Contractual Stakeholderism

102 Boston University Law Review 101 (2022)

61 Pages Posted: 9 Apr 2021 Last revised: 28 Mar 2022

See all articles by Kish Parella

Kish Parella

Washington and Lee University - School of Law

Date Written: April 7, 2021

Abstract

In 2019, the Business Roundtable announced its commitment to all corporate stakeholders – consumers, employees, suppliers, and communities – and not only shareholders. This announcement has re-awakened an old debate over corporate social responsibility. “Stakeholderism advocates” argue that corporate leaders must take into account the interests of the various stakeholders impacted by corporate decision-making. “Stakeholderism critics” challenge this view, expressing concerns that stakeholderism will magnify managerial agency costs, chill regulation, risk inauthenticity, and lead to impractical solutions.

This Article proposes “contractual stakeholderism” to operationalize stakeholderism in accordance with its advocates but in a way that is attentive to the concerns of its critics. Normatively, it advocates for a shift from a benefits-based approach for stakeholderism to one focused on the prevention of harms. The former often justifies stakeholderism by highlighting the various benefits that stakeholder protection can offer for advancing shareholder value or other advantages for the corporation. But this basis for stakeholderism will fall short because it is not always true that what is good for the stakeholder is good for the shareholder; instead, sometimes their interests conflict. In these situations, the benefits-based approach will inevitably lead to the prioritization of the shareholder over the stakeholder. That is why this Article advocates for a harms based approach that focuses on the risks that a corporation’s activities create for stakeholders. This latter approach applies to a wider range of corporate activity and protects a broader range of stakeholders than the scope of the benefits-based approach. This Article justifies the normative shift to a harms-based approach by identifying five dimensions of inequality that place stakeholders at unique risk of harm from corporate conduct: notice, choice, risk management, legal remedies, and the fruits of exchange. Practically, it explains that many stakeholder harms arise from the contracting choices that corporate leaders negotiate, draft, and bind their companies to perform. A harms based approach would require corporate leaders to design contracts differently to mitigate or eliminate the risks that their contracts create for stakeholders. In order to incentivize corporate leaders to do so, this Article concludes by proposing the following duty: Corporate leaders, as contracting parties, must take into account the interests of stakeholders when performance of the contract creates a risk of physical harm to them.

Keywords: corporate social responsibility, corporate purpose, ESG, stakeholderism, stakeholders, contracts, third parties

Suggested Citation

Parella, Kish, Contractual Stakeholderism (April 7, 2021). 102 Boston University Law Review 101 (2022), Available at SSRN: https://ssrn.com/abstract=3821887

Kish Parella (Contact Author)

Washington and Lee University - School of Law ( email )

Lexington, VA 24450
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
185
Abstract Views
1,365
rank
224,568
PlumX Metrics