By: Wendy E. Wagner*


Corporations have been criticized for their environmental misdeeds for over a century,[1] so it is not surprising that many view corporate approaches to sustainability with skepticism.[2]  Reports of green-washing and other forms of misleading advertising by a handful of corporations only serve to reinforce this negative perception.[3]

Based on this evidence of poor corporate behavior, a number of analysts have concluded that sustainability should be regulated in the same way as other industrial polluting activities.[4]  Just as laws require corporations to disclose information on their polluting activities because these activities are wrongs to society, so the thinking goes, corporations should be required to engage in an internal accounting of their unsustainable practices.  Specifically, corporations should be required to assess the sustainability of their operations in standardized disclosures and take their resulting, publicly-administered medicine, whether it involves being shamed in the marketplace or subjected to greater regulatory control with respect to resource use or disposal practices.[5]

This Article argues that addressing corporate sustainability by putting the onus on corporations to assess the sustainability of their operations may get the solution exactly backwards, at least at this early stage in advancing sustainability.  Rather than view the lack of sustainability efforts as another corporate bad that individual corporations should be required to redress,[6] this Article advocates that corporate sustainability should be treated instead as a public good that becomes the government’s responsibility.  Information about an industrial sector’s sustainability profile—for example, a life cycle analysis of a typical facility—has clear public good qualities associated with it.  This type of assessment allows for cross comparisons between competitors, identifies areas for possible synergies among producing companies, and highlights areas that may ultimately deserve further regulatory oversight.[7]  Equally important, if sustainability analyses concerning various production processes and services are produced in the first instance by publicly funded, third-party experts rather than extracted from private actors, the resulting reports are more likely to be reliable, complete, and accessible to a wide-range of stakeholders who can use them in public-benefitting ways.

The argument for treating corporate sustainability as a public good, rather than as a corporate bad, unfolds in four Parts.  Part I details the need for much greater information on the sustainability of corporate practices.  At present, there appears to be little dispute that rigorous sustainability assessments of major corporate production processes are a valuable tool for directing change, and that life cycle analyses excel in providing this kind of comprehensive assessment.  Part II outlines how these life cycle assessments nevertheless face numerous informational and related obstacles that impede their usefulness when they are produced by corporations.  Part III then argues that sustainability life cycle analyses, at least at this early stage, are better viewed as public goods that should be conducted by a neutral third party and subsidized by the public, rather than treated as an extension of pollution disclosures that are the sole responsibility of the firm.  This public good characterization also manages to dodge the landmine of issues that ordinarily afflict the reliability of information provided by regulated parties with a stake in the outcome.  Part VI offers specific suggestions for how corporate sustainability assessments might be prepared by public experts and financed through a collective tax on corporations.

I.  Informed Sustainability

There are multiple avenues for advancing corporate sustainability, but a key component to all of these methods is greater information about corporate practices.[8]  Individual corporate decisions about production processes, when amalgamated, yield a global market of goods and services which may be badly inefficient from an ecological point of view.  Yet, until the relevant information is gathered and synthesized, the overall impact of corporate practices and the areas for the most promising gains with regard to sustainability are obscured.[9]  As Professor Gaines notes, “shared information and mechanisms of social response to that information” are some of the primary keys to sustainable development.[10]  This Part outlines the critical role that information plays in making progress toward corporate sustainability.

A. The State of Information on Corporate Sustainability

Top commentators on corporate sustainability agree that information is not just an important ingredient, but it is also essential to establishing a meaningful sustainability program.[11]  At the most basic level, rigorous information on corporate sustainability informs the market—not simply downstream consumers, but also insurers, investors, corporate partners, and others who ultimately keep the corporation in business.[12]  Rigorous information on corporate sustainability informs internal practices as well: Enhanced corporate self-assessment is touted as one of the primary virtues of mandating information disclosures.[13]  Corporate sustainability information also identifies corporate practices that are most likely to benefit from greater regulatory oversight or market intervention.[14]

Yet current regulatory programs provide only limited information on corporate sustainability.[15]  The Right-to-Know Act in the United States requires annual disclosures of corporate use and disposal of large amounts of hazardous substances.[16]  The resulting Toxic Release Inventory (“TRI”) disclosures provide useful information about corporate sustainability with regard to handling and disposal of hazardous substances, but these load estimates offer little insight into meaningful opportunities for a facility to reduce natural resource use, to minimize pollution, or to otherwise decrease a facility’s ecological footprint.[17]

The Global Reporting Initiative (“GRI”), established by the United Nations Environment Programme (“UNEP”) and the Coalition for Environmentally Responsible Economies (“CERES”), provides a more robust measure of a corporation’s ecological footprint because it measures not only outputs, but natural resource use as well.[18]  The GRI offers external parties, like investors and customers, an even stronger basis for evaluating a corporation’s commitment to and progress toward sustainability as compared with the TRI disclosures.[19]  GRI reporting is voluntary, however.  Thus, while a number of Fortune 500 companies have conducted self-audits over the last fifteen years, participation in GRI still remains the exception rather than the rule.[20]

GRI and TRI provide useful barometers to measure corporate sustainability, but because both are exclusively input and output focused, they miss opportunities to focus corporations on the ways that production operations can be altered to provide significant sustainability advances.[21]  GRI and TRI also allow firms to be self-referencing in benchmarking their progress, a focus that neglects to reward ecologically-innovative business practices.[22]  Indeed, because both measures simply report on input and output over time, they are indifferent to the possibility that some types of processes or firms are unsustainable relative to competitors and need to be phased out.[23]  In addition, rather than keeping a firm focused on sustainability goals, a “good score” in the GRI risks becoming an end in itself which can distract firms from searching for design and other process innovations that may make more significant progress in the firm’s sustainability profile.[24]

B. The Unparalleled Virtues of Life Cycle Analysis

Although life cycle analysis is more information-intensive, it offers a substantially improved measure of corporate sustainability relative to the input and output measures embodied in the GRI and TRI reports.[25]  Life cycle analysis, which originated in industrial ecology, begins at the “cradle,” where raw materials are produced, and follows that production process through transport and manufacturing to the ultimate disposal, often by the consumer.[26]  The goal of this analysis is to identify materials and burdens at each stage of the production process that are not recycled in a closed loop, paralleling natural processes.[27]  See Figure 1.  Such a holistic view of the process allows for a greater range of options for minimizing a facility’s ecological footprint, including redesigning the process entirely.[28]  By focusing on the design of production processes, rather than simply the end-of-the-pipe or output adjustments, much greater environmental gains, as well as cost-savings, are possible.[29]

Figure 1: Example Flow Diagram of a Hypothetical Bar Soap System[30]


Because the virtues of life cycle assessment (“LCA”) enjoy strong consensus among experts, the methods for conducting these assessments are becoming standardized by organizations such as the International Standards Organization (“ISO”).[31]  A typical life cycle assessment begins with a qualitative inventory of each stage of the process,[32] which can provide useful information for decision making in and of itself.[33]  Most life cycle assessments are quite rigorous, however, and take the form of computational models that measure environmental burdens—often through a single unit—which can then be used to identify the most promising areas for redesign or process adjustments.[34]

To the extent that there is proof in the pudding, life cycle analyses boast of concrete victories.  A life cycle approach helped Tropicana learn that it was not the transportation of its juice, but the agricultural inputs that led to its larger-than-necessary carbon footprint.[35]  As a result, Tropicana focused its primary efforts on reducing fertilizer use rather than dedicating the same resources to increasing the energy efficiency of its vehicles.[36]  In a life cycle analysis of coal-fired power plants, Department of Energy (“DOE”) consultants compared cleaner coal-fired plants with older plants.[37]  This analysis not only quantitatively identified the additional environmental burdens associated with the older plants, but pinpointed those costs to specific features within the life cycle.  This analysis also identified design changes that might improve the environmental performance of the older coal-fired systems.[38]

From a regulatory standpoint, life cycle analysis can also pinpoint occasions when adverse environmental impacts are simply shifted within a production process—for example, how end-of-the-pipe controls may reduce one source of pollution only to move the problem elsewhere in the production process where it might be more difficult to address.[39]  A life cycle assessment of offshore drilling waste disposal, for example, revealed how strict prohibitions on the discharge of cuttings extracted with certain drilling fluids may have precluded opportunities to identify ways to convert the resulting hazardous waste (disposed in hazardous waste landfills) into a useful product.[40]  This internal recycling would have ultimately done much more to limit waste, production costs, and environmental risk than flat prohibitions on the generation of the waste.[41]

Given the virtues of life cycle analysis, coupled with what has now become a relatively robust methodology for conducting the assessments, it is no wonder that many commentators are clamoring for greater use and incorporation of life cycle analysis into sustainability calculations.[42]  There has even been a movement to use life cycle analysis for a wide range of environmentally intensive practices, and not simply the design, packaging, or manufacture of products.[43]  Life cycle analysis is so highly regarded that its methods are also being expanded to encompass more than purely environmental concerns.[44]

II.  Impediments to Corporate Self-Assessments of Sustainability

Just as life cycle assessments offer great potential for advancing corporation sustainability, the information-intensive quality of these assessments introduce some formidable challenges.  The most significant impediment, by far, is that a great deal of the information needed to conduct facility-specific or even industry-wide life cycle assessments lies in the hands of the companies.  And, for a variety of reasons, these firms often lack the incentives to collect, analyze, or even share this basic information in a complete or comprehensive way.[45]  While some corporations may receive accolades for their forward-looking sustainability practices revealed in life cycle assessments, many more are likely to view these assessments as yet another opportunity for the public release of unflattering internal information about their environmental problems.  Much like environmental audits, and even basic TRI and GRI disclosures, corporations may be wary of conducting these assessments and, if they are required, may resist conducting them in a rigorous or comprehensive way.[46]  Indeed, the challenges associated with self-conducted life cycle analyses are more significant than TRI and GRI since the data collection and methods are difficult to prescribe in advance.

This Part identifies several impediments to the production of reliable life cycle analyses when the analyses are conducted by corporations that have a stake in the outcome.

A. Reliability of Data

A life cycle assessment requires a great deal of data about a large range of inputs (including water usage and various chemicals) and outputs (including pollutant streams and discharges) at each stage of the production process, from natural resource extraction to disposal.[47] Yet, since this data is largely in the hands of the corporation, it can be difficult to collect.[48]  A number of other environmental programs have relied, out of necessity, on corporations to produce much of the basic information about their compliance with laws and regulations,[49] and in these cases the EPA has often found itself in a cat-and-mouse game with regulated parties in its effort to acquire reliable information.

Over time, additional regulatory innovations have helped increase the reliability of some self-produced information from regulated parties.  For example, to gather accurate information about the pollutant emissions emanating from large utility stacks, Congress required that continuous monitors be installed on the stacks,[50] and the EPA promulgated supplemental rules that penalize facilities when their continuous monitors break down.[51]  The EPA has also experimented with the use of external auditors who, like financial auditors, inspect companies to assess their violations and help bring them into compliance.[52]

Unfortunately, most of the tools developed to collect more reliable information from regulated parties are only useful in a narrow set of circumstances that do not extend to the data-intensive needs of sustainability life cycle assessments.  Expensive continuous monitors at the end of discharge pipes provide only a fraction of the internal data needed to produce a meaningful life cycle assessment.  Deploying external auditors to oversee data production is both expensive and incomplete in providing a rigorous accounting of industrial practices over time.[53]  Some of the information on processes and inputs can even be trade secret protected and therefore disclosed to only a few agency officials.[54]  In fact, even GRI reporting, which is far more standardized because of GRI’s emphasis on input and output quantities and indicators, has encountered challenges in ensuring the reliability of the reported information.[55]

As a result, there are substantial challenges in ensuring the reliability of corporate-conducted life cycle assessments.  Compared with GRI, life cycle assessments allow for even more error and bias in extracting basic internal data since there is much greater discretion for the corporation in identifying the types of data to collect, selecting the units of analysis (both in time and scale), and assembling the requisite information from company operations.[56]

B. Disinterested Methods

Beyond problems with ensuring the reliability of the input data, the methods for conducting a life cycle analysis also afford the analyst considerable discretion in how to conduct the assessment.  This too presents problems when the company conducting the assessment has a stake in the outcome.[57]  For example, there are numerous discretionary points that arise in framing the scope of a life cycle assessment, developing the methods, and interpreting the data.[58]  When a company is conducting its own LCA, this remaining methodological discretion raises a risk that it might select the most beneficial assumptions in conducting its assessment and ignore others that might cast the company in a less positive light.  The resulting self-assessment could thus be prepared in ways that are afflicted with systemic biases that tilt in favor of the firm, but these biases will remain difficult to detect without careful review.

The development of rigorous methods for other types of open-ended assessments, like risk assessments, have posed similar challenges to environmental regulators.[59]  For example, there is evidence of sponsor-bias in manufacturers’ assessments of the chronic hazards of their products and waste streams.[60]  In the biomedical literature, this systemic bias has been dubbed “the Funding Effect” since privately sponsored research is more likely to produce results favorable to the sponsor than research that is financed by disinterested parties, like the federal government.[61]  Even more standardized sustainability disclosures, like GRI, have suffered from some of these challenges, since they too provide wiggle room for firms that prefer to highlight successes and downplay failures in applying the GRI indicators.[62]

This discretion in methods has also been a continuing problem for life cycle assessments.  Relatively blatant evidence of self-serving biases in corporate life cycle self-assessments was discovered in the 1990s which, in turn, sparked greater attention to the development of more rigorous methods for conducting these assessments.[63]  UNEP, ISO and SETAC all worked to improve the methods for life cycle analyses in ways that guard against sponsor discretion to the extent possible.[64]  Nevertheless, the dynamic features of LCA make it difficult to develop a prescriptive method that guards against all forms of discretion.[65]  Methods that are too rigid run the risk of sacrificing innovation and creativity in the drive for reduced analyst discretion.

Precisely for that reason, ISO attempts to increase reliability by encouraging the external peer review of a corporation’s life cycle assessment.[66]  Yet this external review is simply voluntary and, at least in 2005, there were indications that this review was not being used comprehensively or uniformly by corporations in their self-assessments.[67]  For example, even when peer review is conducted, it may not be rigorous—either because the reviewers are biased themselves (and selected accordingly) or because reviewers face inadequate resources or incentives to engage in robust analyses of a firm’s LCA.[68]  Obviously, too, if there are not corresponding audits of the data-inputs, then shoring up the assessments may win the battle on methods but still lose the larger war on reliable assessments.

When a company has considerable discretion to determine the methods for its life cycle self-assessment and when that assessment can affect the company negatively if it reveals unflattering information, then this discretion may translate into systemic, self-serving biases that undermine the reliability of the assessment.[69]  Unless regulators have substantial resources to scrutinize the models used for self-assessments, significant discretion in a company’s life cycle assessment will remain.

C. Comprehensibility

A critical, third feature of a robust life cycle assessment is its comprehensibility to a wide range of users.[70]  Because multiple stakeholders will use the assessments, it is important that the assessments be understandable to those outside the life cycle assessment field.[71]

When left to the discretion of an interested party who produces the report, however, the comprehensibility of life cycle assessments can be controlled or even manipulated.[72]  If a corporation conducts a life cycle analysis that reveals embarrassing information, for example, it enjoys considerable discretion to obscure the negative findings by writing the analysis in as technical a way as possible or obfuscating the most incriminating revelations.[73]

GRI reporting would seem immune from this comprehensibility problem given its emphasis on comparable, input and output calculations in generic tables.  Yet even GRI reports can be “cluttered with information of little apparent use to readers, while missing out on the big picture risks and opportunities.”[74]

Life cycle assessments magnify these comprehensibility challenges several-fold since the assessments are complex and give considerable discretion to the assessors to determine how the results ought to be communicated.  It is thus difficult, if not impossible, to prescribe the comprehensibility of a life cycle assessment in advance.  Even when results are communicated clearly, however, the comprehensibility of life cycle analysis may be impaired if the reports cannot be cross-compared among competitor firms.[75]  Yet in most cases, this cross-comparison will only occur when facilities use the same models for their assessments, which they may not be inclined to do without external pressure.

