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The Business Lawyer

Spring 2023 | Volume 78, Issue 2

Good Corporate Citizenship We Can All Get Behind? Toward a Principled, Non-Ideological Approach to Making Money the Right Way

Leo E Strine Jr

Good Corporate Citizenship We Can All Get Behind? Toward a Principled, Non-Ideological Approach to Making Money the Right Way

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A rancorous debate is raging. Must for-profit corporations just seek profits for stockholders? Or may they pursue not just the best interests of all stakeholders, but influence public policy on controversial political issues and tilt the election process toward candidates and causes they favor?

This debate has historical antecedents, as both the left and the right have long been concerned about the legitimacy of corporations using other people’s capital for political and social causes. Each understands that stock- holders share only one purpose—a solid return—and have diverse political beliefs. Each understands freedom is imperiled if workplaces become subject to dictated orthodoxies. Each asks: who are CEOs to use other people’s money to advance their own idiosyncratic views of the good?

But, rather than come together to forge constructive solutions, the right and left praise corporations that take policy positions they like, while condemning as illegitimate corporations that disagree with them. That’s natural but unhelpful.

This article seeks to ameliorate this fractious debate threatening to politicize a business world that ought to be open to all Americans of good faith. To this end, the article maps out a non-partisan, principled conception of good corporate citizenship drawing on shared assumptions of the right and the left about the place of corporations in our society and the realities of corporate governance.

That conception concentrates on how corporations’ own conduct affects the best interests of their stockholders, workers, communities of operation, consumers, taxpayers, and the environment. Seeking profit by selling quality products and services, treating all stakeholders with respect, and without externalizing costs. Supporting the basic institutions of the society upon which the corporation depends. Leaving debatable issues of politics and faith largely to their human investors, workers, and consumers to decide for themselves. Showing respect for the freedom of belief by not imposing the beliefs of corporate management on any stakeholder group. And, if taking stands on political or social issues not intrinsically connected to the company’s business, employing guard- rails like approval by not just the full board, but stockholders, that create greater legitimacy and increase the likelihood that decisions will reflect consideration of all reasonable perspectives and embody a consensus view of their investors.

No approach can end all controversy, but corporate citizenship of this kind will channel corporations toward exemplifying their values through their treatment of the people their business operations directly affect and thus toward shared values held by most Americans. Focusing our corporate governance accountability system on the issue over which corporate leaders and institutional investors have the most responsibility—making money the right way—is one all Americans can get behind.

I. Introduction

In this article, I venture some thoughts on this key question: are there principled, non-ideological methods by which corporate leaders and institutional investors can ameliorate the controversy about the appropriate ends of for-profit governance? Put more simply, is there a conception of good corporate citizenship that we can all get behind?

These broad questions implicate intrinsically related topics: (i) to what extent can corporate boards impose their religious, social, and ideological values on the company’s workforce and other stakeholders, and (ii) what are the guardrails that should be in place before corporate boards deploy their corporation’s treasury funds to fund political candidates and social causes or to exert similar pressure on society?

These inquiries are important to an animating cause of our nation’s creation: a desire for freedom of conscience. Americans cherish the freedom to have different religious, social, and political values. Just because we have to work for a large corporation and give our money to institutional investors to save for college and retirement does not mean that we share the same belief system as the CEO, or implicitly consent to having the same belief system, or to the use of our entrusted capital for political purposes by the corporations in our mutual fund portfolios.

How do we balance those realities with others? Don’t we want ethical companies that seek profits in a way that does not harm their workers, their creditors, their communities of operation, their consumers, or the environment? And precisely because large corporations are such leading players in our society, don’t we want corporate leaders to speak up if they perceive injustice in the communities and societies in which their companies operate?

But do we want companies to take stands when they disagree with us? Or, to fear that you risk your family’s future if you dare as an employee to voice a view contrary to the CEO on an issue of public debate? Are we comfortable with corporate leaders from a privileged sliver of our nation’s populace using corporate resources to advance their views on controversial issues on which their company’s investors and workforce are divided? Doesn’t that risk the many being subjected to too much power by the few—power that comes from managing other people’s money?

These are challenging topics to address in a principled way. You cannot get everything you want, or ignore your own biases. In addressing the difficult questions at the core of the current debate about the ends of corporate governance, I will therefore try to be candid about my own biases.

The central goal of this article is to identify some methods by which corporations and institutional investors might improve the ability of the corporate sector to “make money the right way,” and to make a positive contribution to their stakeholders and society, but in a manner consistent with the reality that for-profit corporations are not human beings, they have important rights and power that humans do not have, and should therefore have corresponding limitations on their conduct and influence. In channeling corporate behavior in this way, my hope is to reduce the fractiousness of the current argument about corporate governance by encouraging corporate citizenship supported by a bipartisan consensus of the American people.

I admit that my views are influenced by a personal bias against large companies becoming Republican or Democratic, Catholic or evangelical, or Muslim or atheist. I do not favor a polarized dystopia in which workers are put to a Hobson’s choice of either complacent workplace submission to a company belief system or quitting and suffering economic harm. Business entities granted the important secular advantages of corporate status should be ones where Americans, in their full range of religious and political diversity, can work together, so long as they respect each other and labor together productively. Likewise, Americans should not have to fear that their required investments in the stock market will fund political spending that they cannot be deemed to have implicitly approved. And that is especially the case if, as some advocate, corporations should focus on stockholder profits as the sole end of governance and that other stakeholders should have to rely on laws external to corporate law to protect them. Because corporations are intended to be huge aggregators of human wealth, if corporations can turn that wealth—through political contributions—into a weapon against stakeholder protections, they will tend to diminish those protections. Thus, allowing corporations to spend their wealth for political ends affecting stakeholders invites the understandable desire to reform corporate law to require corporations to respect stakeholders as a mandatory obligation. That is, it is more principled to argue that corporations should focus solely on profit and leave stakeholder protections to society, only if corporations cannot act on society to undermine those protections using the entrusted capital of investors with diverse political beliefs without their express permission. In fact, wasn’t that the basic position of Milton Friedman and his followers, which is that if the corporation has extra cash for politics or other causes it does not need for business, it should return those funds to stockholders and allow them to use the funds in accord with their own diverse beliefs and desires?

