Corporate Governing: Promises and Risks of Corporations as Socio-Economic Reformers

Corporations are increasingly active in public affairs across a range of critical issues such as racial justice, gender parity, climate change, and more. This trend has given rise to two phenomena: corporate socio-economic advocacy and government substitution. Together, they form what I refer to as “corporate governing.”

Corporate Socio-Economic Advocacy: In this aspect of corporate governing, companies align themselves with (typically progressive) causes and actively participate in policy initiatives. They provide expertise, coordination, and resources to further political causes that resonate with their values.

Government Substitution: A lesser discussed but equally important facet of corporate governing involves corporations stepping in to perform quasi-governmental functions when the government either cannot or chooses not to. They tackle tasks traditionally handled by governments, often with the aim of offering improved conditions to society, particularly their employees. For instance, they may provide better healthcare benefits or support underrepresented communities.

Corporations are driven to participate in these initiatives for various reasons. First, they seek to protect their business interests by attracting talent and appealing to customers. Second, they respond to pressures from their workforce and investors who increasingly demand corporate social responsibility. Additionally, in contrast to the American political landscape, which is marked by congressional paralysis, corporations may have the capacity to generate change more swiftly. As a result, they take on roles traditionally reserved for governments and become instrumental in both advocating for certain policies and filling the void left by governmental inaction. Their involvement has garnered both applause and criticism from different quarters.

My recent paper “Corporate Governing: Promises and Risks of Corporations as Socio-Economic Reformers” aims to dissect corporate governing by addressing some fundamental questions: Can and should corporations be involved in government substitution and corporate socio-economic advocacy? What are the benefits and risks for corporations and for society at large? What corporate governance checks and balances, if any, are needed to prevent exploitation?

To answer these questions, I introduce a taxonomy of corporate governing areas, and offers a high-level survey of selected instances of corporate governing including racial equity, women’s rights, climate action, voting rights, and gun control, while distinguishing between government substitution and corporate socio-economic advocacy.

The Normative Framework. The paper provides doctrinal and normative frameworks for evaluating corporate governing. After noting that corporate governing does not raise significant issues under existing corporate laws, I break down the normative analysis into four key questions:

1. Is there a business case for corporate governing?
2. Is corporate governing strategically wise for corporations?
3. Does corporate governing effectively advance social causes and benefit society at large?
4. Does corporate governing undermine actual government and imperil democratic institutions?

I give a cautiously affirmative answer to the first two questions. There are no a priori reasons for negating that corporate governing may enhance firm value and be strategically sound. As a caveat, corporate governing depends on context. Key factors are the policy issue at hand, firm characteristics, authenticity, adherence to the firm’s core mission, prior messaging, and expectations of stakeholders and markets in which the company operates (product, labor, stock, and so forth). While interest misalignment between decision makers and stakeholders exists, this is a risk that corporate governance tools, if adequately recalibrated, can absorb.

The other two normative questions (the social advocacy case and the risk that corporate governing might imperil democratic institutions) raise some concerns. As to the former, it is not easy to establish whether corporate governing is beneficial for society at large: As this is largely dependent on one’s politics, it is inevitable to find dissenters along the way. Just as problematic is the risk that we end up delegating vital socio-economic issues to corporations and cease to pursue the main avenue of politics and actual government.

Promises and Risks. I evaluate promises and risks from two separate viewpoints: the corporation’s and society’s. From a corporate perspective, well-executed corporate governing can bring benefits such as improved recruiting, higher employee morale, effective marketing, and increased profitability. However, risks include alienating stakeholders with differing political views. Additionally, the current corporate governance framework may not be equipped to manage agendas that conflict with shareholder and stakeholder desires.

From a societal standpoint, corporate governing offers potential advantages, particularly in areas where traditional politics have struggled to make progress. Yet, corporate governing raises several risks, including that it is undemocratic as it lacks accountability and representativeness; it is divisive and anti-pluralistic; its reach is partial; corporations might lose interest or, worse, be opportunistic, absent, or antagonistic to society’s quests; and abandoning traditional politics is a risky proposition.

These risks can be lumped into two broad categories: one holds that corporate governing will not do enough for the societal ails that need fixing, and the other that corporate governing is plain dangerous.

As to the criticism that corporate governing does not go far enough for society, I warn that it is not going to foster true social progress, especially with respect to distributional matters (tax, antitrust, labor and employment, privacy, financial and corporate reform, and so on) in which corporations have interests in conflict with society. This is an important cautionary tale to keep in mind before embarking in potentially perilous policy changes that would entrust executives with a broader agenda.

Corporate governing may be dangerous, I argue, because 1) corporations are undemocratic tools that sacrifice dissenter’s rights over policies that have failed to be approved via the democratic process, and 2) actual politics and democratic institutions will be weakened if the reformist space is occupied predominantly by corporations. While the former set of problems is not as severe as some posit, the risk of abandoning traditional politics can be devastating. Worryingly, there do not seem to be handy policy fixes: Addressing this risk requires change in norms, political goodwill, and possibly reform of politics itself—all areas in which corporate governance can help but cannot be the driving force.

Any Corporate Governance Fixes? As corporate governing is likely here to stay, I suggest that it will be up to corporations themselves and Delaware courts to finesse adequate guardrails to avoid the risk that executives unilaterally push down agendas on corporations and their stakeholders. Adopting, disclosing, and following internal guidelines, and involving the board (and in certain cases shareholders) would be important steps to improve the process, increase stakeholder protections, and keep courts and backlash at bay.

My paper can be downloaded here.