The Millennial Corporation: Strong Stakeholders, Weak Managers

51 Pages Posted: 10 Sep 2021 Last revised: 8 Mar 2024

See all articles by Michal Barzuza

Michal Barzuza

University of Virginia School of Law; ECGI

Quinn Curtis

University of Virginia School of Law

David H. Webber

Boston University School of Law

Date Written: September 6, 2021

Abstract

The most important phenomenon in the corporate world today is the swift and dramatic rise of the Environmental, Social, and Governance (“ESG”) movement. Commentators have tried to fit this development into familiar frameworks of shareholder value or management entrenchment. In contrast, in this Article we develop, for the first time, a theory of ESG as a product of social demand. Our framework shows that increasing demand for socially responsible corporate behavior, originating in but not limited to the millennial generation, has created powerful incentives for corporate managers to promote ESG goals.

We identify and analyze five specific channels of social demand that pressure CEOs to promote ESG. First, markets – consumers, employees, and investors - may reward firms for promoting ESG. Second, and more important, risk averse CEOs may rationally invest corporate money to minimize personal risk from boycotts and walkouts. Third, large index fund managers, have responded to social demand by embracing ESG activism to lure investors. Fourth, activist hedge funds target firms with ESG vulnerabilities, to later leverage them in their fight for board seats. Fifth, social demand could facilitate ESG regulation by pressuring firms to reduce lobbying activities that are not aligned with ESG goals and by tilting regulatory cost-benefit analyses in favor of ESG rules. As a result, we argue, CEOs face overwhelming, perhaps excessive, pressure to deliver on ESG goals or face career-limiting consequences.

Our framework has important implications for the ESG and stakeholderism debates, for the future and desirability of ESG, and for corporate and securities law.

Keywords: ESG, CEO incentives, Socially Responsible Investing, Shareholder Activism, Diversity, Millennials, maximizing shareholder value, corporate governance, corporate finance, hedge funds

JEL Classification: G11, G23, K22

Suggested Citation

Barzuza, Michal and Curtis, Quinn and Webber, David H., The Millennial Corporation: Strong Stakeholders, Weak Managers (September 6, 2021). Stanford Journal of Law, Business, and Finance, 2023, European Corporate Governance Institute - Law Working Paper No. 687/2023, Available at SSRN: https://ssrn.com/abstract=3918443 or http://dx.doi.org/10.2139/ssrn.3918443

Michal Barzuza

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

HOME PAGE: http://https://www.law.virginia.edu/faculty/profile/mb9fg/1144316

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/michal-barzuza

Quinn Curtis

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

HOME PAGE: http://https://www.law.virginia.edu/faculty/profile/qc3q/2298852

David H. Webber (Contact Author)

Boston University School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States
617-358-6194 (Phone)

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