Similarly, it is not without some cognitive dissonance to demand that corporations use their voice to oppose certain public policies, and to even use the huge lever of a boycott of, or migration away from, an American jurisdiction that has those policies, and then simultaneously argue that corporate political spending has some distinct illegitimacy. Both sorts of voice involve using corporate funds and leverage to act on the polity to encourage certain policy ends, about which there is likely no consensus on the part of the company’s stockholders, much less its workforce or customers. Encouraging corporations to act on society when you like the policies they support but arguing that they should not act when you oppose the policies is a natural human tendency, of course. But, until the world is comprised solely of people and thus corporations exactly like you, it does not chart a principled path forward.

Building on these admitted preferences, my goal is to map out a conception of good corporate citizenship drawing on shared assumptions of both the right and the left about the place of corporations in our society and the realities of for-profit corporate governance—as well as the concerns both views have about corporate leaders venturing far afield from the difficult enough task of running a profitable, ethical business. To frame my argument that there is a principled concept of good corporate citizenship that most Americans can get behind, I proceed as follows. First, in Section II, I clear away the fog around one question relevant to this debate, which is the statutory basics of what corporate law now provides, identifying the reality of who has primary authority to speak for a corporation, and the broadly enabling statutory framework within which for-profit American corporations operate. In Section III, I identify the fundamental legitimacy issue that persists within corporate law about the permissible ends of for-profit corporate governance, focusing on the two basic schools of thought about the ends of for-profit corporate governance, simplifying them for sure, but presenting their essentials fairly. From there, Section IV builds on that historical context to highlight the tensions in the views of both the left and the right about the legitimacy of for-profit corporations taking positions on contestable public policy issues and using corporate resources to advance those positions. Section V then discusses some principled approaches that tend to reduce these tensions, a goal made even more important by the reality that expanding the ability of for-profit corporations to pursue religious or social values not only affects society as a whole, but has a potentially freedom-constricting effect on those who most have to live under the corporation’s dominion—their workers.

Finally, Section VI identifies a possible path forward that involves a more principled, and less controversial, approach to the for-profit corporate purpose debate. That conception concentrates on how corporations’ own conduct affects the best interests of their workers, their communities of operation, their consumers, taxpayers, and the environment. Making money the right way, by seeking profit without externalizing their costs. Supporting the basic institutions of the society upon which the corporation depends. Leaving debatable issues of politics and faith largely to their human investors, workers, and consumers to decide for themselves. Showing respect for the freedom of belief by not imposing the beliefs of corporate management on any stakeholder group. And if taking stands on political or social issues not intrinsically connected to the company’s business, employing guardrails like stockholder approval that require the support of the most legitimate sources of authority under corporate law and thus increasing the likelihood that resulting decisions will reflect consideration of all reasonable perspectives and embody a consensus view of their investors, and not just personally driven decisions by the CEO. To make clear that this approach leaves great room for corporations and investors to make sure corporations are responsible citizens and make a positive social impact, I give specific examples of actions investors can encourage that are uncontroversial as a matter of corporate law and, equally important, are less likely to enmesh corporations in taking sides on closely contested public policy issues that do not directly implicate the corporation’s own behavior.

II. Who Decides Corporate Social and Political Policies? And What Are the Corporate Statutory Law Boundaries on Corporate Action? The Corporate Law Answers Are Not Controversial.

To isolate what the real issues are in the debate over the ends of for-profit corporate governance, two substantive corporate law issues that sometimes get obscured in the debate over the ends of for-profit governance must be understood: (1) who gets to determine corporate policy; and (2) what are the typical statutory boundaries on the ends of corporate governance.

Let’s start with an issue that is not controversial among American corporate law scholars: namely, that the board of directors has the primary authority to set all corporate policy, including on social and religious issues, and to oversee management’s implementation of it. However confusing the ongoing debate over corporate purpose is, and however much the U.S. Supreme Court’s understandably shaky grasp of corporate law has contributed to that confusion, the basic question of who gets to decide what corporate policy is toward social or religious issues does not really vary in any of the American states.

Within whatever limits set by corporate statutes and corporate common law, and any constraining corporate charter and bylaws provisions, the board of directors sets corporate policy and oversees management’s implementation of it. As we shall see, this broad grant of authority has inspired a long-standing debate between two principal schools of thought about for-profit governance, one that turns in many ways on the extent to which this grant of authority is premised on an implicit assumption that stockholders of for-profit corporations invest in the expectation that the board of directors will seek, as their end, to sustainably increase the value of the company.

This leads to the second uncontroversial corporate statutory law point. Early in the history of corporations, corporations were specifically chartered by the legislature, had detailed purposes, and were bound by the ultra vires doctrine to confine themselves to acting within the purposes stated in the charter. As so-called “general incorporation statutes” began to take hold, the early forms still required relatively specific statements of the business lines or other endeavors the corporation could undertake, and the ultra vires doctrine policed fidelity. Over time, however, corporate law statutes became broadly enabling, with flexibility to change business lines and directions so long as corporations exercised their statutory authority to adopt a broad corporate charter authorizing what increasingly became the bottom line, which is that the corporation could pursue any lawful line of business. This evolution is embodied in the nation’s two leading corporate law statutes, the Delaware General Corporation Law and the Model Business Corporation Act, which allow for-profit corporations to conduct any lawful business by any lawful means and to engage in any lawful activities.

These broadly enabling statutes also provide the board with expansive discretion, subject only to the requirement to obtain stockholder approval for actions like charter changes and mergers, and to cleanse certain conflict transactions or risk them being set aside in an equitable action. These statutes were designed to work in concert with equitable fiduciary duty review—with fiduciary duty review having teeth typically only when a corporate decision involved a conflict of interest. Over time, the concept of the business judgment rule grew and instructed courts not to second-guess business decisions made by boards with no motive to harm the corporation. The weakness of this constraint has, as we will see, influenced the debate, because it could be seen as giving strong corporate leaders the ability to put softer, non-financial motivations (iconically, the tradition of day baseball at Wrigley Field) over the best interests of stockholders. Outside of the realm where the entire fairness doctrine polices financial conflicts and where stockholders’ votes are required for certain fundamental corporate actions such as charter changes or mergers, corporate common law imposes weak restraints on boards, even in strong stockholder protective states like Delaware, by simply requiring that any policy by the board be rationally related to the best interests of stockholders, a business judgment the board itself is entitled to make and any doubt resolved in its favor.

