Defining the issue

1
Defining the issue

• What is social responsibility?
• Friedman and Arrow
• Stone
• Jacoby
• Corporate social responsibility
• Should agents be socially responsible?
• May owners contract for less power than current
  default rules?
  
• British Community Interest Company (restrictions
  on dividends)
  
• Effect of CIC laws on non-CICs
• Mandatory disclosure for corporate
  responsibility
  
• Maximizing profits vs. whose interests matter

2
Social responsibility and corporate governance
3
Governance questions

• Does social responsibility matter to corporate
  governance?
  
• Stakeholder management or decreased shareholder
  power (move to B)
  
• Benefits Supplements markets
• Costs
• Stakeholder opportunism
• Internal dissension
• Reduced managerial accountability
• Mechanisms for increasing shareholder power (move
  to A)
  
• Voting
• Suing
• Selling

4
Shareholders incentives

• Profit-motivated Accountable managers avoid
  litigation and regulation
  
• Sole proprietors (non-publicly held)
• Profit maximization vs. personal preferences
• Effect of diversification
• Social investing
• Entrepreneurs
• Gates foundation charity vs. structural csr
• Ben Jerrys
• Clientele effects
• Governance role
• Institutional investors
• Collective action issues
• Religions of corporate social responsibility

5
Markets and stakeholders

• Labor
• Knowledge workers
• Motivating workers
• Consumer and investor roles
• Consumers and branding
• Beyond petroleum ExxonMobil vs. BP
• Google Dont be evil and deal structure
• Buying hybrids
• The role of social activists
• Consumer coordination problems
• The role of mandatory disclosure
• Costco vs. Walmart
• Suppliers Outsourcing and branding
• Asset markets effect of SOX
• Local communities Leverage and social license
• NGOs

6
Costs restricting accountability

• Incentives
• Indirect and direct self-dealing Scrushy, Ebbers
  and other local zeros
  
• Data effect of managerial ownership
• Information
• Tradeoffs
• Distributional issues
• Judgment
• Heuristic errors
• Inefficient norms

7
What should managers do?

• Significantly increase profits by outsourcing
  jobs
  
• Sell an anti-AIDS drug below market?
• Refuse to hire gay employees because they think
  homosexuality is evil?
  
• Google
• Resisting subpoenas stock price reaction
• Chinese search sites
• Hoarding Tamiflu
• American Girl and Girls, Inc. the risks of
  corporate charity
  
• Cage-free ads What do hens want?
• How much should Starbucks charge for latte
• Should retailers sell genetically modified food?

8
Legal rules and csr

• The business judgment rule and
• Social irresponsibility
• Social responsibility e.g., controversial
  charity work
  
• Disclosure of
• Irresponsibility
• Charity risks
• Effect of SOX

9
Limits on accountability

• Voting
• Free rider problems
• Institutional shareholder incentives
• Derivative suits
• The inevitability of the business judgment rule
• Litigation conflicts
• Market for control
• Takeover defenses and the business judgment rule
• Dynamic nature of takeover defenses
• Alternative business forms
• LBOs
• Private equity
• Partnerships

10
Conclusions

• Is move to B desirable?
• Is move to A feasible?
• How much does social responsibility matter to
  corporate governance?