The Business Lawyer, Vol. 77, Issue 3

Symposium

Business & Corporate

The ESG Movement: Law, Economics and Values

Program on Organizations, Business and Markets of the Classical Liberal Institute at New York University and ABA Business Law Section

The following papers began as contributions to a conference on “The ESG Movement: Law, Economics and Values,” which took place on October 8 and 9, 2021, and which was co-sponsored by the Program on Organizations, Business and Markets of the Classical Liberal Institute at New York University Law School and the Business Law Section of the American Bar Association. As conveners of the conference and co-directors of the Program on Organizations, Business and Markets, we are very pleased to see these papers published in The Business Lawyer, our co-sponsor’s flagship publication.

Business & Corporate

Contracting for ESG: Sustainability-Linked Bonds and a New Investor Paradigm

Jonathan R. Povilonis

Officers and directors are often advised that their fiduciary duties compel them to maximize shareholder wealth, which in theory would prohibit them from pursuing ESG actions that are not reasonably expected to result in maximized shareholder profit—or at least incentivize them to frame ESG actions as wealth-maximizing (even if they are not). This article examines one set of ESG investments that companies and investors have already started developing—sustainability-linked bonds (SLBs)—and argues that they present a solution to the obstacles created by corporate fiduciary duties.

Business & Corporate

Don’t Compound the Caremark Mistake by Extending It to ESG Oversight

Stephen M. Bainbridge

The question addressed in this article is whether the board’s Caremark obligations should be extended to encompass oversight of corporate performance with environmental, social, and governance (ESG) issues. In other words, should the board face potential liability not just for failing to ensure that the company has adequate reporting and monitoring systems in place to ensure compliance with ESG-related legal requirements, but also to monitor ESG risks in areas where corporate compliance would be voluntary or aspirational. The article concludes that Caremark should not be so extended.

Business & Corporate

The Geography of Human Capital Management

Gregory H. Shill

In recent years, environmental, social, and governance (ESG) investing has become embedded in a variety of legal institutions, including state law, stock exchange rules, and SEC regulations. Some of these rules are targeted at influencing the corporation’s operations or disclosure in the area of human capital. This article provides a granular look at one of them: the geographic aspects of the firm revealed in response to the SEC’s human capital management (HCM) disclosure rule, which took effect in November 2020 and which the SEC is planning to expand.

Business & Corporate

The Unintended Consequences of Mandatory ESG Disclosures

Seth C. Oranburg

Corporate social responsibility (“CSR”) is the notion that corporations should do more for society than simply earn profits for shareholders. This viewpoint is often juxtaposed against the theory that corporations should maximize social value through pure shareholder wealth maximization (“SWM”). Some proponents of CSR have proposed rules mandating “environmental, social, and governance” (“ESG”) disclosures. Mandatory ESG disclosures would require corporations to file public reports regarding their activity concerning CSR, sustainability, and other ESG issues.

Business & Corporate

Least-Cost Altruists and ESG Firms

Saul Levmore

A strong argument in favor of a corporation’s attempt to sacrifice some profit in order to address environmental concerns or other social issues has been that it should maximize shareholder welfare rather than the firm’s market value. However, a significant number of shareholders might want to sacrifice some income in favor of a variety of social causes, either because some firms are “least-cost altruists,” with a comparative advantage in offering socially desirable things that shareholders want, or simply because some shareholders want to distance themselves from enterprises that are uncommitted to Environmental, Social, and Governance (ESG) concerns.

Business & Corporate

Does Enlightened Shareholder Value Add Value?

Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita

Unlike shareholder value maximization (SV), which merely calls on corporate leaders to maximize shareholder value, enlightened shareholder value (ESV) combines this prescription with guidance to consider stakeholder interests in the pursuit of long-term shareholder value maximization. ESV is being increasingly embraced by many actors: it was adopted by the U.K. Companies Act, is being considered for inclusion in the Restatement of Corporate Governance Law , and is broadly supported by both corporate leaders and institutional investors. This article examines whether replacing SV with ESV can be expected to benefit stakeholders or society.

Business & Corporate

The Excessive Ambitions of Stakeholder Ideology

Richard A. Epstein

Under the traditional shareholder primacy doctrine, corporate decisions were to be made with a single objective: the maximization of shareholder welfare. Paradoxically, that self-regarding view did much to maximize social welfare, because the corporate directors and officers knew full well that they had to do business with suppliers, customers, employees, and the public at large to achieve that end.

Business & Corporate

How Would Directors Make Business Decisions Under a Stakeholder Model?

Robert T. Miller

Under the stakeholder model of corporate governance, directors may confer benefits on corporate constituencies other than shareholders without regard to whether doing so produces benefits for the shareholders even in the long run. Contrary to what advocates of stakeholder theory often say, stakeholder theory does not put all corporate constituencies on a par, letting directors give equal consideration to the interests of all constituencies.

Articles

Business & Corporate

The Three Faces of Control

Ann M. Lipton

Controlling shareholders are subject to distinct legal obligations under Delaware law, and thus Delaware courts are routinely called upon to distinguish “controlling shareholders” from other corporate actors. That is an easy enough task when a person or entity has more than 50 percent of the corporate vote, but when a putative controller has less than 50 percent of the vote—and is nonetheless alleged to exercise control over corporate operations via other means—the law is shot through with inconsistency.

Survey

Business & Corporate

Annual Survey of Judicial Developments Pertaining to Mergers and Acquisitions

Annual Survey Working Group of the M&A Jurisprudence Subcommittee, Mergers and Acquisitions Committee, ABA Business Law Section

The Annual Survey Working Group reports annually on judicial decisions that we believe are of the greatest significance to mergers and acquisitions (“M&A”) practitioners.