The reason I raise the two subjects is that the idea sometimes surfaces that it is more legitimate—as a matter of statutory corporate law for a corporation with a controlling stockholder—such as, say, the company that gave its name to an eponymous case, Hobby Lobby—to have strong social or religious values, because the stockholder is seen as setting the policies. Whereas, by contrast, in a corporation with diverse stockholders, a question of corporate law legitimacy supposedly arises because, if the board acts on one vision of the good, there are likely to be stockholders who disagree.

But, as a matter of statutory corporate law, in both cases, all stockholders have limited rights, and agree to invest subject to the authority of the board’s primacy over policy. And in both cases, the stockholders, be they a family founder with a huge bloc or smaller holders, accept these limited rights, in exchange for being afforded the benefits of limited liability, tax advantages, and other economic positives that come from the corporate form. Those who invest in companies with a controlling stockholder accept that their influence over the direction of the company will be even more limited.

As a matter of strictly statutory corporate law as opposed to larger considerations of republican democracy, there is no less legitimacy for the board of General Electric, Alphabet, or Disney to take positions on religious or social matters than for the board of Hobby Lobby. And from the standpoint of a stockholder with a non-influential bloc in either a controlled or non-controlled company, it is a constant that the stockholder base will have diverse views on religious and social matters that are not identical to the board members of the company.

As a practical matter, it may be that investors in controlled companies with controllers with vocal social or religious views can be seen, at first blush, as buying distinctly into that risk in exchange for the economic upside. But, that is, upon second thought, no more or less true than is the case in any investment in any corporation, because it is ultimately the elected board and its selected management whose policies the stockholder agrees to accept as a condition for continuing investment, a reality that does not change just because there is no one dominant stockholder. And with the rational and useful rise of mutual fund investing as the preferred method for 401(k) plans, and the rise of index investing, it is not easy for ordinary investors to “select out” of companies, be they controlled or not controlled, on the basis of particular policies.

For present purposes, though, clarity about two things that corporate law says suffices. First, it is not about the views of any stockholder or any other stakeholder—or even the CEO!—unless those views are accepted by the authority entrusted by corporate law with policy-making authority: the board of directors. Second, as a matter of statutory corporate law, corporations are typically empowered to conduct their affairs toward any lawful end by any lawful means. And the business judgment rule provides great discretion for boards to justifying actions that are not directly profit-creating (e.g., charitable or political donations) as rational and immune from judicial review. In a majority of American states, moreover, specific statutes empower boards to take action benefiting certain corporate constituencies, and thus enhance board discretion even further. For these reasons, there is no right-left divide among corporate law scholars that statutory corporate law itself is not a tool that was designed to constrain corporate boards from using their power to cause their corporations to embrace certain values using corporate funds. Rather, the question on which scholars have been long divided is whether such expansive board discretion is a good or bad thing, and the extent to which the common law of corporations should constrain such conduct even though corporate law statutes do not. To that traditional divide, we now turn.

III. The Two Basic Visions of American For-Profit Corporate Governance

Thirty years ago, in an article entitled Our Schizophrenic Conception of the Business Corporation, my much missed friend, Chancellor (and later Professor) William T. Allen, distilled into plain English the basic to and fro of the American debate about the appropriate ends of for-profit governance.

The tussle has not much changed in the generation and a half since. On the one side is the school now often referred to as stockholder primacy. This school argues that within the limits of law and the board’s basic sense of business ethics, the end of corporate governance should be the best interests of stockholders, and that other stakeholders like employees, consumers, communities of operation, and society itself should primarily look to external protections like contracts and statutes to protect them. Their justification for this contention rests on a few basic grounds. First, they argue that corporate law is designed as a broadly enabling contract law between corporate managers and stockholders, and that the managers will be too unconstrained if they do not have to at least justify all their actions in terms of advancing the best interests of stockholders. Second, they argue that the interests of other stakeholders, such as workers, are protected by different bodies of law and that corporations will accomplish the most for society (and even other corporate stakeholders) if they stick to seeking profit within the bounds of law and ethics. As the foundation for this point, this school often points to what happens when a company is subject to dissolution, where stakeholders like creditors and workers must be paid their contractual due before stockholders get anything. They argue from this viewpoint that it is best for all stakeholders that directors focus on maximizing the value of the firm for the stockholders as residual claimants, because an expanding pie will also give the firm more pie to share with its contractual stakeholders and pay more in taxes for the government to use for social purposes. This focus on increasing profitability is one they see as efficient, because it gives a reasoned focus to corporate governance rules that fits with the capacity of corporate managers and the reasons why they exist and are elected by stockholders under corporate law statutes, leaving to other bodies of law, like contract and external statutes, to address the rights and expectations of stakeholders with different needs, such as workers, consumers, lenders, and suppliers. Given the loose constraints of the business judgment rule, however, even this school recognizes that boards have broad discretion to chart a long-term direction pursuing stockholder welfare, and to view the respectful treatment of key stakeholders as important to the company’s ability to generate profits. But this school has historically had more suspicion when a corporation goes beyond being other-regarding toward a key direct stakeholder group—such as the company’s workers or supporting basic institutions like hospitals in their communities of operation—to have its board and CEO use the corporation’s wealth and influence to advance social or political causes not directly related to the corporation’s own business affairs. Milton Friedman, of course, is famously associated with this viewpoint, and he and other conservatives often argued that if companies have spare cash for politics or causes, they should return it to their stockholders and allow them to choose how and whether to spend it for those purposes. In support of this viewpoint, they argued, with strong empirical basis, that stockholders typically have only one shared interest—in a good return on their investment—and do not entrust their capital to allow corporate boards to use it for political and social purposes about which diverse stockholders were likely to hold diverse views.

The other school—now commonly associated with the term “stakeholder governance”—takes a broader view of corporate purpose, but one that has historically been only incrementally different. This other school holds that stockholders are just one of the corporation’s stakeholders, and that the stockholders’ superior power position under corporate law does not mean that the board itself must subordinate other stakeholders’ welfare to them. Rather, this school underscores that stockholders have limited, if potent rights, and they are not owners of the corporation in either a strict legal sense or in the same moral sense as a sole proprietor who is personally responsible for any damages the business causes. Thus, the board is permitted to use its judgment in good faith to determine the company’s strategy, and may treat workers or consumers or communities as an equal end of for-profit governance. In tough times, a board may consider it more important to preserve worker pay than maintain the stock dividends, and may do so even if there is a trade-off to be made. Under this view, the board is not required to contort itself in order to justify other-regarding behavior toward the workers. It could straightforwardly say, “[w]e seek to make profit but in a way that is fair to our stakeholders, and sometimes stockholders must accept less profit for us to do business the way we think is right.” Under this model, the board gets to balance stakeholder interests and, so long as it is doing so impartially—that is, not to advance any personal interests of their own—it can decide to generate a non-maximal profit to stockholders in order to treat its workers, consumers, creditors, and communities of operation with fairness. As to the risk of corporate managers overplaying their hands, this school would note that all stakeholders need the company to be profitable if they are to benefit from their relationship with it, and that the voting and other rights statutory corporate law gives to stockholders makes it impossible for boards, as a practical matter, to ignore their interests.

