rhetorically, nearly all public corporations have committed to it. But corporations don’t act responsibly. That is because no system exists by which their responsibility levels can be measured and rewarded or punished.
Thousands of organizations worldwide are engaged in a cooperative effort to build such a system. After two decades of work, the system is almost entirely in place. It may become effective in the next two to three years. When it does, the system will continually measure and report publicly as many as a thousand audited data points on the CSR of each of thousands of participating corporations. CSR ratings and rankings will become credible. Once the system is effective, corporations will be able to claim social responsibility credibly only if they act responsibly.
This Article’s main thesis is that the public availability of credible CSR information will enable the corporation’s stakeholders and potential stakeholders to repurpose the corporation. By “repurpose” I mean control the corporation and redirect its employees’ efforts to CSR. Repurposing’s mechanism will be the competitive markets in which corporations acquire resources from their potential stakeholders. The corporation’s potential stakeholders will, for the first time, know and be able to react to, a particular corporation’s responsibility level. CSR’s popularity assures that those markets will punish corporations that do not excel at CSR and reward those that do.
Parallel reform efforts will contribute to the repurposing. They include mandatory CSR reporting, mandatory CSR compliance, changes to the law of corporate purpose, employee voting for directors, mutual fund pass-through voting, stewardship codes, and social norm building.
Repurposing’s initial target will be the externalization of social costs. But the corporation’s potential stakeholders—including its customers—furnish all the resources corporations need to operate. By their market choices, the potential stakeholders can make the corporation’s purpose whatever they want it to be.
Keywords: corporation, corporate purpose, climate, corporate social responsibility, environmental, social, corporate governance, stakeholders, stakeholder markets, ESG, CSR
Suggested Citation: Suggested Citation