ESG, Corporate Piracy, and Coasian Contracting Efficiency

Abstract

ESG activism entails a subtle form of corporate piracy. It manifests in opportunistic backdoor attempts to convert firms that were incorporated to advance shareholders' pecuniary interests into firms that sacrifice pecuniary benefits to advance a social/political agenda favored by a subset of activist shareholders. These surreptitious property rights encroachments raise an important issue: How should governance architecture (laws and charters) be structured and enforced to deal with shareholder disagreements and the resource dissipation (losses) that results therefrom? I address this issue using basic contracting efficiency principles of property rights economics traceable to Coase (1960) and Alchian and Demsetz (1972).

Keywords: ESG, governance architecture, shareholder disagreement, shareholder-value maximization, Fisher Separation failure, corporate piracy

JEL Classification: G30, G34, K22