III.  Corporate Sustainability as a Public Good

Extracting reliable life cycle analyses from corporations is fraught with difficulty,[76] but one simple move can help avoid this impasse: sustainability analysis can be reconceived as a public good rather than a responsibility that should be shouldered by corporations.  Reconceptualizing life cycle assessments as public information helps sidestep the impediments to collecting reliable and comprehensible information identified in the prior section.  It also manages to produce considerably more relevant, accurate, and hopefully path-breaking types of analyses and recommendations in forms that would not occur if individual firms, who have a clear stake in the findings, were the primary source of  this information.

Admittedly, a reconceptualization of sustainability assessments as public goods is at odds with conventional wisdom.  In most national and international circles, sustainability reporting is understood to be a natural extension of pollution reporting that discloses negative externalities and other bads that a corporation extracts from society.[77]  Yet this conception seems to be based more on analogies to TRI reporting and other corporate disclosures than on a thorough analysis of the unique features of sustainability assessments.  Such a close analysis reveals a number of ways that life cycle assessments fall closer to the public good side of environmental information than to regulating corporate bads.

There are at least four features of industrial life cycle analyses that are more closely associated with public goods, at least at this early stage in improving corporate sustainability.  First, and perhaps most important, it is not clear what a life cycle analysis will reveal for any given industrial sector, and thus a life cycle analysis may not identify the excessive use of natural resources or polluting activities (i.e., negative externalities) in need of intervention.  For some manufacturing sectors it is possible that there are no environmentally smarter options available.  As such, life cycle analysis may often be informational and exploratory—identifying areas in need of innovation—rather than exposing corporate dereliction of core environmental responsibilities.

Second, and along these same lines, conducting life cycle analyses and developing innovative solutions for more sustainable approaches in the future constitutes a type of intellectual property or public good for which a firm is unlikely to be able to capture its investment.[78]  Because the methods for LCA are constantly evolving, one corporation’s bright idea for how to conduct a life cycle analysis or capture sustainability gains through facility-based innovations may quickly become a good that its competitors can copy.  Without patents, copyrights, or other ways to convert these intellectual discoveries into property, sustainability innovations can be co-opted by competitors without compensating the originator of the idea.[79]  Firms could even copy and embellish on another facility’s life cycle assessment and enjoy reputational gains without doing the initial work associated with conducting the basic assessment.

Ironically, at the same time that first-mover firms who conduct LCAs and identify ways to improve the sustainability of their operations may be providing competitors with a ready template for copying their green advancements, they may also be providing a playbook for competitors to capitalize on their weaknesses.  If the life cycle analysis reveals inefficient or excessive waste in a manufacturing system, for example, then this internal self-evaluation can be used against the company before it has had an opportunity to make improvements.  Ironically, some firms may contribute to their own demise by providing this type of admission against interest through voluntarily produced LCAs.[80]

Third, just as the benefits of LCA are broadly dispersed toward public goods, the costs are concentrated on individual firms and can be quite high.[81]  Unlike other types of disclosures, like TRI or even Security Exchange Commission (“SEC”) disclosures, life cycle assessments can consume considerable resources.[82]  Data collection can be extremely costly[83] and applying the models or methods of LCA requires expertise.[84]  From the firm’s perspective, then, conducting this detailed, introspective sustainability analysis is not a simple or inexpensive exercise.[85]

Utilizing the outputs of LCA also requires an organizational structure that can act on the results, a feature that adds still more costs to the LCA process.  Some firms, and perhaps many, lack the internal management structures that allow for the internal cross-fertilization that LCA demands.[86]  In one case study, for example, Toyota Motor Sales lacked the internal capacity to conduct the assessment and contracted with UCLA to develop a model for its system.[87]  Ultimately, Toyota enjoyed considerable environmental and cost savings by eliminating a particular packaging feature of its process;[88] yet without this investment, the areas for improvement would not have been brought to light.[89]

Last but not least, the large-scale costs associated with developing methods, models, and databases and viewing the problem more synoptically, rather than at an individual level, all favor a public good approach to life cycle analysis.  Publicly produced assessments can identify areas for cross-fertilization and better allow for the diffusion of information as compared with private assessments, which might not only lack this broader perspective, but might deliberately avoid sharing internal information since it could undermine a firm’s competitive edge.

IV. Reform

Expert, neutral assessments of a manufacturing process are critical ingredients to a rigorous life cycle assessment and help pave the way to the development of sustainable innovations in processes, technologies, and even product lines.  Yet it seems naïve to expect corporations will conduct these types of expensive analyses voluntarily, particularly when their own innovations can be easily co-opted by competitors.  Even if LCA was mandatory for corporations, the unavoidable discretion afforded to the analyst makes it difficult to ensure that the resulting assessments are reliable and comprehensible.  This final Part proposes that a public entity should conduct these assessments and describes how this might be done.  The Part closes by considering what the public good qualities of LCA suggest about other types of environmental information.

A. Step 1: Public Life Cycle Assessments

Since life cycle assessments come closer to being public goods than the straightforward disclosure of negative externalities, a disinterested public organization is the most appropriate entity to produce life cycle assessments.[90]  The resulting LCAs would be based on an average firm within a particular industrial sector, much as is currently done by the EPA in setting technology-based air and water pollution standards under the Clean Water and Clean Air Acts.[91]  If this generic assessment reveals reasonable areas for improvements, then consumers, investors, shareholders, and even regulators may begin to demand sustainability progress from firms.  Individual facilities themselves will also learn of ways they can operate more sustainably, thanks to these public assessments.

Under this public good view of sustainability assessments, life cycle assessments would be done by respected experts who are completely independent of the companies, but have access to internal corporate information.  Ideally, much of the analysis would be done cooperatively with firms since the goal is to identify areas for improvement and possibly cost savings.  To the extent that the life cycle analysts face opposition from some firms, information extraction tools—like EPA’s authority to request information under its various statutory mandates—would be needed to secure internal records or to ensure that the voluntarily provided records are complete.[92]  Indeed, because it has legal authority to access private records, the EPA is perhaps best situated to conduct these life cycle assessments,[93] or it could subcontract the work to a respected nonprofit body like CERES.[94] The resulting, industrial-sector life cycle assessments would ideally be peer reviewed and subjected to comments from the affected industry, although the expert assessor group would have complete independence in how to respond to comments.  Much like technology-based standards, the life cycle analyses would also be updated at regular intervals[95] or could be subject to more informal updating processes (for example, the expert assessor could post a website that invited comments on revisions over time).

In conducting the assessment, the expert assessor should produce two different, bookend life cycle analyses for each industrial sector: (1) a reasonable worst case life cycle assessment, and (2) the very best life cycle assessment for each industrial sector.  The reasonable worst-case analysis would present the assessment for a typical facility that falls in the bottom third relative to its competitors with respect to the sustainability of its operations.  The very best case analysis would be based on the sustainability profile of an imaginary facility that employs all of the best sustainable innovations and process inventions that are reasonably available.  This best case sustainability profile serves not only to set a high bar, but to showcase the types of innovations that are possible.[96]

Publicly-prepared life cycle assessments would operate much like penalty defaults: using the worst case assessment as a baseline, corporations would be able to distinguish their processes or boast of accomplishments that go well beyond the laggard facilities in their sector.[97]  The corporations can then use this positive comparison in the market to gain a competitive edge with insurers, investors, and the public at large.  Unlike a full-blown life cycle analysis, however, this distinguishing effort would limit the opportunities for worrisome discretion since the firm would be forced to compare specific industrial processes against a centralized, detailed model.  Nevertheless, a process for validating a corporation’s claims in making these positive distinctions should also be established to provide added reliability to the firm’s efforts to compare its processes against the publicly produced sustainability assessments.

Ultimately, a more reliable process for benchmarking and validating a corporation’s sustainability claims could go a long way towards improving available, environmental information in the current marketplace.[98]  One of the difficulties that front-mover firms currently face is the challenge of distinguishing themselves in the marketplace in ways that can be trusted by outsiders.[99]  As one leading sustainability consultant notes, “[i]ronically, green marketing has become one of the greatest threats to the success and scale of corporate sustainability practices.  Ubiquitous (and often unsubstantiated) green claims have created a green-washed, eco-cluttered and eco-saturated marketplace.”[100]  The public assessments suggested here should help limit the ability of facilities to exaggerate or “green-wash,” since they offer specific baselines against which a firm’s boasting can be more readily compared.

A central entity could also use these public life cycle assessments to identify innovations across multiple industrial sectors more generally,[101] as well as gain a bird’s-eye view of American production processes.[102]  “Ecological rucksacks,” material flows, and other ecological accounting tools are also facilitated by life cycle analyses that are conducted by a central organization.  These analyses can be used to provide a more systematic view of production and service processes that facilitate the redesign of larger systems as well as firms.[103]  The assessments are also likely to identify blind spots that are otherwise missed by regulatory approaches or voluntarily incentives.  For example, the assessments may highlight goods or services that are so costly to the environment that they should be significantly curtailed or even eliminated.  Finally, centralized LCA can help identify and compare national differences in the sustainability of industrial operations.  One study compared United States and Canadian industries and identified differences in energy use, import and transit inputs, and other features that were specific to the company of origin that might otherwise be lost in an individualized LCA.[104]

There are a variety of other, supplemental LCA tools that could be developed by a centralized expert analyst body to reduce the costs to firms of conducting their own facility-based assessments.[105]  For example, a web-based model for a facility-specific LCA could be developed with user-friendly interfaces that allow corporations to insert a few parameters and then run the model.[106]  Commentators observe that “companies frequently look for simplified assessment tools that offer quick, approximate results,” such as checklists and simplified calculators, and this type of model could fill a needed niche.[107]  Guides and other learning materials, including workshops and symposia, might also be provided to help firms use the generic, industry-specific LCA for their facility as a springboard to improving sustainability processes.  The EPA has already made progress in preparing these types of guidelines,[108] but further outreach and education is needed since “[m]any companies [in the United States] do not see how life-cycle thinking can be applied to their specific operations—or even the benefits of doing so.”[109]

With strong public leadership, LCA models can also be improved and expanded.  Since there have been relatively few validation checks on LCA models to ensure that they are robust, a central body like EPA or CERES could develop ways to match LCA models against the outputs of real systems to enhance the validity of the models.[110]  This central organization could also expand the range of features included in life cycle analyses to encompass adverse social and ecological impacts.[111]  Finally, the EPA or CERES could develop ways to improve the comprehensibility of the results of LCA and related sustainability assessments.[112]

B. Step 2: Regulatory Incentives to Do Better

In order to produce meaningful incentives for firms to take sustainability seriously, the life cycle assessment could also be used as a baseline for imposing additional regulatory controls that encourage or even require specific sustainability improvements from corporations.  Firms might be “commanded” to reach certain sustainability goals in ways that parallel something like the technology-based standards of the Clean Water and Clean Air Acts.  For example, all firms would be required to reach some mid- or best-available level of sustainability within their industrial sector, likely required through legislation.

Alternatively, all firms in a given industrial sector could be charged a sustainability tax based on the total resource use and waste production of the reasonable worst-case life cycle for their industrial sector (perhaps further adjusted by the size or production volume of the facility).  Facilities that provide validated accounts of how they accomplish sustainability gains above this baseline could then earn tax credits.  Companies that go further and actually pioneer innovations in sustainable technologies or operations might not only enjoy even greater tax credits, but also reputational benefits—for example, being officially certified by the EPA, or another nonprofit, as a corporate leader in sustainable innovation.

Identifying meaningful distinctions between individual firms and the default worst-case sustainability life cycle will require a detailed review of a company’s submission and thus will necessitate the dedication of considerable agency resources.  One way to finance these important facility-specific evaluations is through the sustainability tax itself.  The sustainability tax would operate simultaneously as an incentive for companies to innovate or do better (hence lowering the tax) and as a mechanism to fund the ability of an external party, like the EPA, to certify differences between firms that warrant recognition.

It is ultimately possible that some sustainable innovations will be valued as intellectual property due to the high research costs involved in developing the product.  At the same time, however, it is counterproductive to reward innovation in sustainable practices with patents that then allow firms to charge others a licensing fee in order to become more sustainable themselves.[113]  Since innovations in sustainability should be shared with the larger community, barriers to the diffusion of sustainable innovation due to patents and other forms of corporate intellectual property need to be monitored closely.  Ultimately, more targeted subsidies may need to be developed to encourage still greater private innovation.

C. Information as a Public Good

Traditionally, information disclosures have been used to force firms to disclose their negative externalities; yet this narrow view of information disclosures may be foreclosing opportunities for advances in corporate sustainability.[114]  Indeed, a “public good” dimension to environmental information may be a perspective that has been lacking in the design of environmental programs more generally.  Professor Biber, for example, has argued that a rigorous ambient monitoring regime should not be established piecemeal, but instead benefits from a single, collective entity that oversees the data collection so that the data is reliable and amenable to cross-comparisons across regions and over time.[115]  In drug regulation there in fact appears to be a shift occurring that depends more substantially on the Food and Drug Administration to collect and analyze all publicly available information, including adverse effects reports, and use that information to supplement the research submitted by drug manufacturers.[116]  Even historically, the first, often noncontroversial, step toward enacting pollution standards began with an agency like EPA that identifies what the better pollution control technologies could accomplish within various industrial sectors.[117]  In these programs, firms were expected to meet publicly established targets but were not required to conduct their own research and development to discover what these targets should be.[118]

Figure 2 provides a re-conceptualization of different types of information-based disclosures according to their public good qualities.  Sustainability life cycle analyses for industrial sectors, at least initially, fall closer to the public good axis because they have only a limited assurance of highlighting negative externalities and a much greater probability of introducing information on sustainable innovation that will benefit other firms.  Other types of environmental programs might similarly benefit from attention to the fundamental public good qualities of the underlying information.  For example, the creation of environmentally superior substitutes, such as green chemistry, is not currently encouraged through regulatory processes even though the development of these innovations primarily benefits the general public.[119]  Even some of the green chemistry inventions that receive presidential awards are patented and presumably must be purchased through licenses, thus impeding companies from adopting the inventions.[120]  Identifying the public goods qualities of this environmental information helps focus analysts on the need to subsidize certain research and development while at the same time ensuring the rapid and low-cost diffusion of the information into the marketplace.

Figure 2


This analysis of the public good features of sustainability may only be a start in identifying ways in which reframing some intractable information problems as public goods begins to break up the information logjam that has stalled progress in environmental law.[121]  Developing a strong base of public information builds on the expert capabilities of the administrative state and approaches particularly intractable information-based challenges in a more collaborative way.  Once information is developed on these environmental practices, complementary political, economic, and related market forces can use the information as a springboard to encourage greater sustainability and related gains in the future.


The United States still “does not have a sustainability strategy.”[122]  The most promising proposals in the current economically and politically fragile climate are those that can be accomplished without political warfare and that build on progress in incremental ways.[123]  The proposal here—to assign to regulators or neutral third-party institutions the task of developing facility-specific life cycle analyses—seems to be a modest first step in this long march towards corporate sustainability.  This information-generation approach also develops a partnership with business that is in line with larger goals for enhancing corporate social responsibility in ways that go beyond what specific legal requirements can accomplish standing alone.[124]

While the proposal advanced here will by no means produce perfect information, by trading off detail and specificity in individual firm LCAs on the one hand for comprehensiveness and more general illumination of the sustainability of diverse processes and practices through industry-wide LCAs on the other, progress can be made on the sustainability front more quickly.[125]  By producing large amounts of fresh and relevant information about corporate sustainability, consumers, investors, and other actors will be better able to compare and evaluate the sustainability of corporations and, if necessary, demand change.