What is notable in the vast literature about these two schools is how narrow the differences between them can seem in terms of the broader, more rancorous debate now raging. The historical debate reignited in the last part of the twentieth century, mostly because of the takeover phenomenon, and the stark pressure it put on the ability of corporate boards to balance interests and to argue that their actions in doing so were, in the long run, good for investors. As Chancellor Allen recognized, a premium bid in the here and now for stockholders called the question in a way that could not be rationalized away on that basis.

But little to nothing in this debate in the late twentieth century turned on some of the questions arising today. From a debate about whether stockholders were primary among other corporate stakeholders has now emerged a much broader debate. To what extent may and should corporations use their resources to influence who gets elected to office? To swing the control of a state legislature from one party to another? To boycott a state that adopts public policies that do not directly regulate the business, but that the corporation’s board believes are wrong? And, to what extent can a corporation’s board adopt views of the good on issues with no direct relationship to the company’s own conduct or industry? Is it appropriate for a corporate entity to adopt an agenda about abortion or reproductive choice? About religious observance? About sexuality? If adopted, is it appropriate to impose the board’s view on the entity’s workforce and use its resources to makes those views public policy?

These larger concerns about corporate power and its use resurface worries that conservatives voiced in the 1950s and 1960s, which were less about harm to stockholders, and more about the massive wealth and influence corporations might deploy to influence society toward liberal ends that they opposed. It can be curious for Americans today to read articles suggesting that the corporate managerial class was pushing our nation toward a statist form of socialism, but those articles exist. Milton Friedman’s famous views to that effect are emblematic of the worries of conservative thinkers from that era, and have echoes in the growing stridency of the current conversation. So does rhetoric from liberals of that era, like Ralph Nader, who fought to constrain corporate influence on the political process. Both raised this legitimacy question—who are you, privileged elite class of CEOs—to use other people’s money to advance your own idiosyncratic views of the good?

In 2022, these concerns are at the forefront of today’s strident corporate governance debate. Voices from the right and the left question the wisdom and legitimacy of corporate leaders using their corporation’s clout to advance public policy ends that have no direct connection to the corporation’s operations or its relationship to its stakeholders. Although some of the debate still involves the more prosaic questions of the late twentieth century—whether boards should put stockholders first at all times or whether boards may treat all stakeholders with equal respect in running the business—the most heated part of the debate addresses the intersection of corporate power and voice and controversial issues of general social and political policy. By general, I mean issues of general social and political policy that would exist regardless of what the corporation or its industry did, and that have no intrinsic link to the corporation’s business operations.

IV. Tensions to the Far Left of Us, Contradictions to the Far Right, Is There Hope for Those of Us Stuck in the Middle?

But, despite sharing concerns over the use of corporate power for social or political ends, the left and the right have not joined forces to forge constructive solutions. Instead, each side just illustrates the tendency of people to like corporate conduct that echoes their beliefs and to call corporate conduct discordant with their beliefs illegitimate.

Let’s start with politicians of the left. Left-wing politicians applaud when corporations use their considerable power and influence to encourage government policymakers to, among other things: repeal laws that they view as harmful to the LGBT community, such as the so-called North Carolina “bathroom bill”; support laws protecting the right to have an abortion; restrict the types of and circumstances under which guns can be purchased and carried; reform policing and voting procedures they consider harmful to black people; and oppose President Trump’s refugee ban. But the left criticized the decision in Hobby Lobby and argued that it was improper for a corporation to be able to hold religious views about abortion and to limit its health care plans to be consistent with those views. Likewise, although left politicians have encouraged corporations to use the huge clubs of boycotts, threats to relocate or downsize operations, or to take out ads targeting opponents of policy they oppose, those same individuals take the position that corporate political spending is illegitimate and ought to be prohibited.

Right-wing politicians display no more principle. They decry “woke capitalism” and argue that business leaders have no proper basis to talk about issues like climate change, reproductive choice, voting rights, or equality. Businesses reducing lending or investing into climate-harming projects have been met with excommunications by right-wing state treasurers. These actions might be easier to explain away if they were based on the idea that corporations should just stick to business and leave values and politics to human beings. But, when corporations like Hobby Lobby imposed their religious belief on their employees and denied them access to federally guaranteed reproductive health services, these same voices applauded. These politicians also adamantly oppose restrictions on corporate political spending and are voracious devourers of corporate political spending. Indeed, about one thing there can be no rational debate: candidates and the party of the right receive the biggest benefit from corporate political spending and oppose any efforts to constrain it.

Although there is much to question about the Supreme Court’s equation of money and speech, and about its discovery in Citizens United—some 221 years after the founding—that the First Amendment extends to for-profit corporations an unlimited right to make expenditures to influence our political system, there is no rational way to deny that conduct like boycotts and threats to relocate from entire states, on the one hand, and corporate political donations, on the other, all involve uses of corporate wealth and power for the purpose of influence. If it is an illegitimate “woke” exercise to boycott an entire state over an issue of social policy, then it is equally an illegitimate “unwoke” exercise to give millions of corporate dollars over which you are a fiduciary for investors with diverse views to partisan political committees. Because of corporate wealth, both activities have an outsized influence on our political system.

