The Cost (and Unbenefit) of Conscious Capitalism

Abstract

Does ‘voluntary’ stakeholder governance (or conscious capitalism) benefit stakeholders? Using the state-level staggered adoption of constituency statutes as a quasi-exogenous shock to corporate governance, we find that discretionary adoption of ‘stakeholder governance’ leads to wealth transfer from shareholders to management without benefitting other stakeholders (such as labor, customers, and creditors). A 1.7% decline in price-to-earnings growth coincides with a gain of 0.65% in the managerial entrenchment. Non-shareholder stakeholders do benefit but only when entrenchment diminishes. These results are robust to endogeneity tests, biased correction in staggered DiD, and various other tests.

Keywords: Conscious Capitalism, Stakeholder Governance, Managerial Accountability, Corporate Transparency, Constituency Statutes

JEL Classification: G21; G30; M14; L51