* Joe A. Worsham Centennial Professor, University of Texas School of Law.  Many thanks to Gabriel Markoff for his able research assistance and to the students and faculty at the Wake Forest Law Review Symposium for their helpful comments on an earlier draft.  Contact: [email protected].

[1]. See, e.g., Morton Mintz, At Any Cost: Corporate Greed, Women, and the Dalkon Shield (1985) (describing A.H. Robins Company’s decisions to market dangerous products and to suppress research indicating that the products could kill users); Paul Brodeur, Outrageous Misconduct: The Asbestos Industry on Trial (1985) (describing similar issues in the asbestos industry); Devra Davis, When Smoke Ran Like Water: Tales of Environmental Deception and the Battle Against Pollution (2002) (describing the same for polluting industries); Stanton A. Glantz et al., The Cigarette Papers (1996) (describing the same for the tobacco industry); Gerald Markowitz & David Rosner, Deceit and Denial: The Deadly Politics of Industrial Pollution (2002) (describing the same for lead industry).

[2]. See, e.g., Cynthia A. Williams, Corporate Law and the Internal Point of View in Legal Theory: A Tale of Two Trajectories, 75 Fordham L. Rev. 1629, 1631 (2006). Professor Williams reports, for example, how energy traders chortle with delight at out-of-control fires in California, which from their standpoint mean only greater revenues in energy sales as a result of the decreased supply.  Id. at 1658.

[3]. See, e.g., Markus J. Milne et al., Wither Ecology? The Triple Bottom Line, the Global Reporting Initiative, and the Institutionalization of Corporate Sustainability Reporting 11 (unpublished manuscript) (on file with authors), available at
-sustainability-reporting-pdf-d81243137 (observing that “while some companies have been quick to publicize their high [Global Reporting Initiative] scores . . . , in some cases this may have been less about gaining credibility and more about deflecting attention from poor social and environmental performance per se”); Williams,supra note 2, at 1643 (noting that “[o]f the twenty-seven organizations comprising the charter group [that endorsed the Global Reporting Initiative], only five were companies . . . [and] four of those five companies have pretty clear public relations reasons to want to be associated with a corporate accountability initiative [because of concerns about stricter regulation or a preexisting reputation for being a bad corporate citizen]”); see generally Jacob Vos, Note, Actions Speak Louder than Words: Greenwashing in Corporate America, 23 Notre Dame J.L. Ethics & Pub. Pol’y 673 (2009) (discussing greenwashing more generally).

[4]. See, e.g., infra note 77 and accompanying text; see also Regulation Eclipses Innovation as Main Driver in Sustainability, Business Green (Apr. 29, 2010),

[5]. See infra Part I.A.

[6]. This approach seems, at least superficially, to help circumvent some of the barriers to sustainability identified by Professor Sjåfjell. See generally Beate Sjåfjell,Regulating Companies as if the World Matters, 47 Wake Forest L. Rev. (forthcoming 2012).

[7]. See infra Part III.

[8]. See, e.g., Judd Sneirson, The Sustainable Corporation and Shareholder Profits, 46 Wake Forest L. Rev. 541, 556 (2011) (discussing Jensen’s theories and the critical role of information in sustainability); see also Beate Sjåfjell, Regulating Companies as if the World Matters, 47 Wake Forest L. Rev. (forthcoming 2012) (discussing the barriers to sustainability, which include accessing critical information).

[9]. For a superb discussion of the tyranny of small decisions in the environmental context, see William E. Odum, Environmental Degradation and the Tyranny of Small Decisions, 32 BioScience 728 (1982), available at

[10]. Sanford Gaines, Reflexive Law as a Legal Paradigm for Sustainable Development, 10 Buff. Envtl. L.J. 1, 9 (2002).  Gaines goes further to suggest “the social functions of information disclosure and discourse between subsystems serve the core ideals of reflexive law because they enhance learning by all the participants and foster re-examination of (reflection on) attitudes and assumptions in all subsystems, not just the subsystem that generated the information.”  Id.

[11]. See, e.g., id. at 21–22; see also John C. Dernbach, Navigating the U.S. Transition to Sustainability: Matching National Governance Challenges with Appropriate Legal Tools, 44 Tulsa L. Rev. 93, 113–14 (2008) (discussing the importance of information on sustainability, although focusing primarily on sustainability indicators as a way to provide information to multiple audiences and advance policy, market, and legal reforms simultaneously).  Arguably, this type of information may even be a prerequisite to some of the shifts in corporate thinking advocated by scholars like Professor David Millon.  See generally David Millon, Two Models of Corporate Social Responsibility, 46 Wake Forest L. Rev. 521 (2011). Information is needed both to focus the corporation itself on possible gains as well as to empower external parties to pressure for change from without.

[12]. See, e.g., Bradley C. Karkkainen, Information as Environmental Regulation: TRI and Performance Benchmarking, Precursor to a New Paradigm?, 89 Geo. L.J. 257, 346 (2001) (discussing the range of stakeholders that will use information disclosures and exert pressure on corporations to do better); see generally Virginia Harper Ho, “Enlightened Shareholder Value”: Corporate Governance Beyond the Shareholder-Stakeholder Divide, 36 Iowa J. of Corp. L. 59 (2010) (discussing the role of informed investors and shareholders in altering choices made by corporations); Grant M. Hayden & Matthew T. Bodie, One Share, One Vote and the False Promise of Shareholder Homogeneity, 30 Cardozo L. Rev. 445 (2008) (discussing the possibility for corporate partnerships to encourage more sustainable practices by leveraging one corporation’s social responsibility to alter other corporations’ conduct).

[13]. See, e.g., William M. Sage, Regulating Through Information: Disclosure Laws and American Healthcare, 99 Colum. L. Rev. 1701, 1778 (1999) (arguing that information disclosures can exert a powerful influence on internal decision making and can reveal valuable information that changes these internal decisions).

[14]. The TRI disclosures revealed very high levels of air toxic emissions, which in turn produced public pressure for greater regulation and led to much more stringent regulations in the 1990 Amendments to the Clean Air Act.  See, e.g., Sidney M. Wolf, Fear and Loathing About the Public Right to Know: The Surprising Success of the Emergency Planning and Community Right-to-Know Act, 11 J. Land Use & Envtl. L. 217, 300 (1996).

[15]. See generally Jeff Civins & Mary Mendoza, Corporate Sustainability and Social Responsibility: A Legal Perspective, 71 Tex. B. J. 368 (2008) (discussing limited legal regulation to encourage sustainability).

[16]. Emergency Planning and Community Right-To-Know Act, 42 U.S.C. §§ 11002–11003, 11022–11023 (2006) [hereinafter EPCRA] (requiring covered facilities to self-identify; to report their storage, use, and disposal of hazardous substances; and to prepare an emergency response plan).

[17]. Other regulatory requirements restrict the amount of pollution that a firm can discharge into air, water, or onto land.  See, e.g., Clean Water Act, 33 U.S.C. § 1321(a)(2) (2006) [hereinafter CWA] (prohibiting the point source discharge of pollution without a permit that, in turn, is based on the capabilities of the best available technology); Resource Conservation and Recovery Act, 42 U.S.C. § 6922 (2006) [hereinafter RCRA] (requiring generators to test their wastes to determine whether they are hazardous); id. §§ 6923–25 (2006) (requiring transporters and treatment, storage, and disposal units handling hazardous wastes to self-identify and follow regulatory requirements); Clean Air Act, 42 U.S.C. § 7412(i) (2006) [hereinafter CAA] (prohibiting the emissions of large amounts of air toxins without a permit specifying emissions limits for the source). These regulatory programs reduce the facility’s footprint, but they do not regulate the overarching consumption and output of a company.  Thus, if a company elects to use the dirtiest input and produce high quantities of waste for disposal, there are no regulatory impediments except for the costs of pollution control.

[18]. See Global Reporting Initiative,
/Home (last visited Aug. 30, 2011); see also David W. Case, Corporate Environmental Reporting as Informational Regulation: A Law and Economics Perspective, 76 U. Colo. L. Rev. 379, 395–401 (2005); Global Reporting Initiative, Year in Review 2008–2009, available at‑1A29‑4154‑A6DA‑F14E6F71A2C9/3830/GRI_Year_In_Review_241209.pdf.  For sample reports, see Duke Energy, Environmental Indicators, available at; The Coca-Cola Company, 2008/2009 Sustainability Review, available athttp://www.thecoca‑‑2009_sustainability_review.pdf.  See generally Williams, supra note 2, at 1640–61 (describing the development of the GRI as well as other voluntary initiatives by corporations to minimize their environmental impacts).

[19]. See, e.g., Case, supra note 18, at 429–34 (describing these benefits). Other voluntary developments continue along this disclosure path, although they produced fewer success stories, at least in the literature.  The slowest progress may be occurring on the investment front; investors show interest in sustainability but appear, in the United States at least, to be making only limited accommodations for sustainability considerations in making important investment decisions.  See Alan Hecht, The Next Level of Environmental Protection: Business Strategies and Government Policies Converging on Sustainability, 8 Sustainable Dev. L. & Pol’y 19, 24 (2007) (describing the slow trends in the investment community to act on sustainability goals); see also Williams, supra note 2, at 1640–42 (providing a more optimistic picture of investor commitment to sustainability in some sectors, including banks and other finance organizations that follow the banking industry’s “Equator Principles” to encourage sustainable development in project finance); id. at 1645 (describing the growth of socially responsible investors “whose information needs are broader than those of typical ‘financial’ investors”).  Some insurers have developed green insurance programs that offer reduced premiums to qualifying companies that are in turn based, at least in part, on a demonstrated commitment to sustainability.  See Domani and Garnet Offer ‘Sustainable’ Insurance Program, Greenbiz (May 15, 2007),
/2007/05/14/domani-and-garnet-offer-sustainable-insurance-program.  There are even accounting requirements in the United States that require businesses to identify assets that may cause long-term damage and to identify how to reduce these risks.  See Hecht, supra.

[20]. By 2009, over one thousand companies had voluntarily conducted GRI reports.  See, e.g., Facts and Figures about GRI Reports, Global Reporting Initiative, (last visited Aug. 30, 2011).  See also Williams, supra note 2, at 1640–41.

[21]. See, e.g., Raine Isaksson & Ulrich Steimle, What Does GRI-Reporting Tell Us About Corporate Sustainability?, 21 TQM J. 168 (2009), available at (examining the GRI reports of five cement plants and concluding that they do not provide this type of information about sustainability practices; specifically the reports do not allow for easy comparisons between firms nor in relation to the actual capabilities of the firm’s actual production process); Penny Sinclair & Julia Walton, Environmental Reporting within the Forest and Paper Industry, 12 Bus. Strategy Env’t 326, 335, (2003) available at (criticizing firms’ GRI reports for failing to provide the larger context within which they operate, which highlights the gains they are theoretically capable of making in advancing sustainability goals); Mark Stoughton & Elizabeth Levy, Voluntary Facility-Level Sustainability Performance Reporting: Current Status, Relationship to Organization-Level Reporting, and Principles for Progress, 21 Pace Envtl. L. Rev. 265, 269 (2004) (identifying the lack of facility-based information and reporting as a major weakness in voluntary initiatives).

[22]. See, e.g., Milne et al., supra note 3, at 9 (raising this concern).

[23]. See, e.g., id. at 17–18.

[24]. See, e.g., id. at 11 (raising this concern).

[25]. See, e.g., D. Elcock, Life-Cycle Thinking for the Oil and Gas Exploration and Production Industry 72 (2007), available at (stating that “[s]ustainable development is the ultimate goal of the application of all life-cycle approaches”).

[26]. See, e.g., Robert J. Klee, Enabling Environmental Sustainability in the United States: The Case for a Comprehensive Material Flow Inventory, 23 Stan. Envtl. L.J. 131, 143 (2004) (defining environmental sustainability in a narrower and more precise sense of carrying capacity based on materials flow, where the limits to the ecosystems’ ability to assimilate loading and material flows help identify the biggest burdens that threaten the limited carrying capacity).

[27]. See, e.g., id. at 145–46 (describing this cycling ideal for industrial processes as revealed through life cycle assessments and material flow analysis).

[28]. Facility-based assessments can also be tailored to individual plants and, thus, involve community groups and other stakeholders with a close relationship to the plant.  See generally Stoughton & Levy, supra note 21.

[29]. Nike, for example, redesigned shoes to reduce the use of glues or solvents.  See, e.g., Deloitte, Lifecycle Assessment: Where Is It On Your Sustainability Agenda? 2 (2009), available at

[30]. Scientific Applications International Corporation, Life Cycle Assessment: Principles and Practice 15 (May 2006), [hereinafter SAIC], available at

[31]. The ISO has developed standards for LCA. ISO, Environmental Management: The ISO 14000 Family of International Standards (2009), available at  The Society of Environmental Toxicology and Chemistry (“SETAC”) and UNEP are exploring ways to utilize LCA more extensively in their programs and recommendations.  See, e.g., UNEP/SETAC International Life Cycle Initiative Process on “Global Guidance for LCA Databases,” available at

[32]. See supra Figure 1.  See also D. Elcock, supra note 25, at 3.

[33]. See D. Elcock, supra note 25, at 3; see also Walter Kloepffer, Life Cycle Sustainability Assessment of Products, 13 Int. J. LCA 89, 93 (2003) (observing that “the assessment methods used [for LCA] should be simple and not always quantitative”).

[34]. See, e.g., European Environment Agency, Life Cycle Assessment (LCA): A Guide to Approaches, Experiences and Information Sources 55 (1998) available at
/O16F34323.pdf (describing the importance of identifying a single functional unit that is used throughout the assessment).

[35]. Deloitte, supra note 29.

[36]. Andrew Martin, How Green Is My Orange?, N.Y. Times, Jan. 21, 2009,‑22pepsi.19583527.html.

[37]. See, e.g., Pamela L. Spath, Margaret K. Mann, & Dawn R. Kerr, Life Cycle Assessment of Coal-Fired Power Production i–iv (June 1999), available at

[38]. See id. at iv.

[39]. See, e.g., D. Elcock, supra note 25, at 37, 75.

[40]. See id. at 48–52.

[41]. See id. at 75, 49–52 (discussing a Paulsen study from 2003 that reaches this conclusion).

[42]. See, e.g., id. at 6 (touting benefits of life cycle analysis when conducted appropriately); SAIC, supra note 30; see also Celia Campbell-Mohn et al., Sustainable Environmental Law 1367–71 (1993) (calling for more sustainability-based strategies in environmental law that consider production processes from resource extraction through consumption to disposal).

[43]. See, e.g., D. Elcock, supra note 25, at 44; Claire Early et al., Informing Packaging Design Decisions at Toyota Motor Sales Using Life Cycle Assessment and Costing, 13 J. of Indus. Ecology 592, 594 (2009) (describing how forty percent of LCA are used to assess packaging processes).

[44]. Some analysts are attempting to sweep social and economic features of production into the methods and comparative assessments of sustainability. These features  have traditionally resisted a life cycle methodology.  See Evan Andrews et al., Life Cycle Attribute Assessment, 13 J. of Indus. Ecology 565 (2009) (developing LCA analysis to measure number of worker hours in a greenhouse tomato supply plant in order to identify some of the social costs of production); see also Kloepffer, supra note 33.

[45]. See generally Wendy E. Wagner, Commons Ignorance: The Failure of Environmental Law to Produce Needed Information on Health and the Environment, 53 Duke L.J. 1619 (2004) (making the argument that environmental law often ignores the asymmetrical quality of information that favors regulated parties).

[46]. See infra notes 55 and 62 and accompanying text.