Applauding corporate influence when you like what it’s used for is understandable. And, if you then accept that, while you will not always like what certain corporations do, such pluralism is the price of freedom, you have arrived at a principled position, but one that gives little weight to certain realities of how our system of corporate governance and retirement and college savings works. It involves accepting that there will be a range of corporate approaches, and that corporate power will tend to be exercised by people far richer, more elite and privileged in background, than most in society and still more likely to be Republican-leaning, and that the overall tilt of corporate political involvement generally is likely to be directionally right-wing, but on social policies influenced by what is deemed standard and acceptable to a certain social class, which might differ in substantial ways from, for example, working class voters of any party who do not have college degrees. It is also a position that gives little weight to corporate governance problems that scholars of both the left and right agree upon, in particular that neither stockholders nor corporate law statutes are well-positioned to monitor corporate boards over their political or social value–influence activities, and that there is no reason to believe that investors hold monolithic political or social beliefs or that they invest to express those beliefs. But this commitment to letting the red and blue corporate flowers bloom is nevertheless a principled position, and one that recognizes that there are other, less wealthy, countervailing forces in society that help balance out corporate influence.

A less edifying and consistent perspective comes from those who bemoan corporate conduct as illegitimate when that conduct advances a cause they oppose, while supporting functionally identical conduct that is consistent with their own beliefs. This approach does not accept pluralism or diversity in belief, it just involves a determination by the left that corporations that are right wing should not exist or get to act on their board’s beliefs, and a similar determination by the right that left-wing corporations should not exist. This is not a principled position about corporate power. It is just partisan-driven rhetoric, natural for passionate political types, but unhelpful.

Are we stuck with accepting these increasingly divisive consequences resulting from the current default to a hodge-podge pluralism whose basic legitimacy is denounced by conservatives and liberals whenever it produces situational results they do not favor? Or, is there another principled path forward that is not of the left or of the right, but grounded in a centrist understanding of for-profit corporate governance? That moves toward a more channeling and a more legitimizing approach to corporate conduct, that is in the best interests of all stakeholders of corporations and society? A way that better respects the freedom of all human Americans?

I now will attempt to cut out a trail of that kind, moving in a direction supported by principles that are widely shared by thinkers of all political and social persuasions.

V. Toward a Principled, Non-Ideological, Non-Partisan Vision of the Good Corporate Citizen

To begin our route-planning, I reiterate a foundational subject on which conservative and liberal legal and economic thinkers agree: statutory corporate law was not designed to constrain corporate leaders from engaging in social or political activity. The main concern of corporate law constraints is making sure that corporate leaders do not engage in self-dealing at the expense of other stockholders, and that there is an ability for stockholders to have a say on who governs the company and on big transactions. Likewise, the whole idea of the business judgment rule is that it is unwise to have courts second-guess impartial board decisions because, although boards will make mistakes, it is better to encourage responsible risk-taking, because that fuels profits for investors, and usually growth of the company means good things for the company’s workers and communities of operation. This intuition is, importantly, premised on a convergence between the corporate leaders’ interests and those of the stockholders in only one sense: both wanted the business to be profitable and deliver a good return. When, rather than making a decision based on profit, a board uses the corporation’s resources to advance a social or a political cause, conservative thinkers balk, as has been discussed, because there is no basis on which to presume a convergence of social and political beliefs on the part of investors, or that they invested to advance those beliefs. On purely corporate law grounds, these thinkers viewed corporate leaders as lacking legitimacy and that they should hew to seeking profit within the bounds of the law and of their concept of proper ethical standards. If there was “surplus” in the firm for use for social or political purposes, that should be returned to the stockholders in the form of a dividend, with stockholders free to make their own decisions about what to do with that money.

If a person of the left opens her mind to these arguments, she will find much to agree with. Human investors put their savings, through mutual funds controlled by institutional investors participating in their company 401(k) plans, into many companies, primarily to gain a return for use in paying for things like college for kids and retirement for themselves. They have little influence on corporate policies, and in fact have to invest through intermediaries for the most part. It is one thing to think these intermediaries can monitor corporate boards for their ability to deliver good financial returns; quite another to think they have any capacity under ordinary corporate law to hold corporate leaders accountable for taking positions on social values and politics that somehow represents a consensus among investors with views nearly as diverse as society as a whole. Moreover, the left recognizes, perhaps even more than conservative thinkers have, that corporate leaders are hardly representative of society as a whole, and come from more privileged, more male, and more white backgrounds than the rest of us, and that this influences how they think about issues. As concerning, a person of the left realizes that precisely because corporations are a primary tool for wealth creation, they have the accumulated capital of many; if such capital can be used to act on society, corporations will have resources that often far outstrip those of human beings. Much human wealth is in fact entrapped in corporations and institutional investors and out of the direct control of human investors. For all these reasons, many of the concerns of conservatives like Milton Friedman about corporations acting to advance social and political causes also motivate left-wing opposition to corporate political spending. And with good reason.

There is another important issue that cannot be forgotten. Americans spend more waking time under the domain of their employer than in the company of family and friends. This has been a concern of thinkers on both the left and the right. The current cries about woke capitalism draw on fears that, if politically correct CEOs can push their left-coast values on their companies, a left-wing social orthodoxy will be imposed on the company and its workers, who will feel inhibited from expressing any contrary opinion at the risk of cancellation. Should the freedom to be who you are have to give way if you want to keep your job? This right-wing concern is not isolated to the right. In her important work, Private Government, Professor Elizabeth Anderson highlights the dangers of a society where employers are not required to respect the diversity of their employees’ beliefs and to foster workplaces where people of different views can work side by side so long as they are mutually respectful and tolerant. She rightly stresses that for many, there are few economic options and that in a choice between feeding the family and lacking freedom for most of your waking hours, freedom will tend to give way. In important ways, Anderson was anticipated by Adolph Berle, who argued nearly seventy years ago that, unless large corporations honor the constitutional rights of their employees, Americans could not truly be free, because as an economic reality, tens of millions had to work for them.

Neither the left nor the right can responsibly avoid the “whose freedom” question in considering the extent to which they believe corporations should get to advance social and political purposes. To the extent that a corporation takes a stand and promotes that stand within the workforce, it will affect employees who disagree and may feel subjected to a corporate orthodoxy on an issue that may have no direct relationship to the company’s own operations. If the corporation goes further and claims, as did the employers in Hobby Lobby, that its “corporate religious views” require it to refuse to fund otherwise legally required health care as part of the company’s health insurance plan, employees can find themselves losing their own secular rights. In all cases, if the infusion of social and political values into the corporation’s culture becomes intensive, the potential to divide the workforce grows. Only those high-end workers with mobility and economic choice can look for companies that suit their preferred orthodoxy. And lest the left say—well, haven’t workers driven corporations to take stands in some cases—well, yes they have. But what kinds of workers? Typically, highly paid workers with lots of economic options. And what kinds of issues? Typically, social issues of specific interest to them, often having little to do with core issues of worker economic well-being for the company’s entire workforce (direct and contracted). When workers with less economic leverage have spoken up to seek better pay and more voice, they have faced more resistance. That is, social and political policies pushed by an elite segment of the workforce have their own representativeness problems, and may alienate the most powerless segments of the workforce, or subordinate their most pressing concerns to those of the already most privileged segments of the workforce.

