Social activists have long attempted to redefine corporations’ objectives to include “social responsibility.” Yet most economists would argue that a corporate executive’s primary social responsibility is to make a profit for the corporation’s owners, not to appease social activists’ demands. In Milton Friedman’s words, any manager who would put the activists’ interests ahead of the shareholders’ would be practicing “pure and unadulterated socialism.”1 William Meckling and Michael Jensen wrote, “The term ‘social responsibility’ has the advantage, from the standpoint of its proponents, that it disguises what they really have in mind: namely, that managers should deliberately take actions which adversely affect investors in order to bestow benefits on other individuals.”2 Such blunt comments leave no room for doubt about who the legitimate stakeholder is in directing corporate policy — the corporate investor. But what are executives to do when the social activist and the corporate investor are, in fact, the same?
This quandary has confronted many corporate executives in their annual shareholder meetings. For example, from 1990 to 1992, Amoco faced repeated shareholder resolutions to sign the Valdez Principles, ten environmental principles developed by the Coalition for Environmentally Responsible Economies (CERES). This particular case is intriguing because of Amoco’s strategic response to defend itself from an “undesirable and unwarranted intrusion into corporate affairs.” Equally intriguing is why Amoco, and... To read the complete article, login or sign-up using the form below.
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