[47]. See, e.g., D. Elcock, supra note 25, at 38 (discussing the challenges associated with data collection); European Environment Agency, supra note 34, at 59–60 (discussing the steps to data collection); SAIC, supra note 30, at 22–45 (describing the steps involved in identifying useful data and developing a data collection plan).

[48]. See, e.g., Wagner, supra note 45 at 1632–59 (discussing, generally, the problems that have arisen in collecting information from regulated parties).

[49]. See, e.g., id. at 1663–70.

[50]. 42 U.S.C. § 7651k(a) (2006).

[51]. EPA Acid Rain Program, 58 Fed. Reg. 3590, (Jan. 11, 1993).  Congress initially required the EPA to issue rules that addressed monitoring breakdowns.  See 42 U.S.C. § 7651k(d) (2006).

[52]. See, e.g., Pork Producers Clean Water Act Compliance Incentive Program, EPA,
.html (last visited Aug. 30, 2011) (utilizing independent auditors to audit compliance problems for pork producers that signed a voluntary agreement to be audited and agreed to conduct needed remedial work in return for reduced penalties); see also Williams, supra note 2, at 1642 (describing the growth of this auditing and nonfinancial rating industry); see infra notes 66–68 and accompanying text.

[53]. There are internal checks that can be instituted on data collection to ensure the reliability of the data.  See, e.g., European Environment Agency, supra note 34, at 70–71.  To determine whether these steps have been followed faithfully, however, some type of peer review or oversight is still necessary.

[54]. Confidential business information (“CBI”) claims are regularly used to limit access to health information on toxic substances and pesticides, including information on exposure risks, and on chemical identity and ingredients.  Confidential Business Information, EPA,
.htm (last visited Aug. 21, 2011).  Such claims may even be used to protect information collected by inspectors in the course of environmental compliance inspections.  See EPA Definitions, 40 C.F.R. § 2.201 (2003) (defining a business confidentiality claim).

[55]. GRI specifies a number of indicators and measures but some discretion is necessarily involved in application.  See, e.g., Case, supra note 18, at 435–46 (discussing these features of GRI); see also UNEP/SustainAbility, Risk & Opportunity: Best Practice in Non-Financial Reporting 39 (2004) (identifying a lack of clarity in how the reporting principles work in practice).

[56]. See, e.g., D. Elcock, supra note 25, at 12, 13, 39.  Elcock describes how life cycle analysis was manipulated initially, and this led to a lack of confidence in its approach.  He also notes how methods are becoming more standardized but identifies a number of ways that the standardization cannot eliminate all important areas of user discretion and remains rather “general”.  Id.  See also SAIC, supra note 30, at 6 (noting the judgment and multiple methods that are available to conduct LCA).

[57]. See supra note 56 (identifying the discretion involved in life cycle analysis methods); see also SAIC, supra note 30 (summarizing some of the discretion in conducing life cycle analysis).

[58]. See, e.g., SAIC, supra note 30.  By their very nature, life cycle analysis methods need to be flexible and adaptive, improving with experience and broader application.  A curse for devising a one-size fits all comprehensive model is the need for flexible assessments that are constantly changing, improving, and adapting to the needs of the locale (the stream), the operations (a particular type of plant), and the transit system.  Some of this can be built into computer methods, but a single model cannot identify all of these decision trees adequately.  See, e.g., D. Elcock, supra note 25, at 13, 39.

[59]. See, e.g., Thomas O. McGarity & Wendy E. Wagner, Bending Science: How Special Interests Corrupt Public Health Research 50–54 (2008) (discussing how there is room for manipulation in these types of assessments).

[60]. See, e.g., id. at Chapter 4 (providing numerous examples of how sponsors shaped research to suit their predetermined ends); see generally Sheldon Krimsky, Science in the Private Interest: Has the Lure of Profits Corrupted Biomedical Research? (2003) (discussing this problem throughout the book with considerable support).

[61]. See, e.g., Justin E. Bekelman, Yan Li & Cary P. Gross, Scope and Impact of Financial Conflicts of Interest in Biomedical Research, 289 JAMA 454 (2003) (conducting a meta-review of the literature and identifying a strong positive correlation between the outcome of research and the beneficial interests of the sponsor).

[62]. See, e.g., Milne et al., supra note 3, at 8 (summarizing the literature which suggests a “gap between the benchmarks provided by guidelines like the GRI and UNEP/SustainAbility and what companies actually report”) (emphasis in original); id. at 9 (noting the tendency of firms to “cherry pick” successes and ignore major social issues).

[63]. See, e.g., D. Elcock, supra note 25, at 12.

[64]. See, e.g., id.

[65]. See, e.g., id. at 13 (noting that because the ISO standard for LCA “must be applicable to many industrial and consumer sectors, it is rather general”); id. at 39 (elaborating on these issues).

[66]. See Environmental Management, supra note 31.  See also SAIC, supra note 30, at 59–60 (describing the importance of a rigorous peer review process for life cycle analysis).

[67]. See, e.g., Joyce Smith Cooper & James A. Fava, Life-Cycle Assessment Practitioner Survey, 10 J. Indus. Ecology 12, 13 (2006) (noting that 45% of the respondents said they have conducted or contributed to LCA with no peer review; in response to another question, 38% had used internal company peer review, 33% had used one person external peer review, and 28% has used an external peer review panel).

[68]. Cf. Daryl E. Chubin & Edward J. Hackett, Peerless Science: Peer Review and U.S. Science Policy (1990) (identifying in detail the practical limitations of peer review in ensuring reliability and accuracy).

[69]. See, e.g., Thomas O. McGarity & Ruth Ruttenberg, Counting the Cost of Health, Safety, and Environmental Regulation, 80 Tex. L. Rev. 1997, 2042 (2002) (discussing the inflated estimates of the costs of compliance that are common in cost-benefit analyses and attributing some of this inflation to industry worst-case estimates); see generally McGarity & Wagner, supra note 59 (describing how a variety of sponsors, but particularly industries, “bend” science to predetermined ends to advance their interests).

[70]. See, e.g., Herbert A. Simon, Administrative Behavior: A Study of Decision-making Processes in Administrative Organizations 242 (4th ed. 1997) (criticizing organizations’ information systems as generally not being designed “to conserve the critical scarce resource—the attention of managers”).

[71]. See supra notes 12–14 and accompanying text (referencing this broader audience).  Even a simple pictorial of the life cycle costs of a production process can provide consumers with immediately accessible and valuable information that may alter their consumption patterns.  Investors, regulators, policymakers, and other more sophisticated audiences can digest well-drafted executive summaries, summary graphics, and tables in order to ascertain where the greatest insults to the environment lie within the larger network of production phases and processes and then they can begin to demand changes.

[72]. See, e.g., Stoughton & Levy, supra note 21, at 281 (noting the “entry barrier” to stakeholders that is often associated with sustainability reporting, particularly reporting at the facility level).

[73]. See, e.g., Bruce M. Owen & Ronald Braeutigam, The Regulation Game: Strategic Use of the Administrative Process 4–5 (1978) (describing these and other types of information-based strategies for controlling the message).

[74]. See, e.g., UNEP/SustainAbility, supra note 55, at 34.

[75]. See, e.g., J. Emil Morhardt, Scoring Corporate Environmental Reports for Comprehensiveness: A Comparison of Three Systems, 27 Envtl. Mgmt. 881, 891 (2001).

[76]. Cf. Gaines, supra note 10, at 21 (noting that “mechanisms for dealing with uncertainty, ambiguity, and inequity in the distribution of information are poorly developed in both theory and practice”).

[77]. TRI and GRI seem to be based on this model of placing responsibility on corporations to provide sustainability disclosures not only because firms possess superior control over much of this information, but because these inventories provide evidence of negative externalities and firms then must bear the primary responsibility for collating and producing this information.  See supra Part I.A. (discussing these programs).  Much of the scholarly commentary on sustainability disclosures seems to repeat this basic “social responsibility” basis for disclosure.  See, e.g., Case, supra note 20.  In earlier work, I also argue that these generic types of information disclosures are justified by the firms need to explicate the extent of their negative externalities.  See Wagner, supra note 45, at 1632.

[78]. See, e.g., Stoughton & Levy, supra note 21, at 280 (recognizing the proprietary information that might be revealed through facility level sustainability audits).

[79]. In the past, the public good features of required information provisions in environmental law arose most pointedly with required testing of pesticide products.  Manufacturers proposing new pesticides were concerned that their tests would be used by other companies who did not have to pay to produce them.  See H.R. Rep. No. 92-511, at 1–2 (1971).  In response to this concern, Congress created a compensation program that allows companies to be compensated for the use of their test data by others.  See Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), 7 U.S.C. § 136a(c)(1)(F) (2006) (providing the original applicant a right to “exclusive data use” for registration of pesticides after 1978).  Analogously, the patent system protects drugs and other unique products from this theft of expensive public health assessment simply by providing a blanket product right to the product itself.  See Benjamin N. Roin, Pharmaceutical Innovation and Limits of the Patent System, Petrie-Flom Center for Health Law and Policy, Biotechnology and Bioethics, Harvard Law School (Aug. 31, 2007),

[80]. See, e.g., Williams, supra note 2, at 1644 (discussing how the GRI reports set up “a dynamic where companies are potentially more susceptible to environmental or social political pressures” and thus may be worse off, in the end, by voluntary reporting).

[81]. See, e.g., Cooper & Fava, supra note 67 (listing as the three major barriers: “1. Time and resource requirements for the collection of data.  2. Complexity of the LCA method.  3. Lack of clarity as to the relevant benefits compared to the costs of conducting the LCA studies, including lack of apparent downstream interest or demand.”).

[82]. See, e.g., Early et al., supra note 43, at 595 (noting that “[a] comprehensive LCA can take months to prepare, costs thousands of dollars, and provides data on only one product rather than the suite of options that are of interest to decision makers”).

[83]. In 2005, almost 70% of the survey participants identified this as the most costly feature of LCA.  See Cooper & Fava, supra note 67.

[84]. The development of off-the-shelf models has helped to keep these costs under some control, although expertise in applying the methods is still necessary.  See, e.g., id. at 13–14.  In a survey of LCA experts in 2005, only 20% percent listed the methodological applications as the most costly part of the exercise.  Id. at 13 (also noting that 15% listed application of the methods as the most time-consuming part of the process).

[85]. See, e.g., D. Elcock, supra note 25, at 5–6, 38 (noting the costs as a major barrier to LCA); Early et al., supra note 43, at 593 (noting the same).

[86]. For example, one firm may recognize the need for LCA of packaging systems that may present both environmental wastes and process inefficiencies, but they may lack the expertise and time to carry out such an assessment.  Early et al., supra note 43, at 593.

[87]. Id. at 600.

[88]. See id. at 595 (reporting on other similar types of collaborations for conducting LCA, such as the collaboration between McDonald’s and Environmental Defense Fund on packaging).

[89]. See, e.g., id. at 604 (describing the environmental gains from changes in packaging).

[90]. Cf. Stoughton & Levy, supra note 21, at 282–83 (emphasizing the need for facility-based reporting that derives “both from the intrinsic differences between facilities and the organizations of which they are a part and from the differences between organization and facility-level stakeholders”).

[91]. For the complete list of industrial sectors for which EPA developed air toxic emission standards under the Clean Air Act, see 40 C.F.R § 63 (2011). See alsoEPA, National Emission Standards for Hazardous Air Pollutants (NESHAP),  For the discharge standards promulgated by the EPA for industrial sectors under the Clean Water Act, see 40 C.F.R. §§ 400–471.

[92]. The EPA, for example, has extensively used its information collection power under Section 114 of the Clean Air Act to obtain internal, industry information about processes that inform its selection of best technologies under the Clean Air Act.  42 U.S.C. § 7414(a) (2006).  See, e.g., Wendy Wagner, Katherine Barnes & Lisa Peters, Rulemaking in the Shade: An Empirical Study of EPA’s Air Toxic Emission Standards, 63 Admin. L. Rev. 99, 125 (2011) (counting, on average, over eighty “formal” communications initiated through Section 114 between industry and the EPA per air toxic emission rule).

[93]. The EPA’s establishment of technology-based standards involved some of this internal process analysis, so the EPA is not new to this type of internal assessment.  See, e.g., D. Bruce La Pierre, Technology-Forcing and Federal Environmental Protection Statutes, 62 Iowa L. Rev. 771, 810–11 (1977) (specifying three steps in setting technology-based standards: (1) categorizing industries; (2) identifying the contents of their respective wastewaters; and (3) identifying the range of control technologies available, all of which parallel the types of operational study that will be needed to conduct life cycle analysis).  See also Sanford E. Gaines,Decisionmaking Procedures at the Environmental Protection Agency, 62 Iowa L. Rev. 839, 853 (1977) (discussing the EPA’s study of the effectiveness of pollution control technologies under various plant ages, sizes, and manufacturing conditions in each industrial sector).

[94]. CERES consists of a mix of all affected stakeholders committed to advancing sustainability.  Specifically, “Ceres is a nonprofit organization that leads a national coalition of investors, environmental organizations and other public interest groups working with companies to address sustainability challenges such as global climate change and water scarcity.”  CERES, (last visited Aug. 21, 2011).

[95]. See, e.g., 42 U.S.C. § 7411(b)(1)(B) (2006) (giving the Clean Air Act revision expectations for new source performance standards) (“The Administrator shall, at least every 8 years, review and, if appropriate, revise such standards . . . .  [T]he Administrator need not review any such standard if the Administrator determines that such review is not appropriate in light of readily available information on the efficacy of such standard.”); 33 U.S.C. § 1316(b)(1)(B) (2006) (giving the Clean Water Act expectations for revision of technology-based discharge standards and declaring that the EPA “shall, from time to time, as technology and alternatives change, revise such [new source performance] standards following the procedures required by this subsection”).

[96]. Ideally, profiling the advances will also change the “strategic thinking of companies. . . . [by] demonstrat[ing] that the next level of environmental protection will arise not only from disincentives to pollute, but also from the positive vision of sustainability that is acceptable to business operation.”  Hecht, supra note 19, at 24.

[97]. See generally Ian Ayres & Robert Gertner, Filling Gaps in Incomplete Contracts: An Economic Theory of Default Rules, 99 Yale L.J. 87, 91 (1989) (“[P]enalty defaults are purposefully set at what the parties would not want—in order to encourage the parties to reveal information to each other or to third parties.”).

[98]. See, e.g., Williams, supra note 2, at 1648 (describing the incentives of corporations to distinguish themselves in the market, beyond what the law requires, in order to enhance their reputation in the market and with investors).

[99]. See, e.g., Markus J. Milne et al., The Five Principles of Sustainable Branding, (Sept. 25, 2008),

[100]. See, e.g., id.

[101]. See, e.g., Milne et al., supra note 3, at 15 (describing a variety of tools that can link to LCA).

[102]. As the Department of Energy report notes:

Results from existing LCA studies could be reviewed to identify common areas of concern, i.e., those processes or life-cycle stages that consistently produce higher impacts . . . .  For example, transportation emissions are major contributors to aquatic toxicity, acidification, and CO2 loading.  Thus, transportation may be an important consideration in decisions to build small process or disposal sites rather than centralized sites.

D. Elcock, supra note 25, at 76.

[103]. See, e.g., id. at 17; Klee, supra note 26, at 172 (describing the advantages of a Material Flow Inventory, which could be based in part on the results of individual LCAs).

[104]. See, e.g., D. Elcock, supra note 25, at 40.