Viewed from a Rawlsian perspective, the lot of American workers in a system where corporate leaders are free to use corporate resources to drive social and political change is worrisome. It is doubtful that corporate belief systems will be pushed externally only with no effect on the workplace itself. Workers are, on average, likely to have constrained options for re-employment; most of the options will require family and economic disruption, and none will typically give the worker any meaningful ability to influence the corporate workplace. As a result, a system that facilitates corporate inculcation of certain political and social values is disadvantageous for workers, because it could make them have to shop for red or blue companies, or just endure working hours in an atmosphere that lacks the pluralism and freedom that represents a key part of being an American. Both the right and the left seem to get this, as both cry foul when they see a company they view as pushing an orthodoxy they do not favor.

As we have seen, though, the implications of these arguments are accepted by each side in selective and contradictory ways that are in tension with each other. A reconciliation, however, is possible, but it is one that leaves each side having to give up something.

For the left, it requires recognizing that using corporate power to push for left-wing policies and belief systems has an outsized effect on the communities in which they operate, and perhaps most importantly, the company’s employees. Calling on companies to boycott doing business in an entire state is calling on companies to use their vast resources to bend public policy to their direction. Likewise, if the left is going to be true to its principles, if a CEO or board is permitted to speak about public policy, so must their employees. It is problematic to let the flowers of expression bloom only for the few, and not the many. If CEOs and boards are going to use company communications systems to talk about political issues, such as legislation, are employees allowed to respond? Or is only one viewpoint okay? And if that is so, and if it is the unspoken rule that you can’t voice an “incorrect” view without running afoul of management’s political beliefs, what incursion does that have on the workforce’s freedoms as Americans?

For the right, it requires facing the corresponding reality, which is that there is a contradiction between telling corporations to shut up about social and political issues, and then putting constant pressure on them to fill their campaign coffers. It is inconsistent to try to stifle corporate voice when it says things you don’t like, while demanding that corporations fund the coffers of candidates and campaigns, so that huge corporate wealth can be used to advance causes like voting access restrictions, bans on abortion, gun rights, and limitations on the rights of workers. Money matters, and these corporate funds are being used for purposes that are not based on any consensus of the diverse stockholders of the companies, much less their other stakeholders.

For both sides, it requires recognizing that freedom of conscience means freedom for all, not just those who agree with you. Unless either side wishes to confess its desire for a nation where one political and religious orthodoxy reigns and those with other beliefs are expected to shut up and go along, then each has to admit that a failure to constrain corporate efforts to advance social and political values will have implications for the freedom of others subject to corporate power.

Or, are we stuck with corporations that callously seek profit in a manner wholly abstracted from social context, and with none of the real world heart and soul concerns that animate sole proprietors or ordinary workers in their conduct? The good news is that I think that the answer to that is a decisive no. If you recall my description of the two basic schools of thought in American corporate governance, you will note that the differences between them are not nearly as stark as the public debate suggests.

Consider this. Imagine a public company whose board adopts the following policy direction:

Make no doubt, we know our job is to deliver solid profits for our investors in a sustainable way. But also recognize that by sustainable, we mean sustainable. We are not going to seek profit the wrong way. Our stockholders don’t just invest in us, they invest in the entire economy, and they pay taxes and need jobs. They live in the real world, and breathe air, drink water, and consume products and services. Their lives are not better off if companies make money by shifting costs from the corporate books to taxpayers, workers, communities of operation, or consumers. Our investors will bear these costs, and if each company tends to operate that way, every company will be forced to do so.


We think that is wrong, and in pursuing long-term profit, we intend to treat all our stakeholders with respect. We will pay a living wage and benefits, not only to our direct workforce but require that our contractors do the same, and do so in all nations and regions where we operate. We will support our communities of operation, by paying our share of school taxes, and contributing to the key charities like hospitals, community colleges, the Red Cross, and local fire departments upon which our company and our workers depend. We will focus on safety and quality so our products help our customers live better lives. We will try not to harm the environment or contribute to climate change that endangers our economy and well-being. We will try to be a fair employer, provide equal opportunities to all who work for us and who might want to work for us, and to foster a spirit of genuine tolerance for diversity—including diversity of viewpoint—in the workplace. We believe that by doing business the right way, all of our stakeholders will benefit and so will our bottom line.


We also know this. You don’t buy our stock so we can use your capital for political purposes. You have diverse political, religious, and social beliefs, and so do our employees. The freedom to have those different beliefs is important to all of us. For that reason, we will not make political expenditures except under a plan you as stockholders have approved. The entire board will approve any corporate positions on political or social issues and will only address those directly important to the company. Whenever we do so, we will make clear that we don’t expect our employees to hew to the company’s views, and that we want a company where Americans of all viewpoints feel welcome to work and be a consumer.

Neither of the two major strands in American corporate law—the stockholder and stakeholder schools—can really take issue with this corporation’s policy. Sure, there will be trade-offs to be made, but even Milton Friedman would likely not have questioned that a well-motivated board could embrace this company’s policy.

And this lack of discord makes sense. There is no blue-red divide about whether corporations are entitled to pay their workers fairly and provide them with a safe, tolerant workplace. There is no blue-red divide about whether corporations should make their products and services safe, non-fraudulent, and useful. There is no blue-red divide that corporations should avoid polluting the communities in which they operate and pay their fair share of taxes.

Americans embrace Hippocrates-influenced corporate governance: do no harm in pursuing profit. Americans of all beliefs are not just stockholders, but workers, taxpayers, and consumers who live in the environment. Most of them have friends and family who do not share all their own views about anything, or their skin color, ethnic origins, or gender. They can get behind businesses that show their values by treating their workers, consumers, communities, and the environment well—that is, by doing what matters most—conducting its business in the respectful and ethical manner that a good corporate citizen who cares about its stakeholders and nation should.

