ESG’s Democratic Deficit: Why Corporate Governance Cannot Protect Stakeholders

Abstract

The environmental, social, and governance (ESG) movement has garnered significant attention over the past several years. This movement generally purports to focus on addressing the interests of all corporate stakeholders, such as employees, customers, the environment and the public at-large, rather than focusing solely on shareholder value. To accomplish this goal, proponents of ESG contend that corporate governance provides the best mechanism. However, this Note argues that such an approach would be detrimental. Corporate governance is a body of law and standards that were created first and foremost to provide protections for shareholders vis-à-vis corporate managers; whereas, the government created distinct bodies of law to provide protection for other stakeholder groups vis-à-vis the corporation. In attempting to channel safeguards for every stakeholder group through a body of law intended to address only one such relationship, proponents of ESG are enabling a system of “self-regulation” for corporations that is both unproductive and undemocratic. Instead of outsourcing such a fundamental responsibility to shareholders and corporate boards, the government should step in to directly address the growing set of ESG issues that demand immediate attention.

Keywords: ESG, corporate governance, corporate purpose, corporate social responsibility, stakeholders, stakeholder governance, stakeholder capitalism, corporate constituencies, enlightened shareholder value, corporate governance