[105]. Databases that contain LCA software programs and even inventory data could be made available to firms in ways that enable more expansive and useful LCA to be prepared.  See, e.g., Cooper & Fava, supra note 67, at 14 (calling for “greater development of and funding for life-cycle inventories . . . [and]  databases”).  These databases have already been initiated in other countries, therefore some of the preliminary work is already underway and the EPA may only need to follow the lead of these other countries in identifying the kinds of information that is useful and link that information to other publicly available LCA databases that have already been created.  See, e.g., D. Elcock, supra note 25, at 38 (identifying Europe, Japan, and Korea as having developed publicly shared databases on specific parts of the life cycle, such as energy systems, transportation, waste management, and production of bulk materials).  The development of simplified LCA that reduce the costs and time and begin with EPA’s generic assessments could also greatly accelerate the use of LCA by individual firms.  See, e.g., Cooper & Fava, supra note 67, at 14 (noting that “anything that can be done to simplify the conduct of an LCA and reduce the costs and time required to complete the study” will be useful).

[106]. See, e.g., Early et al., supra note 43, at 595.

[107]. Id.

[108]. See, e.g., SAIC, supra note 30.  See the EPA’s web site dedicated to providing guidance to those interested in LCA at

[109]. See, e.g., D. Elcock, supra note 25, at 41; Cooper & Fava, supra note 67, at 14 (advocating for “an internal champion for the promotion of LCA within an organization, development and dissemination of the value that LCA provides”).

[110]. See, e.g., D. Elcock, supra note 25, at 39–40.

[111]. A number of efforts are afoot to expand and develop the social features of LCA.  See, e.g., id. at 73–74.  To the extent that the EPA becomes an important developer of the methods of LCA, it would seem to have valuable expertise to contribute to these efforts.  See, e.g., id. at 73 (recommending greater attention to developing these socially based assessments).

[112]. The results of LCA and related reports should be accessible to a wide range of stakeholders and, thus, the communication may need to be tiered in detail to reflect this diverse audience.  See, e.g., Stoughton & Levy, supra note 21, at 280–81 (emphasizing the importance of comprehensibility in these reports).  At base, however, the reports should be clear and as simple as possible to maximize their value to these constituencies.  See, e.g., Raphael Bemporad & Mitch Baranowski,Branding for Sustainability, Package Design Mag. (Dec. 2008), available at
/ (discussing the need to create “opportunities for multiple stakeholders to help shape, realize and share the benefits of products and services based on a seamlessly integrated business and sustainability strategy”).

[113]. See supra notes 79–80 and accompanying text.

[114]. Cf. Sulaiman A. Al-Tuwaijri, et al., The Relations Among Environmental Disclosure, Environmental Performance, and Economic Performance: A Simultaneous Equations Approach, 29 Acct., Orgs. and Soc’y 447, 469 (2004).

[115]. See, e.g., Eric Biber, The Problem of Environmental Monitoring, U. Colo. L. Rev. (forthcoming 2011), available at

[116]. See, e.g., Pasky Pascual, Liz Fisher & Wendy Wagner, FDA Modernization and the Revolutionization of Collective Science in Public Health Law (forthcoming) (on file with author); see generally Title IX of the Food and Drug Administration Amendments Act of 2007, Pub. L. No, 110-85, 121 Stat. 823.

[117]. See, e.g., Clean Water Act, 33 U.S.C. § 1311(b)(2)(C)–(D) (2006) (stating that the EPA is required to set technology-based standards for water toxins from point sources); Clean Air Act, 42 U.S.C. § 7412(b) (2006) (listing 189 air toxins for which technology-based standards must be promulgated).  This collective, public information baseline then serves as the benchmark against which firms are measured to ensure that they were doing their “best” or, more accurately, doing their legally required reductions in pollution control.  See Julie Thrower, Adaptive Management and NEPA: How a Nonequilibrium View of Ecosystems Mandates Flexible Regulation, 33 Ecology L. Q. 871, 879 (2006).

[118]. See 33 U.S.C. § 1311(m)(1)(G) (2006) (stating that research and development of water pollution control technology is only required if an applicant is permitted to abide by differing standards than those listed in the rest of the section for industrial discharges into deep seas).  Research and development is not mentioned anywhere else in the Clean Water Act.

[119]. Because of its public good character, the EPA has a team of researchers that are dedicated to green chemistry innovation.  See Green Chemistry and Engineering, EPA,  The EPA also has a grant program that funds green chemistry innovation.  See Grants and Fellowships, EPA,  But the EPA does not actively encourage green chemistry through its regulation of private activity (nor is this contemplated in the authorizing legislation passed by Congress).

[120]. The EPA has an annual Presidential Green Chemistry Challenge Award that is given to several recipients and is awarded by the President.  Both universities and industry members are eligible to enter.  While there is an emphasis on broad applicability in terms of both transferability to other sectors and economic feasibility, most of the entries have already been patented, trademarked, and commercialized by the time they are entered.  See Presidential Green Chemistry Challenge, EPA,

[121]. Cf. Bradley C. Karkkainen, Bottlenecks and Baselines: Tackling Information Deficits in Environmental Regulation, 86 Tex. L. Rev. 1409, 1410 (2008) (stating that environmental assessments have not led to any significant impact).

[122]. Hecht, supra note 19, at 23.

[123]. See, e.g., United States Government Accountability Office, Globalization: Numerous Federal Activities Complement U.S. Business’s Global Corporate Responsibility Efforts 15 (2005).

[124]. The GAO report on corporate responsibility identified four ways to enhance corporate social responsibility: (1) endorsing or rewarding good behavior, (2) facilitating improvements through outreach and education, (3) partnering with voluntary and collaborative partnerships, and (4) mandating through the law.  See id. at 23–25.

[125]. Cf. Gaines, supra note 10, at 21 (noting the need to accept imperfections in information collection almost as a prerequisite to developing robust information disclosure strategies).


By: David Millon*


There are many ways to think about the nature of business corporations.  They can be seen as mere aggregations of natural persons or as entities in their own right.  As entities, they have been described as either natural or artificial,[1] and the idea of the corporation as a person is itself fraught with ambiguity.[2]  This Article focuses on two perspectives and traces their respective implications for notions of corporate social responsibility (“CSR”).  One is familiar and has impeded efforts to argue that corporations should be managed with attention to their obligations to society.  The other, less familiar perspective draws on the concept of sustainability and offers potentially more promising prospects for those concerned about CSR.

The first perspective regarding the nature of the corporation is structural.  Its focus is on the corporation’s constituent elements.  These elements include senior management, shareholders, employees, creditors, consumers, and communities in which the corporation operates.  Each of these constituencies has its own interests and these interests often conflict with those of other constituencies.  For example, shareholders’ desire for profit may be at odds with workers’ desire for high wages.  The primary normative question presented by this vision of the corporation is the amount of weight that should be given to the interests of each of these constituencies.  In a particular case of conflict, whose interests should take priority?

The second approach is temporal.  The focus is on the corporation as an entity existing in time.  Rather than an aggregation of numerous constituencies, the corporation is itself a distinct person.  The primary emphasis then is on the various external relationships that determine its long-term survival.  Here the key question is how the corporation should interact with its various stakeholders in order to ensure its long-run viability.

The structural approach ignores this temporal dimension and instead attends to the immediate impact of particular choices to favor the interests of one constituency over those of others.  This assessment is typically made without reference to possible long-term considerations.  So, for example, the possibility of economic benefits to the corporation accruing in the future will not necessarily justify expenditures that reduce profits in the short term.

These different ways of thinking about the corporation support two different ways of thinking about CSR.  The first speaks in structural terms, emphasizing the broad range of interests that the corporation’s management should take into account.  The main challenge is balancing potentially conflicting interests implicated by particular business decisions.  In particular, CSR under this view requires that management be willing to subordinate the shareholders’ desire for profit maximization to the claims of nonshareholder stakeholders.  Because it conceives of CSR in terms of the conflicting interests of shareholder and nonshareholder constituencies, this view might be referred to as the “constituency” model of CSR.

The second model is temporal in focus, with the key question being the corporation’s success over the long run.  Long-run sustainability depends crucially on the viability of the various stakeholders that determine the corporation’s success.  These include workers, suppliers, and customers, as well as investors, and even the environment.[3]  Decisions of corporate management often affect the well-being of these stakeholders in positive or negative ways.  Further, management has the ability to improve stakeholders’ well-being through investment of corporate funds.  If the corporation’s long-run sustainability is a serious objective, management must cultivate and nurture these relationships.  My main point in this Article is that a long-run orientation to corporate management will achieve many of the objectives favored by CSR advocates.  This model might therefore be referred to as the “sustainability” model of CSR.  Because the corporation must earn profits in order to survive, the interests of shareholders and nonshareholders do not unavoidably conflict with each other under this model.  For this reason, this way of thinking about CSR can overcome the primary conceptual and political obstacle to the constituency model, which is the assumption that shareholder interests should predominate over those of nonshareholders.

This Article first considers the constituency model of CSR, which is the more familiar way of thinking about these issues.  I discuss its status in law and practice.  I then turn to the sustainability model, which offers a new and potentially fruitful perspective on CSR, and provide illustrations to highlight its contrast with the constituency model.  I close with some thoughts on the prospects for a sustainability approach to CSR.

I.  The Constituency Model of CSR

A.            The Model

The constituency model of CSR sees the corporation as an organization consisting of a number of different groups of people, in which the members of each group share more or less common interests.  Shareholders, for example, generally seek maximal return on their investments.  Employees want rewarding work, satisfactory working conditions, and good wages.  Creditors expect that they will be paid according to the terms of their contracts.  Often, conflicts exist among these and other constituencies’ interests.  High returns for shareholders can mean low wages for workers.  Increased leverage may be good for shareholders but bad for bondholders.  Conflicts like these mean that those in charge must make trade-off judgments.  These choices are assumed to be zero-sum games.

According to this view of the corporation, CSR requires management to balance shareholder and nonshareholder interests.  Strict shareholder primacy—the idea that shareholder interests should enjoy priority over those of nonshareholders—is rejected because of the costs it can inflict on nonshareholders.  For example, profit maximization, even when pursued within the boundaries of the law, can lead to plant closings that harm workers and local communities, environmental damage, and human rights violations in developing countries.[4]  Socially responsible leadership therefore necessitates that management temper its pursuit of profit with regard for such considerations.

The constituency model of CSR largely takes for granted the trade-off or zero-sum assumption that sees benefit to nonshareholders coming at the expense of shareholders.  Proponents must therefore rely on moral or ethical arguments, conceding the economic critique.  Thus, for example, so-called corporate law progressives justify the balancing approach to CSR on fairness grounds, arguing that nonshareholders should not be required to rely on their own contractual bargaining capabilities to protect their interests.[5]  Balancing has also been defended on efficiency grounds.[6]  According to this view, management’s role is to mediate among the conflicting interests of the corporation’s various constituencies in order to encourage firm-specific investment and discourage opportunism.  For the most part, however, the constituency model of CSR—which has long been the standard way of thinking about CSR[7]—makes no effort to appeal to shareholder interests.

B.            Current Legal Status

Corporate law endorses the constituency model of CSR, although only permissively.  As of 2003, forty-one states had enacted “constituency statutes” that authorize management to take into consideration a range of nonshareholder interests in addition to those of shareholders.[8]  Importantly, however, these statutes only permit balancing of interests rather than requiring it.  Corporate boards would thus be free to pursue CSR policies but cannot be sanctioned for choosing not to do so.

Delaware—the state of incorporation for nearly two-thirds of U.S. publicly traded companies—has not enacted a constituency statute.[9]  Nevertheless, Delaware law is not committed to shareholder primacy.  Management’s duties are owed to “the corporation and its stockholders,”[10] rather than to the shareholders alone.  Delaware courts have done little to explicate the meaning of this distinction but at least this formulation must indicate that the corporation is something other than—and presumably more than—simply the shareholders alone.  It could, for example, be thought of as an entity existing separately from its shareholders and other stakeholders, or perhaps as an aggregation of its various constituencies.

Although the Delaware Chancery Court has stated that directors are obligated “to attempt, within the law, to maximize the long-run interests of the corporation’s stockholders,”[11] the Delaware courts have never stated plainly that management’s fiduciary responsibilities—the duties of care and loyalty—imply a general duty to maximize profits without regard to competing nonshareholder considerations.  Even the quoted language, with its reference to “long-run interests,” is vague enough to accommodate policies that favor nonshareholder interests as long as there may be some plausibly asserted long-run benefit to the shareholders.  In any event, such pronouncements are of no practical importance, because shareholders lack the ability to challenge management policies that favor nonshareholder interests even if the result is reduction of profits.  Under the business judgment rule, courts will not second-guess decisions—including decisions that appear to benefit nonshareholders at the expense of shareholders—as long as management can assert some plausible connection with the corporation’s long-run best interests.[12]  Further, unless a complaining shareholder can show that the decision in question was not based on adequate information or was tainted by conflict of interest, they will defer to management’s claims about benefit to the corporation rather than insisting on production of evidence.[13]

In the one situation in which the Delaware Supreme Court has directly addressed management’s authority to consider nonshareholder interests, the court has declined to endorse shareholder primacy.  Hostile takeover bids typically present a clear conflict between the interests of shareholders (in unrestricted access to takeover premia, which are typically of substantial value) and those of nonshareholders (in defeat of an offer that threatens their well-being, for example, due to major cost-cutting initiatives).

Defining the circumstances under which a target company’s management can lawfully defend against a hostile bid, the court stated in Unocal Corp. v. Mesa Petroleum Co. that management can take into account “the impact on ‘constituencies’ other than shareholders (i.e., creditors, customers, employees, and perhaps even the community generally).”[14]  The court will require maximization of shareholder value only if management voluntarily chooses to abandon its own long-run business strategy by undertaking a transaction that will result either in change of corporate control or break-up of the corporate entity.[15]  Otherwise, management may resist a hostile bid that would threaten management’s plans for the corporation’s future, however attractive the bid might be to the corporation’s shareholders.[16]  Thus, the Delaware Supreme Court has refused to embrace shareholder primacy in the one context in which it might have mattered most.  In short, although it is often assumed that corporate law mandates shareholder primacy,[17] there is in fact very little doctrinal basis for such claims.[18]

C.            Current Practice

Although not required to do so by law, management of U.S. corporations typically pursues short-term profit maximization as measured by quarter-to-quarter earnings.  The objective is enhancement of share price, which depends on a reliable stream of regular earnings; failure to meet earnings targets usually results in immediate share price decline.[19]  Because the constituency model of CSR envisions expenditures—in the form of cash outlays or foregone revenues—that are designed to benefit nonshareholders, such policies would mean lower net income and therefore would conflict with management’s emphasis on the currently accepted short-term conception of shareholder value.  In other words, current practice generally embraces shareholder primacy and rejects CSR.

There are several explanations for current practice, which as explained above, is not required by law.  Today’s shareholders typically adopt a short-term perspective that manifests itself in a strong preference for immediate results measured in terms of current share price.[20]  Management thus finds itself under scrutiny to deliver results on a quarter-to-quarter basis and goes to great lengths to achieve accounting results that meet or exceed earnings targets.[21]  Certain institutional investors are especially likely to exert significant pressure on corporations to generate steady profit streams.  For example, in order to meet their own obligations to their beneficiaries, the California Public Employees Retirement System and other state pension funds must achieve annual returns on their investments of eight percent.[22]  In the face of such demands, patience is not an option.

Management compensation also encourages concentration on current share price.  Stock and stock option grants are significant elements of senior officer compensation at most U.S. corporations.[23]  The justification is alignment of shareholder and management interests in order to reduce agency costs.  The effect is to encourage a short-term focus on profits in order to boost the value of shares and options awarded to executives of the corporation.