This consensus breaks down, however, when corporations seek to tilt the social and political value system. Voting eligibility policies, reproductive rights, guns, policing procedures and tactics, criminal codes, and the like are the subject of passionate and legitimate disagreement in our society. When corporations act to advance their management’s views about controversial issues of this kind, they generate discord because there is no shared consensus among their workers, consumers, or stockholders about these issues. And because corporate boards are not elected for these purposes and lack any comparative expertise in them, they are poorly positioned to chart a sensible or coherent direction. Speaking out about one thing leads to a demand to speak out about another. An ad in The New York Times by a company about an issue that costs five figures turns out to pale in comparison to the millions of dollars a company spent funding candidates and committees on the other side of the issue who have been behind the very policies the company now supposedly opposes. Charting a consistent course risks the company becoming identifiably a red or blue one. Behaving episodically and combining a principled involvement in issues and politics with the cynical use of political spending to curry favor risks evident hypocrisy. Neither seems that attractive.

The model company policy speaks directly to these concerns, by employing the traditional tools of legitimization that corporate law has used when concerns about conflicts of interest on the part of corporate leaders exist. The policy thus responds in a measured and traditional way to the concerns that scholars, politicians, and citizens of all political stripes have voiced that business leaders might misuse the wealth and influence entrusted to them by pursuing policies more reflective of their own biases and personal beliefs than of a consensus of their investors or other stakeholders. By way of example, corporate law has long encouraged that decisions about transactions involving self-dealing be approved by directors lacking any conflict or by the disinterested stockholders themselves. Even when there is no direct self-dealing conflict, such as when a board addresses a takeover bid, the law has encouraged boards to shift power to the independent directors to ameliorate the potential that management’s interest might taint the board’s response. And of course, it is traditional for corporate law statutes to require that certain decisions of importance be approved not just by the board, but by the stockholders themselves, sometimes with the requirement that more than a simple majority of stockholders approve. By using these tools drawn from direct and republican democracy, the potential for self-interest to infect corporate policy at the expense of the company and its stockholders is reduced, because the process requirements both pressure the board to explain its actions on proper grounds, and to convince the stockholders themselves to support their proposed action. Moreover, when boards are required to evaluate and adopt a resolution to act that is then subject to scrutiny and approval by stockholders, they are more likely to ask hard questions of top management and to think carefully, because their decision will be subject to searching public examination and a stockholder plebiscite. This process of accountability influences boards even when stockholder input is provided on a precatory basis, as the success of 14a-8 proposals have had in profoundly changing corporate governance policies and the prevalence of classified boards demonstrates. For these reasons, there is a rational basis, and respected scholars have thus argued, for using these same legitimizing techniques to provide guardrails to better ensure that corporate involvement in social and political issues is representative of what a majority of their investors can support, or at the very least tolerate.

To wit, if investors of all kinds were to act on the recommendation of John Bogle, the late founder of Vanguard, and to propose that corporations could only engage in corporate political spending under a plan approved by a super-majority of stockholders, they could temper the politicization of the corporate sector. Companies that wished to continue to influence the political process by contributions would have to shape credible plans for doing so that identified how and when the corporation would make contributions, and how the corporation would take into account the difficulties involved in reconciling corporate giving with the company’s stated values. This would, Bogle knew, likely lead to a sharp reduction in corporate entanglement in the sordid business of campaign funding. But that he viewed as a good thing and thought those entanglements were injurious for the corporate sector’s reputation and effectiveness. His approach also allowed those corporations that could obtain consensus support to proceed on a much more legitimate basis. A policy of demanding that corporations obtain stockholder support is not a right-wing or left-wing one—it accords with the thinking of Milton Friedman, Elizabeth Warren, and majorities of both political parties. The same principled approach, grounded in traditional corporate law tools, could and should be applied to similar actions like boycotts of certain American communities.

To be sure, guardrails of this kind will not eliminate the need for boards and management to make difficult judgments. Nor will it mean that the decisions that result are necessarily universally embraced by stockholders or other stakeholders. But the deliberative process these techniques facilitate, and the approval they require from the full board, and in some cases stockholders themselves, will better ensure that all reasonable perspectives are considered in corporate decision-making about these sensitive issues in which directors and management have no comparative advantage or natural alignment with stockholders or other corporate stakeholders. The resulting decisions are more likely to be ones supported by a strong, diverse base of the company’s stakeholders.

Put somewhat differently, if this path were taken, it might not end all controversy about corporate involvement in social and political issues, but it could channel corporate behavior in a way that would be more consistent with the shared values of the American public and reduce the unhealthy pressure to enmesh businesses in partisan politics. This more nuanced path would avoid making workers and investors victims of politicizing a space of societal activity that is impossible for them to avoid and that should be open to everyone of good faith, regardless of their political, religious, or social beliefs.

VI. Encouraging Corporations to Treat Their Stakeholders with Respect, and to Leave Social and Political Policy Largely to Their Stockholders, Employees, and Customers to Decide for Themselves

A. A Model of Good, Non-Ideological Corporate Citizenship

To map out this path in clearer directional terms, this non-partisan, non-ideological approach to corporate social and political involvement can be distilled into these basic components:

