Voting for Socially Responsible Corporate Policies

Abstract

We examine voting for corporate policies when voters face a trade-off between maximizing firm value and implementing social objectives (like minimizing pollution). We show that voting can aggregate preferences and lead to stable policies when there are two dimensions (e.g., profit and a social objective) but when voters care about more than two dimensions, it leads to governance indeterminacy and volatility in policies. However, there are exceptions: the presence of blockholders makes it possible to achieve stable policies even with more than two objectives and controlling the voting agenda can significantly influence vote outcomes. Our results generate novel predictions about the rise of multi-dimensional firm objectives.

Keywords: Corporate governance, ESG, Shareholder Voting, Social Choice Theory, Socially Responsible Investing, Sustainability

JEL Classification: G12, G14