Social norms shape an environment in which management tends to understand its role in terms of maximization of current share prices.  Business schools, apparently misapprehending the law, preach this ethic at the expense of a richer, more complex conception of responsibility.[24]  Corporate lawyers charged with advising boards on their responsibilities typically take shareholder primacy for granted.[25]  The business press insists on the same idea,[26] and prominent corporate law academics—most of whom tend to embrace a conservative law-and-economics agenda—likewise assume that shareholder primacy rather than CSR is legally mandated.[27]

II.  The Sustainability Model of CSR

A.            The Model

The sustainability approach to CSR is based on the idea that the corporate entity should remain economically viable over the long run.  The corporation must generate profits because survival requires it, but survival most emphatically does not require short-term profit maximization.  In fact, a short-term time horizon may impede the corporation’s long-run sustainability because it can result in policies that sacrifice future earnings for current net income.

The connection between sustainability and CSR is simply the realization that the corporation’s long-run prosperity depends on the well-being of its various stakeholders, including workers, suppliers, and customers.  Sustainability also requires ongoing availability of natural resources and a natural environment in which the corporation and its various constituencies can survive and flourish.  Well-functioning markets and stable and supportive governments are also essential.  Because the corporation itself has a significant role to play in determining the welfare of these stakeholders and in nurturing productive, reliable relations with them, a sustainability approach to business success has the potential to achieve many of the goals that CSR proponents advocate.

The sustainability model of CSR differs from the constituency model sketched above in a fundamental way.  The constituency approach sees attention to nonshareholder interests as a cost that comes at the expense of profit and therefore of shareholder value.  This is the trade-off or zero-sum assumption.  In contrast, the sustainability perspective sees attention to nonshareholders—including investment in their well-being—as essential to the viability and success of the firm and therefore also to the enhancement of shareholder value.  The key difference is the relevant time horizon.  Constituency CSR emphasizes the negative impact of expenditures on nonshareholders on the corporation’s bottom line in the accounting period in which the costs are incurred.  Sustainability CSR looks beyond the current quarter or year and factors in long-run benefit as a potential offset to short-term cost.  It therefore does not necessarily pose the threat to shareholders assumed by critics of constituency CSR and may actually be in their long-run best interests.

B.            Illustrations

The sustainability approach to corporate management accommodates CSR expenditures because it takes into account long-term payoffs that benefit the corporation and thereby its shareholders as well.  For transnational corporations doing business in developing countries, sustainability may require investment in community-level infrastructure development projects, technological innovation, education, and health care.  As these investments lead to greater productivity and better product quality, workers and producers can earn higher incomes, allowing the local population to enjoy a higher standard of living.  An example is Nestlé’s entry into milk production in the Moga district of India.[28]  Investments in refrigeration, well drilling, veterinary medicine, and training have vastly increased output; enhanced product quality has allowed Nestlé to pay higher prices to farmers.[29]  The result is higher incomes for farmers and their employees, and the region now has a significantly better standard of living compared to neighboring communities.

In a similar vein, the Norwegian company Yara International ASA, the world’s largest chemical fertilizer company, has sponsored public/private partnerships to develop storage, transportation, and port facilities that will serve African regions with significant untapped agricultural potential.[30]  The objective is to facilitate increased yields through lower-cost access to markets, which allows entry into commercial farming.  This provides new jobs while also improving incomes and living standards for farmers.  At the same time, Yara benefits through increased demand for its fertilizer products.[31]

By spending money on projects like these, corporations incur immediate costs that reduce current profits.  Longer-run benefits, however, have the potential to generate net gains in the form of enhanced productivity, greater skills and knowledge, commitment, increased consumer demand, political and social stability, and long-run viability.  The corporation and its shareholders benefit—but so too do the local communities in which its workers and producers live.  In contrast, a narrow, short-term orientation seeks simply to locate production in developing countries in order to take advantage of low wages and lax regulations.  Current expenses are reduced, but long-run productivity and sustainability considerations are ignored.

Closer to home, many U.S. companies have invested heavily in employee health through wellness and anti-smoking initiatives.[32]  Such programs are expensive and therefore stand in contrast to short-term profit enhancement strategies based on minimizing wages and benefits.  Johnson & Johnson, for example, estimates that its Wellness & Prevention program has saved the company $250 million in employee health care costs over the past decade.[33]  The savings represent a return of $2.71 on every dollar spent.[34]  There also appears to be a connection between employer-sponsored wellness programs and employee loyalty; companies with effective programs experience significantly lower voluntary attrition.[35]  Greater productivity and higher morale may also result.[36]

Investment in research and development (“R&D”) is another example of an upfront cost with potential longer-term payoffs.  Despite the crucial importance of R&D for corporate sustainability, corporations have been reducing expenditures in order to maintain short-term earnings.[37]  A reversal of this trend would be socially beneficial because it would facilitate the development of new products and services, including those that address consumer demand for environmentally responsible offerings.[38]  Proctor & Gamble’s development of cold-water clothes-washing detergents is one example.[39]  Toyota’s invention of hybrid gasoline/electric automobiles is another; the failure of U.S. automakers to make similar R&D investments has left them at a competitive disadvantage, forced to license Toyota’s technology.[40]  Similarly, GE has invested billions in order to develop its “ecomagination” line of energy efficient products and now predicts that revenues from these products will grow at twice the rate of total company revenues over the next five years.[41]  All of these are examples of products that will provide social benefits as well as profits to the corporation and its shareholders, but such results are only achieved if companies are willing to spend money on projects that will earn returns in the future, if at all.

C.            “Strategic” versus “Philanthropic” CSR

The examples sketched above share a strategic emphasis on investments that serve the interests of key stakeholders in order to bolster the corporation’s long-term sustainability.  As a result, nonshareholder constituencies can benefit in important ways.  However, because such policies are justified in economic terms—in terms of the corporation’s long-run profitability—there is no need to resort to moral or ethical arguments, as is the case with the constituency model of CSR.  The whole point is to generate net gains in the future from expenditures incurred in the present—benefits to nonshareholders come not at the expense of shareholders but rather are deployed for their ultimate advantage.

For this reason, this approach to CSR objectives can be labeled “strategic.”[42]  In contrast, the notion that CSR requires firms to forego profits—and therefore reduce shareholder wealth—in order to spend corporate funds to benefit nonshareholder constituencies might be termed “philanthropic” CSR.  An example would be refusal to immediately close a plant generating subnormal returns because of concerns about the harsh impact the closure would have on the labor force, the local community, and perhaps also on the company’s reputation among consumers, investors, and the general public.  Such a decision could be characterized as “philanthropic” in the sense that corporate management has chosen voluntarily to forego profits in order to benefit nonshareholder constituencies.  These benefits come at the expense of the shareholders.  From that perspective, the decision is analogous to a charitable donation to a nonprofit organization.

Typically no serious effort is made to defend philanthropic CSR in economic terms.  There may be assertions of long-run goodwill or reputational advantages but such claims are virtually impossible to document and the evidence of actual positive effects of CSR policies on worker, consumer, or investor attitudes is uncertain.[43]  Indeed, the key idea is not economic at all.  It is instead based on a claimed moral or ethical imperative requiring that corporations perform good works regardless of their possible negative impact on profits.  This is why this notion of CSR has made only limited headway beyond left-leaning academics and political activists for whom the profit motive may be suspect at best and shareholders are to be tolerated but no more than that.

Because sustainability CSR insists on corporate profitability over the long run, and benefits to key nonshareholder constituencies are designed ultimately to generate payoffs to the corporation and its shareholders, it need not rely on moral or ethical argument alone.  Instead, strategic CSR should be understood as promoting the corporation’s financial interest and therefore those of the shareholders too.  This approach avoids objections to the effect that management is “spending someone else’s money”[44] when it uses corporate funds to improve the well-being of nonshareholder stakeholders.  For this reason, strategic CSR ought to have significantly broader appeal than the constituency or philanthropic model has had.

While sustainability CSR has the potential to benefit nonshareholders substantially, it is important to note that it is not a complete solution to the problem of the social responsibilities of business.  Because it is driven by strategic business considerations, this approach to CSR includes built-in limitations on what corporations are likely to do.  Specifically, they cannot be expected to engage social issues unless they have the potential to improve the long-run bottom line.  Thus, for example, a corporation may decline to address environmental impacts or labor-force problems, even though doing so could serve the corporation’s business interests, if in management’s view the long-run benefits to the corporation do not justify the short-term costs.

Further, pressure from shareholders for immediate returns is likely to skew the cost-benefit calculus.  Management’s awareness that shareholders prefer current earnings may lead it to discount the value of future payoffs more heavily than it otherwise would.  In other words, management may assume that a higher rate of return is necessary to justify current expenditures designed to benefit nonshareholders.  This would discourage some investments that might be endorsed if shareholders were more patient than they typically are today.

Seen solely through a cost-benefit lens, CSR initiatives are not likely to go as far as some would advocate.  The moral or ethical case for, say, environmentally responsible policies, or attention to human rights issues, may therefore continue to provide justification for business policies that cannot be defended solely in economic terms.  CSR may require attention to nonshareholder interests even when doing so is not in the long-run interests of the shareholders.

Further, if CSR is limited solely to strategic considerations, corporations will not contribute to efforts to solve social problems that are unrelated to their long-run economic interests.  Purely charitable expenditures therefore would require justification on other grounds, and moral or ethical arguments for CSR would be relevant here too.  Large corporations make significant cash and noncash contributions to a range of educational, health, community development, environmental, and cultural organizations.  One survey found that the median total giving amount for sixty-one Fortune 100 companies exceeded $56 million in 2009.[45]  These gifts often have no direct connection to the donor’s business and are made for essentially philanthropic reasons.[46]  They provide needed financial support for worthy causes that otherwise might not receive sufficient funds to be effective.  Attractive as the argument for sustainability CSR may appear to be, a philanthropic conception of CSR, unmotivated by business considerations, therefore continues to be important in its own right.  Sustainability CSR is not a complete substitute.

III.  The Prospects for Sustainability CSR

The economic argument for sustainability CSR ought to have broad appeal.  Because it is not based on purely moral or ethical considerations, it avoids standard objections raised against the constituency CSR model based on the interests of shareholders and their claims of privilege vis-à-vis the corporation’s various nonshareholder groups.  Further, unless blinded by short-term myopia, corporate executives should appreciate the importance of the corporation’s long-run viability.  They therefore should be receptive to the idea that investment in the well-being of key stakeholders can generate significant financial returns.  Indeed, the examples sketched above—and there are many others that illustrate the same idea[47]—indicate that many executives understand this point and are incorporating it into their business strategy.  Because these developments are driven by economic self-interest, there may be no need for law to encourage it further.  Even acknowledging, however, that acceptance of the sustainability model would not fully discharge a corporation’s social responsibilities, there are significant impediments to its widespread adoption as a basic element of corporate strategy.

A.            Sustainability CSR’s Problematic Appeal

As discussed above, today’s shareholders—particularly the large institutions that increasingly dominate the stock markets—typically prefer immediate maximization of share value over a more patient approach that is willing to wait for potentially greater returns in the future.  This preference leads management to prioritize short-term profits over longer-run considerations.  This approach obviously discourages constituency CSR because, under this model, benefits to nonshareholders reduce short-term profits and therefore have a negative impact on current share price.  Management’s catering to shareholder preferences also impedes thinking about long-run objectives because the corporation’s future performance depends in part on expenditures that are made today.  The impact on short-term earnings tends to overwhelm considerations based on future returns.  Accordingly, CSR policies based on a commitment to sustainable profits are also a casualty of the current obsession with short-termism embraced by shareholders and management.

As explained above, management compensation practices that typically include stock and stock options also encourage a short-term focus.  So too do social norms that encourage concentration on quarterly earnings as the relevant metric by which management is to be evaluated.  As long as corporate executives prioritize short-term results over long-run value, sustainability considerations will be of only secondary importance.  So too will be the idea that CSR policies can contribute importantly to a corporation’s long-run viability.

Even if corporate management appreciates the importance of sustainability as a business strategy, it will not necessarily appreciate the potential strategic benefits of CSR policies.  Initiatives that require significant investments in the well-being of nonshareholders may be suspect because of their perceived association with constituency CSR policies, which are assumed to come at the expense of corporate profits and not to benefit the corporation.  Among executives who assume that shareholder primacy is the relevant metric, there may therefore be a strong tendency to bridle even at CSR policies that are based on strategic, rather than philanthropic, motivations.

B.            Accounting Conventions

Current accounting conventions generally do not express the future value of strategic investments in the well-being of nonshareholder constituencies.[48]  This does not explain why shareholders generally focus on current earnings without regard to longer-term considerations; as explained above, there are other reasons for that phenomenon.  Nor does it explain why corporate management remains focused primarily on short-term earnings.  The point instead is that an investor who seeks information about the potential future payoffs of current expenditures that are designed to generate sustainable profits by promoting the interests of nonshareholders will find it difficult to obtain that information from the corporation’s financial disclosure.  Similarly, corporate executives who approve expenditures benefiting nonshareholders may be frustrated at their inability to express the future value of those expenditures in the corporation’s financial statements.

According to Generally Accepted Accounting Principles, expenditures designed to benefit nonshareholders so as to create future value typically must be reported as expenses that reduce net income in the accounting period in which they are paid.[49]  The fact that they are supposed to generate future profits potentially extending over many years is not reflected on the income statement or balance sheet—instead they are accounted for as current expenses just as are, say, rent or salary or interest payments.[50]  So, for example, a corporation that spends money training farmers in more productive, less environmentally damaging agricultural practices or encouraging its employees to pursue healthier life choices will have to account for those costs on its income statement when the expenditures are made, reducing net income by the amount of the expenditure, even though the goal is to produce value in the future.  Although these might better be thought of as investments rather than expenses, their value is not expressed on the balance sheet.

Compare in this regard expenditures made to acquire fixed assets, that is, assets that are expected to contribute value to the corporation over a number of years.  The cost of these assets is allocated over their useful lives, rather than treated as an expense to be assigned entirely to the period in which they are purchased.[51]  The theory is that the cost of these assets should be accounted for over the entire period during which they generate value.[52]  Further, the value of fixed assets is included on the balance sheet, expressed in terms of historical cost.[53]

For an investment community obsessed with quarterly earnings, these accounting conventions arguably fail to capture accurately the worth of the expenditures designed to produce sustainable future benefits.  They therefore overstate the expenditures’ cost to the corporation.  A thoughtful analyst could no doubt distinguish costs that generate immediate value—rent and wages, for example—from the kinds of expenditures that are designed to produce future value.  He or she could then discount the latter category of expense accordingly, thus reducing the impact on the corporation’s net income.  Instead, however, shareholders’ current focus on earnings—on the “bottom line”—without regard for whether the corporation’s expenses may create possible longer-term value amounts to an uncritical acceptance of the validity of current accounting conventions as the basis for valuation of a corporation’s stock.  Even if management wished to do so, it may be reluctant to correct, through its financial disclosure, misleading information based on these conventions.[54]


The orthodox model of CSR—which I have termed in this Article the “constituency” model—envisions the corporation as composed of a number of constituencies whose interests often conflict.  Policies that are designed to benefit a nonshareholder constituency are assumed to reduce profits and therefore affect shareholder interests adversely.  Similarly, strict adherence to profit maximization, while in the shareholders’ interest, can impose costs on nonshareholders.  As management attempts to mediate among these conflicting interests, zero-sum trade-offs are assumed to be inevitable.  So, for example, faced with an underperforming plant, management must decide whether to shut it down or continue operations for the sake of workers and the local community.  Seen in this light, CSR has enjoyed limited traction among business leaders, academics, lawyers, and policymakers because it is widely taken for granted that shareholder primacy is the relevant benchmark.[55]  In fact there is no legal warrant for that assumption, but its widespread acceptance renders the constituency model of CSR fundamentally problematic in the eyes of many.