  • Corporations should focus on how their behavior affects their stockholders, workforce, customers, creditors, and communities of operation. Before a corporation focuses on external issues of general concern that have no connection, the corporation should be sure that it is treating all of its stakeholders and society with appropriate respect.
  • Examples of policies to this effect would be:
    • Commitments to pay a living wage to the workforce writ large (including contracted workers) and close the wealth gap through savings help for employees;
    • Making an effort to implement practices so that the company’s employee ranks are open fully to everyone, regardless of race, ethnicity, gender, or sexual preference or orientation, and to serve all communities on a non-discriminatory basis;
    • Ensuring that the workplace is as tolerant, safe, and harassment-free as possible, so that employees of diverse backgrounds and beliefs can enjoy being together to help the company succeed;
    • Guaranteeing all employees access to benefits under their company-provided benefits and pay packages, for example, by facilitating reproductive choice by providing subsidies for travel or other assistance necessary to help employees secure care, but being sure not to make employees feel that they must embrace any particular view about reproductive choice or abortion;
    • Paying expected taxes and refusing to engage in tax arbitrage and the avoidance of school and other taxes as a condition to keeping or locating operations;
    • Committing to high standards for product/services reliability, safety, and fairness;
    • Avoiding environmental harm or any other harm that might unfairly shift costs from the company to company stakeholders or society;
    • Supporting backbone institutions of the kind Benjamin Franklin believed were essential to civil society, such as schools, the Red Cross, hospitals, etc., in the company’s communities of operation, and ensuring that company facilities are attractive, well-kept, and create positive externalities for the surrounding community; and
    • Refusing to sell certain products or provide certain services if the board believes that the harm caused is not consistent with the company’s ethical values or the long-term best interests of investors. This could include decisions not to sell certain firearms, to engage in certain types of lending practices, or to fund industries or projects that they believe generate harmful externalities of the kind the company itself has decided to eliminate. In other words, this is an aspect of the board’s decision about the right way to make money, and traditionally, also an aspect of free market freedom.
  • If the company purports to take positions on external public policy, its positions should result from a deliberative process of the board of directors based on the direct relevance of the policy question to the company, and not just reflect the personal view of the CEO without board backing. The full board should have to weigh and bear responsibility for any corporate position, as that somewhat improves the likelihood that the position will be one more likely to accord with a broader consensus of company stockholders and workers and increases the accountability of the board.
  • It should also be clear that no employee or customer is expected to share that belief and that all people of good faith are welcome to work for and patronize the company.
  • As an ideal, corporate political spending should be voluntarily eliminated, leaving the company’s human stockholders, workers, and customers to be the ones whose voices matter in the political process. In the alternative, any corporate political spending should only occur based on a plan approved by a supermajority of stockholders, and that only allows for contributions to candidates and committees consistent with the company’s stated values. The company could only give to candidates based on a specific determination that their overall views were consistent with company policy, in the sense that there is no marked departure on any issue that the company has deemed fundamentally important. This, of course, is not easy in an age of greater polarization, but is necessary for the corporation to try to do if it wishes to avoid legitimate criticism for being hypocritical.
  • If the company gives only through a PAC comprised of voluntary contributions by stockholders and management, it could do so as long as a committee of independent directors oversees giving on the same basis.
  • Corporate political spending to partisan committees of any kind would be eliminated, full stop. These constraints would not inhibit the corporation from engaging with elected officials of all stripes. To the extent that the company wished to support and be engaged with governors, state legislators, or attorneys general, it would and should give to the non-partisan groups like the National Governor’s Association, the National Conference of State Legislatures, and the National Association of Attorney Generals that exist, that promote bipartisan cooperation in the public interest, and that provide forums to engage with these elected officials from all parties.
  • If a company wants to stop doing business in or with a particular American state, it would also have to obtain supermajority stockholder approval. To boycott an American state is as coercive as flooding a state with millions of dollars of political spending. It also may involve the company abandoning services and endangering the employment of lots of residents of that state who do not disagree with the state policy that the company opposes. Not everyone in Alabama is pro-life and not everyone in Massachusetts is pro-choice. Thus, companies should commit only to take this kind of drastic action with the assent of a supermajority of stockholders, just as they should with corporate political spending.

B. What Institutional Investors Can Do to Make This Concept of Good Corporate Citizenship a Reality

This thinking can be translated into a corresponding framework to guide the stewardship role of institutional investors.

For institutional investors who manage mutual funds for retirement and college savers, and pension funds, with the important duty of acting as prudent fiduciaries for human investors with diverse religious, political, or social values, this idea is even more important. Institutional investors of this kind know that their clients only entrust their capital to them for one objective—to get a solid return to use for important reasons like education for their children and retirement for themselves—and not so the institutions can fund political or social spending on their behalf.

If these propositions are true, it seems to me that all institutional investors can build on the principles we have talked about in their own engagement efforts. And most institutional investors can use another simple, but important, overarching consideration to help them—their clients’ economic interests are broader than any single portfolio company’s narrow profit interest. If, as is true, most institutional investors do not simply invest in one company, but many companies, then institutional investors want for their clients a system where companies make money the right way. If, as is true, most investors invest in debt securities, not just equities, they do not want a system where value is shifted to equity at the expense of bondholders. If, as is true, human investors need good jobs as their primary source of wealth, and their jobs are critical to the soundness of pension funds for retirees, they need companies to make money in a way that is good for American workers. And if, as is true, human investors are taxpayers, consumers, and people who live in the environment, they do not want companies to shift costs to them in the form of taxes, consumer injuries, or health damage. Instead, they need institutional investors to encourage companies to seek to create sustainable profits, by focusing on growth net of externalities. These goals are not partisan, they are not ideological, they are shared by an overwhelming percentage of the human investors whose savings are controlled by institutional investors.

Building on that basis, this could translate into a framework for engagement and stewardship efforts of institutional investors like this:

  • Identify reasonable expectations for portfolio companies to create sustainable value the right way, and the conduct expected of them toward their workforce writ large (including contracted workers), their communities of operations, their consumers, and the environment.
  • Channel engagement efforts toward those inward-facing issues—how is the corporation treating the people its conduct affects?—about which there is less division and over which companies actually have more responsibility.
  • Demand corporations use the suggested guardrails over corporate political and social involvement. Use your institutional investor voice and shareholder vote to that end.
  • Insist that corporations that take positions on debatable social or political issues accord their workforce the freedom to hold contrary views, and honor the religious and political diversity of their employees and customers, by ensuring an environment and culture of mutual respect that welcomes participation by all Americans of good faith.

The focus I am recommending is likely to have the most positive impact because it makes business leaders more genuinely accountable for what they can control—the operations of businesses that benefit not just their stockholders, but all the stakeholders. The guardrails requiring greater deliberation by the full board and stockholder approval will better channel corporate policy toward issues on which there is a consensus among the company’s investors and stakeholders, and reduce the ability of corporations to use their resources on issues where they are divided.

If all this sounds like I am saying that the focus for corporations and institutional investors ought to be on encouraging respectful treatment of all corporate stakeholders in the pursuit of sustainable profit, you got it right. That bottom-line goal—making money the right way—is one that all Americans can get behind, leaves no one out, and does not divide us.

I am grateful for diligent help from Ishpuneet Chhabra, Chelsea Garber, Max Obmascik, Jose Olivares, Margaret Pfeiffer, and Katherine Waldock, and incisive comments from Stephen Bainbridge, John Coates, Martin Lipton, Dorothy Lund, John Olson, Edward Rock, Roberta Romano, Andrew Ross Sorkin, Kirby Smith, Reilly Steel, Robinson Strauss, Alison Taylor, and Nicholas Walter.