The “sustainability” model of CSR sketched in this Article rejects the zero-sum trade-off assumption of the constituency model and instead embraces the idea that the corporation’s long-run sustainability depends in part on the long-run viability of key stakeholders.  The corporation has a role to play in ensuring that viability.  Examples mentioned above include infrastructure investments in developing countries that will enhance the productivity of local farmers, benefiting the corporation as buyer of their produce and the farmers themselves and their local communities.  Many U.S. companies have spent significant sums on wellness and anti-smoking initiatives for their employees, resulting in a healthier workforce as well as improved loyalty and productivity.  The point is that investment in the well-being of key nonshareholder constituencies—even though costly in the short run—can generate payoffs in the future that justify those expenditures.  Indeed, failure to attend to such considerations may threaten the corporation’s long-run competitiveness.  Seen in this light, a commitment to sustainability has the potential to accomplish significant objectives favored by CSR proponents.

The sustainability model of CSR avoids the standard objections to the constituency model based on shareholder primacy.  Long-run sustainability requires economic success over time.  Strategic investments beneficial to nonshareholders are thus designed ultimately to enhance profits.  The long-run perspective facilitates appreciation of the relevance of future returns on current investments and their potential to promote shareholder value.

Conceived in this way, CSR grounded in sustainability concerns can produce real benefits for nonshareholders.  It is nevertheless important to bear in mind that it still may not do enough to satisfy fully the corporation’s responsibilities to society.  Because it is grounded on cost-benefit analysis, the arguably legitimate interests of nonshareholders will not be served unless, in the long run at least, the corporation will profit from current expenditures.  Furthermore, an approach to CSR that is limited to the corporation’s strategic concerns will not justify philanthropy that cannot be firmly linked to the corporation’s own economic interests.  Accordingly, depending on one’s views about the extent of the business corporation’s social responsibilities, sustainability CSR may not go far enough.

Even accepting these possible shortcomings, there is reason to doubt whether corporate self-interest can be sufficient to generate significant investment in CSR initiatives motivated by sustainability concerns.  The contemporary preference of most shareholders for current returns means that they are likely to be unreceptive to expenditures that reduce quarterly earnings for the sake of potential future payoffs.  In addition to possible questions of speculativeness, this impatience means that investors will discount heavily the value of any such future returns.  This will discourage potentially profitable CSR investments that might otherwise have been made.

* J.B. Stombock Professor of Law, Washington and Lee University.  An earlier version of this Article was presented at the symposium on “The Sustainable Corporation” held at Wake Forest University School of Law in April 2011.  The author is grateful to the symposium participants for their many helpful comments.

[1]. See generally David Millon, Theories of the Corporation, 1990 Duke L.J. 201.

[2]. See David Millon, The Ambiguous Significance of Corporate Personhood, 2 Stan. Agora: Online J. Legal Persp. 39 (2001); David Millon, Personifying the Corporate Body, 2 Graven Images: J. Culture, L. Sacred 116, 116 (1995).

[3]. For a discussion of the concept of the environment as a stakeholder, see generally Robert A. Phillips & Joel Reichart, The Environment as a Stakeholder? A Fairness-Based Approach, 23  J. Bus. Ethics 185 (2000).

[4]. Einer Elhauge, Sacrificing Corporate Profits in the Public Interest, 80 N.Y.U. L. Rev. 733, 763 (2005).

[5]. See, e.g., Da vid Millon, Communitarianism in Corporate Law: Foundation and Law Reform Strategies, in Progressive Corporate Law 1 (Lawrence E. Mitchell ed., 1995).

[6]. See Margaret M. Blair & Lynn A. Stout, A Team Production Theory of Corporate Law, 85 Va. L. Rev. 247, 280–81 (1999).

[7]. See, e.g., E. Merrick Dodd, Jr., For Whom are Corporate Managers Trustees?, 45 Harv. L. Rev. 1145, 1157 (1932) (arguing that management should have regard for the interests of workers and customers as well as those of shareholders).

[8]. For a description of some of these statutes, see Kathleen Hale, Corporate Law and Stakeholders: Moving Beyond Stakeholder Statutes, 45 Ariz. L. Rev. 823, 833 (2003).  For further discussion, see, for example, David Millon, Redefining Corporate Law, 24 Ind. L. Rev. 223 (1991); Lawrence E. Mitchell, A Theoretical and Practical Framework for Enforcing Corporate Constituency Statutes, 70 Tex. L. Rev. 579 (1992).

[9]. Hale, supra note 8, at 833.

[10]. See, e.g., Loft, Inc. v. Guth, 2 A.2d 225, 238 (Del. Ch. 1938), aff’d sub nom. Guth v. Loft, Inc., 5 A.2d 503 (Del. 1939).

[11]. Katz v. Oak Indus., Inc., 508 A.2d 873, 879 (Del. Ch. 1986); see also eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1, 34 (Del. Ch. 2010) (stating that duties of directors “include acting to promote the value of the corporation for the benefit of its stockholders”).

[12]. See Stephen M. Bainbridge, Corporate Law 221–23 (2d ed. 2009).

[13]. Id.

[14]. Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985).  In a later case, the Delaware Supreme Court said that benefits for nonshareholders must be “rationally related” to shareholder interests.  Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 183 (Del. 1986) (“A board may have regard for various constituencies in discharging its responsibilities, provided there are rationally related benefits accruing to the stockholders.”).  Even so, this formulation is vague enough to provide substantial discretion.  For example, management might defend a decision to protect workers by reference to long-run goodwill considerations.

[15]. Paramount Commc’ns, Inc. v. QVC Network Inc., 637 A.2d 34, 48 (Del. 1994).

[16]. Paramount Commc’ns, Inc. v. Time, Inc., 571 A.2d 1140, 1154 (Del. 1989).  For discussion, see Lyman Johnson & David Millon, The Case Beyond Time, 45 Bus. Law. 2105 (1990).

[17]. See, e.g., Stephen M. Bainbridge, Corporation Law and Economics 419–21 (2002); Robert Charles Clark, Corporate Law 17–19, 677–81 (1986); Henry Hansmann & Reinier Kraakman, The End of History for Corporate Law, 89 Geo. L.J. 439, 441 (2001); Jonathan R. Macey, An Economic Analysis of the Various Rationales for Making Shareholders the Exclusive Beneficiaries of Corporate Fiduciary Duties, 21 Stetson L. Rev. 23, 23 (1991).

[18]. The well-known case of Dodge v. Ford, 170 N.W. 668 (Mich. 1919), appears to endorse shareholder primacy in strong terms but in fact this decision has had very little influence on corporate law.  For discussion, see Lynn A. Stout, Why We Should Stop Teaching Dodge v. Ford, 3 Va. L. & Bus. Rev. 163 (2008).

[19]. See, e.g., Michael C. Jensen, Agency Costs of Overvalued Equity, 34 Fin. Mgmt. 5, 8 (2005) (“CEOs and CFOs know that the capital markets will punish the entire firm if they miss analysts’ forecasts by as much as a penny.”).

[20]. See, e.g., The Aspen Inst. Bus. & Soc’y Program, Overcoming Short-Termism: A Call for a More Responsible Approach to Investment and Business Management 2 (2009); Matteo Tonello, The Conference Bd., Report No. R-1386-06-RR, Revisiting Stock Market Short-Termism (2006); CFA Ctr. for Fin. Mkt. Integrity & Bus. Roundtable Inst. for Corporate Ethics, Breaking the Short-Term Cycle (2006).  For a thorough analysis of the short-termism phenomenon that draws on a broad range of economic, business, and legal literature, see Lynne Dallas, Short-Termism, the Financial Crisis and Corporate Governance (Univ. of San Diego Sch. of Law, Research Paper No. 11-052, 2011), available at

[21]. This practice is referred to as earnings management or managerial myopia.  See, e.g., Sanjeev Bhojraj & Robert Libby, Capital Market Pressure, Disclosure Frequency-Induced Earnings/Cash Flow Conflict, and Managerial Myopia, 80 Acct. Rev. 1 (2005); Daniel A. Cohen et al., Real and Accrual-Based Earnings Management in the Pre- and Post-Sarbanes Oxley Periods, 83 Acct. Rev. 757 (2008); David Millon, Why is Corporate Management Obsessed with Quarterly Earnings and What Should be Done About It?, 70 Geo. Wash. L. Rev. 890, 897–900 (2002); Natalie Mizik, The Theory and Practice of Myopic Management, 47 J. Marketing Res. 594 (2010).

[22]. Roger Lowenstein, The Next Crisis: Public Pension Funds, N.Y. Times, June 27, 2010, at MM9.

[23]. See Herbert Kraus, Executive Stock Options & Stock Appreciation Rights 1–2 (1994).

[24]. See generally Rakesh Khurana, From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession (2007).

[25]. For a recent example, see Charles M. Nathan, A 12-Step Program to Truly Good Corporate Governance, The Harv. L. Sch. F. on Corp. Governance & Fin. Reg. (May 18, 2011, 9:26 AM),
/05/18/a-12-step-program-to-truly-good-corporate-governance/ (asserting that the goal of corporate governance is to enhance shareholder value).

[26]. See, e.g., Aneel Karnani, The Case Against Corporate Social Responsibility, Wall St. J., Aug. 23, 2010,

[27]. See, e.g., sources cited supra note 18.

[28]. See Michael E. Porter & Mark R. Kramer, Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility, Harv. Bus. Rev., Dec. 2006, at 11, available at

[29]. Id.

[30]. For Yara’s description of these initiatives, see Agricultural Growth Corridors and African Partnerships, Yara International ASA, (last visited Aug. 30, 2011).

[31]. Id.

[32]. Leonard L. Berry et al., What’s the Hard Return on Employee Wellness Programs?, Harv. Bus. Rev., Dec. 2010, at 104, 105.

[33]. Id. at 105.

[34]. Id; see also Rachel M. Henke et al., Recent Experience in Health Promotion at Johnson & Johnson: Lower Health Spending, Strong Return on Investment, 30 Health Aff. 490 (2011).

[35]. Berry et al., supra note 32, at 106.

[36]. Id. at 112.

[37]. See, e.g., William R. Baber et al., The Effect of Concern About Reported Income on Discretionary Spending Decisions: The Case of Research and Development, 66 Acct. Rev. 818, 818 (1991) (finding significantly lower R&D spending where it would affect reported earnings).

[38]. Ram Nidumolu et al., Why Sustainability is Now the Key Driver of Innovation, Harv. Bus. Rev., Sept. 2009, at 57, 61–62.

[39]. Id. at 62.

[40]. Porter & Kramer, supra note 28, at 88–89.

[41]. Michael E. Porter & Mark R. Kramer, Creating Shared Value: How to Reinvent Capitalism—and Unleash a Wave of Innovation and Growth, Harv. Bus. Rev., Jan.–Feb. 2011, at 62, 67.  For GE’s description of the “ecomagination” initiatives, see Ecomagination, General Electric, (last visited Aug. 30, 2011).

[42]. See Porter & Kramer, supra note 28, at 88.

[43]. Id. at 83.

[44]. Milton Friedman, The Social Responsibility of Business Is to Increase Its Profits, N.Y. Times, Sept. 13, 1970 (Magazine), at 33, 33.

[45]. Comm. Encouraging Corp. Philanthropy, Giving in Numbers 2010 Edition 7, available at

[46]. Id.

[47]. See, e.g., Porter & Kramer, supra note 41; Porter & Kramer, supra note 28.

[48]. See Generally Accepted Accounting Principles in the United States, U.S. GAAP, (last visited Aug. 30, 2011).

[49]. See id.

[50]. See id.

[51]. See Stanley Siegel & David A. Seigel, Accounting and Financial Disclosure: A Guide to Basic Concepts 50–51 (1983).

[52]. See id.  Fixed assets include machinery, buildings, and vehicles. Id. at 50.  The process by which the cost of such assets is allocated over their useful lives is termed “depreciation.”  Id.  A similar process is applied to assets that are actually consumed over time, such as oil reserves or timber, and is referred to as “depletion” rather than depreciation.  Id. at 50–51.  For certain intangible assets like patents, the allocation process is termed “amortization.”  Id. at 51.

[53]. See id. at 52.

[54]. In particular, concerns about uncertainty or materiality may discourage inclusion of forward-looking assertions in the Management’s Discussion and Analysis (“MD&A”) section of the corporation’s annual report.  See generally SEC Focus on MD&A Disclosure, Fenwick & West LLP 1 (2002) (discussing heightened scrutiny of MD&A disclosures of public companies), available at

[55]. See, e.g., D. Gordon Smith, The Shareholder Primacy Norm, 23 J. Corp. L. 277, 277–78 (1998).


By: Matthew T. Bodie*


Slowing down and ultimately reversing global warming is the preeminent global challenge of our time.[1]  The evidence seems clear: the climate is gradually but undeniably heating up, leading to the melting of polar ice caps, rising sea levels, and dramatic changes in global climate patterns.[2]  The global reforms necessary to reduce greenhouse emissions and ameliorate the detrimental effects of rising global temperatures are staggering in scope.[3]  As described by one commentator, preventing disastrous climate change requires us to “fundamentally change business operations in virtually every economic sector as well as individual behavior in many aspects of daily life.”[4]  Given the challenges inherent in such a task, it would seem prudent to follow an “all hands on deck” approach.[5]  Changes in environmental regulations would be the first priority.  But can other areas of law have an impact as well?

The “sustainability” movement looks to incorporate norms of intergenerational equity and balance into our everyday behavior.[6]  On the most basic level, sustainability merely means the capacity to endure.  The sustainability movement seeks to evaluate our capacity to endure as a species and a planet, both now and into the future.  The United Nations report, Our Common Future (commonly called the Brundtland Report[7]), offered the first synopsis of sustainability as follows: “meet[ing] the needs of the present without compromising the ability of future generations to meet their own needs.”[8]  Sustainability is usually thought to focus on environmental issues, and sustainability advocates seek to intertwine environmental concerns with agricultural, land development, and industrial practices.[9]  But there is also some element of social justice to sustainability, as sustainability efforts have focused on developing local agriculture in third-world communities as well as giving workers more of a voice in their employment.

Sustainability proponents argue that corporations should be tasked with integrating these principles into their organizational ethos.[10]  It is not enough that corporations follow the letter of environmental regulations; they must be more proactive in seeking to effectuate beneficial environmental change.  The role of the law is to require, facilitate, or, at the very least, not hamper efforts to develop sustainability practices within corporations.  Rather than requiring strict obeisance to the shareholder primacy norm, corporate law should permit corporations to devote themselves to sustainability in ways large and small.  By encouraging change at the individual corporation level, proponents argue, sustainability is much more likely to grow organically and take root over the longer term.

The purpose of this Symposium contribution is to use an example of one company’s sustainability efforts to fill out the promise and puzzles of bringing sustainability not just to corporations, but to corporate law as well.  The company in question is the National Association for Stock Car Auto Racing, or NASCAR.  NASCAR operates perhaps the most theoretically unsustainable sport in the country: high-performance automobiles racing around a track burning gasoline, oil, and rubber.[11]  But NASCAR has embraced a series of initiatives devoted to sustainability efforts, including using ethanol fuel, planting acres of trees, and implementing a new recycling program.[12]  The company and the sport seem invested in making their collective image more “green.”[13]

NASCAR’s sustainability efforts raise immediate questions about their depth and efficacy.  This Article cannot and will not resolve them.  But the questions are useful in pointing out the difficulties that sustainability proponents will have when it comes to implementing a sustainable corporate law.  Is it enough that a company says it wants to have a focus on sustainability?  If not, how are we to judge the company’s efforts?  If sustainability is to be a component of our corporate law, we need legal standards for sustainability.  One of the features of shareholder primacy that has contributed to its success is its measurability, at least in the short term: the share price shows how the corporation’s agents are doing at returning value to the core constituency.  If sustainability is to replace shareholder primacy, some measure of success (and failure) will be necessary to provide an assessment.  Otherwise, there will be no grounds for legally challenging a company’s rhetoric.

This Article also seeks to press a little harder on the scope of sustainability beyond environmental matters.  As someone who is relatively new to the literature, I see sustainability as a way of conceiving our obligations to the planet and to future generations.  This conception is most meaningfully promoted through efforts aimed at reducing pollution and greenhouse gases, improving recycling, and conserving resources.  However, the sustainability literature also purports to include social justice components beyond environmentalism, such as caring for other stakeholders in the corporation.[14]  The focus on “future generations” is read to imply an obligation to create a better world—not just environmentally, but socially as well.  In the corporate law context, sustainability advocates have thus far linked up with the “stakeholder theory” of corporate governance to argue against shareholder primacy.[15]

The example of NASCAR points to some of the tensions in this marriage of theories.  NASCAR is a closely held corporation.  It is well known for the lack of participation in its internal governance.[16]  On the other hand, NASCAR is incredibly participatory when it comes to working with its external corporate partners.[17]  The success (however defined) of its green initiatives has come from its ability to leverage its position in the sport to bring in other participants, such as tracks, teams, and particularly sponsors.  The upshot is that perhaps sustainability advocates should be less concerned about sustainability efforts within a firm and more concerned with sustainability efforts across industries.  By making sustainability an interfirm endeavor, rather than an intrafirm endeavor, sustainability is more likely to sustain itself over the long term.

I.  Sustainability and Structure

At its core, sustainability seems to be simply about the ability to sustain—or, perhaps, survive.  It is about taking a long-term approach to culture and economics.  It calls upon the present generation to consider the next generation, as well as the one after that, and after that.[18]  The concept of sustainability is most naturally applicable to environmental issues.  Environmental regulations seek to protect and preserve natural resources for our own use as well as the use of future generations.[19]  There are, to some extent, varying goals within the environmentally “friendly” community: some environmentalists seek to preserve vast tracts of land for their natural beauty, while others may seek to preserve natural resources for future consumption.  When we speak about environmental law, however, we generally mean those legal regimes that concern the state of the air, land, and water.[20]  Environmentalists seek to preserve these natural places and resources so that they may be enjoyed now and on into the future.  This orientation toward the future is at the heart of sustainability.

The extent to which sustainability goes beyond environmental issues is unclear.  Some descriptions of sustainability sound very much like simply a “green” or environmental program.[21]  Most conceptions of sustainability, however, go beyond that.  The “triple bottom line” approach to business asks companies to look at three ways of calculating their success: traditional financial performance, social responsibility, and environmental responsibility,[22] or “profit, people, and planet.”[23]  The inclusion of social responsibility fosters a sense that sustainability is also about sustaining a vibrant human community.  Thus, organizations like the Fair Trade movement seek to support not only organic and environmentally friendly farming but also farmers in third-world countries who engage in sustainable farming practices.[24]  Poverty wages, child labor, and the prohibition of unions are seen as “unsustainable” because they do not contribute to long-term human flourishing.[25]  People must not only have a safe and healthy environment; they must also be able to provide for themselves and their families within that environment.

In the context of corporate law, sustainability has to this point been closely associated with the ideas of corporate social responsibility (“CSR”) and stakeholder governance.[26]  Both CSR and stakeholder governance are oppositional concepts to shareholder primacy, which asserts that the only purpose of the corporation is to return profits to its shareholders.  CSR looks more naturally to the world outside the corporation, particularly the community and environs.[27]  The treatment of the environment would generally be included within any definition of social responsibility.[28]  While the CSR movement asks the corporation to look outside of itself, stakeholder governance looks to bring these outside concerns into the organization.[29]  The stakeholder approach asserts that the corporation must allocate its governance among those groups with a stake in the corporate proceedings.  But both CSR and stakeholder governance theorists assert that the corporation must look beyond the return to shareholders in judging its success.[30]  And both groups have more structural concerns about how corporations and other business entities should be managed and run.

The “weak” end of the CSR and stakeholder governance spectrum simply asserts that shareholder primacy is not required under corporate law.  Although acknowledging the noise generated by Milton Friedman[31] and Dodge v. Ford Motor Co.,[32] there is relatively little corporate law substance that can be said to require a shareholder primacy approach.[33]  CSR and stakeholder theorists wish only to amplify this notion and to ensure that the corporation and its board govern with the various constituencies in mind.  The primary legal instantiation of the constituency model has been the state corporate constituency statute.  These statutes, adopted in over half of the jurisdictions, expressly allow boards to consider the needs of constituencies other than shareholders in making corporate decisions.[34]  However, these statutes do not require that boards take these other groups into account; there is no legal accountability for failing to do so.[35]  From a legal perspective, these statutes simply insulate boards from derivative actions claiming the boards have failed to account for shareholder interests.[36]  As a result, even progressive scholars have expressed doubt about their efficacy.[37]  Other than constituency statutes, there has been little in the positive corporate law that directly seeks to advance the cause of CSR or constituency theory.[38]

When it comes to defining their purposes, corporations are largely allowed to conduct their own internal affairs without oversight or second-guessing in the form of a lawsuit.[39]  There are important but limited exceptions—for example, when the board has committed to the sale of the company and entered “Revlonland.”[40]  By and large the battlefield is not in the courts, but in the boardrooms.  And shareholder primacy had been making gains there since the 1980s.[41]  It may have been accurate in the 1980s to claim that the shareholder primacy norm “often means little in the complex reality of governance.”[42]  Recent studies of director behavior, however, have found that most directors now see enhancing shareholder value as their primary role at the company.[43]  This research echoes the academic and popular conception that shareholder primacy is now the dominant mindset of the boardroom.[44]

And of course, shareholders have several important structural features to their advantage.  Even if directors need not—as a legal matter—pursue the best interests of the shareholders above all else, they are elected by those shareholders.  Although much of twentieth century corporate law was spent lamenting the separation of ownership and control, that separation has narrowed.  It is still exceedingly difficult for disgruntled shareholders to mount an election campaign, but there has been considerable movement on efforts to make this easier.[45]  In addition, shareholders can signal their displeasure with a vote to “withhold.”[46]  Although bereft of legal effect, a substantial vote to withhold can achieve its intended results through shame.[47]  Shareholders are also the only parties with standing to bring derivative actions against the board or officers.[48]  Fiduciary duties may extend to the corporation as a whole, but only shareholders can sue to enforce those duties.  Finally, shareholders can sell their voting rights en masse in the market for corporate control.  Although many states, including Delaware, have given the board the ability to erect defenses against hostile takeovers, the ultimate voting control of the shareholders will push many companies into sales even with an initially reluctant board.[49]

Thus, the CSR and stakeholder rights advocates are currently at a crossroads.  They must choose between a weak but easier-to-swallow agenda that corporate law does not meaningfully constrain corporate actors to maximize share value or a more radical approach that would provide actual legal powers to nonshareholder constituents.[50]  This weaker agenda appears to be a correct assessment of current corporate law: the rational apathy of shareholders, combined with the business judgment rule, allows directors and officers to manage the corporation within a wide range of permitted activity.  However, even if shareholder primacy is not required, corporate permissiveness is a rather thin gruel as a program for changing the world.  Even so, the alternative—enacting substantive changes to corporate law that favor corporate stakeholders other than shareholders—seems daunting.  There have been recent examples of stakeholder successes: the adoption of constituency statutes in new states,[51]as well as the creation of the B Corporation.[52]  But these approaches are largely toothless, while the major reform statutes such as Sarbanes-Oxley and the Dodd-Frank Act have provided for greater substantive shareholder power.[53]

Looking at the muddled state of the CSR movement, sustainability advocates have a dilemma as well.  Do they link up with the CSR and stakeholder rights theorists and push for the inclusion of environmental and social concerns as part of the stakeholder agenda?  Or do they carve out their own path and establish a new “brand” within corporate law?

II.  NASCAR and Sustainability

Some corporations have sustainability in their DNA: Whole Foods, Patagonia, Green Mountain Coffee Roasters.[54]  NASCAR would not be one of those.  But if sustainability is to become important in our economy and society, it must move beyond the niche businesses and into the mainstream.  The example of NASCAR shows not only the potential for sustainability successes but also the challenge for sustainability moving forward.

A.            NASCAR History and Structure

NASCAR can trace its roots to moonshine.[55]  In the early twentieth century, moonshine runners began using modified stock cars to transport their illegally-produced whiskey and outrun government agents in hot pursuit.[56]  These moonshine runners were skilled drivers, and they became interested in competing with each other; soon, stock car races began popping up around the South.[57]  These high-speed races began to draw significant crowds, and promoters offered purses to get the drivers to race at their tracks.[58]  However, the sport was extremely disorganized, with different rules at each track and shady promoters left to their own devices.[59]  “Big” Bill France Sr., a Daytona Beach service station operator and track promoter, changed all that.  France wanted to create a national sanctioning body to oversee the sport, create uniformity between the tracks, and look out for the interests of the participants as well as the spectators.[60]  In December 1947, France organized a meeting of thirty-six race promoters in Daytona Beach,[61] and after three days of meetings, the National Association for Stock Car Automobile Racing was born.[62]  NASCAR held its first race on the hard- packed sands of Daytona Beach two months later.[63]  Within a week NASCAR became officially incorporated, with Big Bill serving as both President and majority stockholder.[64]

In the beginning, similar to other sanctioning bodies of the day, NASCAR allowed races that included “modified” cars, or older model cars that had been fitted with newer and better parts for racing.[65]  However, France wanted to set NASCAR apart from the competition by sanctioning stock car races which featured production models that any fan could buy at a local dealer.[66]  With modifications to the cars no longer allowed, the NASCAR stock races would emphasize driver skill instead of better machinery.[67]  In 1949, NASCAR’s first race dedicated solely to stock cars took place on a dirt track in Charlotte, North Carolina, at what would become Charlotte Motor Speedway.[68]  In an early show of organizational muscle, the first driver to cross the finish line was disqualified for modifying his car with illegal rear springs.[69]

NASCAR continued to grow in the 1950s and 1960s, with the opening of the first paved speedway in Darlington, South Carolina,[70] as well as the expansion of its races north into Michigan and west to Arizona and California.[71]  The major automobile manufacturers began pumping money into the sport in what would become known as the “factory wars.”[72]  Ford, GM, and Chrysler thought having successful NASCAR entrants would help sales, and they spent millions trying to make sure their cars were the best.[73]  Detroit’s support helped legitimize the sport in the eyes of major corporate sponsors.[74]  Although the factory wars had grown more peaceable by the end of the decade, in 1971 the tobacco company R.J. Reynolds sponsored NASCAR’s premier division, and the name was changed to the Winston Cup.[75]  The title sponsorship was worth $100,000, and R.J. Reynolds spent another $150,000 on the race at Talladega, which became the Winston 500.[76]  R.J. Reynolds’s involvement ushered in the strong corporate presence in NASCAR that remains today.[77]

NASCAR has grown into one of America’s most popular sports.  Its fan base is estimated to be seventy-five million strong, placing it second only to the NFL.[78]  Six million people attend NASCAR races each year with another 275 million watching on television.[79]  In 2005, NASCAR signed an eight year, $4.8 billion TV deal with Fox/SPEED Channel, ABC/ESPN, and TNT.[80]  And Nextel recently paid $750 million for the naming rights to NASCAR’s premier division,[81] now called the Sprint Cup.[82]

Although “NASCAR” is often used as a term to describe the sport of U.S. stock car racing, it is actually a privately held company that serves as the sport’s sanctioning body.  In this capacity, NASCAR sanctions the races that make up the stock car season and sets the rules and regulations of the sport.[83]  NASCAR’s governance of the sport is characterized by absolute control, which has drawn comparisons to a dictatorship.[84]  This tight control of the sport comes from the limited control and participation in the NASCAR decision-making process.[85]  Participants in NASCAR’s stock car racing series must pay a membership fee to NASCAR; however, membership does not give them any share in control of NASCAR or participation in decision-making processes.[86]  Instead, NASCAR—which is still owned and controlled by the France family—has the final and exclusive say over every aspect of the sport.[87]  The company controls the schedule of sanctioned races;[88] the rules, including not only the rules for races but also exact specifications for car design and equipment;[89] sponsorship for the sport as a whole, including certain exclusive sponsors;[90] and broadcasting and licensing rights.[91]  This combination of a very small ownership group (essentially, the France family) and a very big scope of authority is unprecedented in major U.S. sports.[92]

NASCAR sits at the center of a constellation of relationships that make up the sport as a whole.  Track owners provide the physical locations for the races, and they manage ticket sales, concessions, racing accommodations, and prize money.[93]  There are three major corporations that own tracks that host Sprint Cup races: Dover Motorsports, Speedway Motorsports Inc. (“SMI”), and International Speedway Corp. (“ISC”).  ISC is the biggest, owning thirteen major racetracks which hosted twenty-one Sprint Cup races in 2010.[94]  It is also controlled by members of the France family; ISC’s president is the sister of Brian France, the current president of NASCAR.[95]  In fact, the two companies even share the same office building in Daytona, Florida.  These close associations have led to several antitrust suits against NASCAR and ISC.[96]

Although NASCAR races are competitions between individual drivers, the drivers themselves are hired by teams to compete on the teams’ behalf.  A NASCAR race has forty-three starting spots and in 2011, those spots were filled by cars coming from thirty-one different team owners.[97]  Some owners field only one team or car while others have multiple cars.[98]  Unlike many of the major professional sport leagues, there are no franchises in NASCAR; instead, teams compete in races on an independent basis.[99]  Similarly, the drivers are considered independent contractors of the teams themselves.[100]  Unlike the other major sports leagues, in stock car racing there is no collective bargaining agreement or union for the drivers.[101]  NASCAR rebuffed efforts by the drivers to form a union in the 1960s and 1970s; it gave two drivers lifetime bans for unionization efforts[102] and used replacement drivers in the 1969 Talladega 500.[103]  NASCAR’s free-enterprise system enables drivers to negotiate new contracts with new teams at any time, even while they are still in an existing contract.[104]  Their contracts provide for compensation through a base salary, a percentage of their winnings, incentives, and typically a third of the profits from sales of licensed merchandise bearing their identity.[105]  On top of their contracts with the team owners, drivers can stand to make substantial sums of money from endorsements.[106]  Top drivers Dale Earnhardt, Jr. and Jeff Gordon earned $23 million and $16 million respectively in 2009, just in endorsements.[107]

Sponsorship drives NASCAR more than any other professional sport.[108]  Sponsorships alone generate over $1 billion in revenue for NASCAR.[109]  There are three levels of sponsorship in the sport: NASCAR as a licensing body (e.g., “the official beverage of NASCAR”), the sponsorships at the tracks, and the sponsors of the cars themselves.[110]  However, sponsorships are probably most critical for the individual teams, which require roughly $20 million to operate.[111]  NASCAR fans have a strong reputation for brand loyalty: a recent study indicated NASCAR fans are 76 percent more likely to buy the product of a NASCAR sponsor than from a non-sponsor.[112]  NASCAR sponsorship is also attractive for its corporate hospitality events, as the sport provides unique access for its sponsors.[113]

Stock car racing is considered to be a free-wheeling exercise in individual competition.  As Geoff Smith, president of the Roush Racing team, said, “The whole NASCAR business environment is characterized by unrestricted free agency and free enterprise and rampant capitalism in every aspect of this sport.”[114]  Robert Hagstrom, manager of the Legg Mason Focus Trust Fund, echoed the sentiment: “In racing, each person works like an entrepreneur.  They succeed or fail on their own ability.  The capitalist model will always beat the socialist model.”[115]  However, this openness contrasts with the extremely tight control exercised by the France family.  Jack Roush, the owner of Roush Racing, has said of the Frances: “If you want to be a part of their circus . . . you have to play by their rules.”[116]

B.            NASCAR’s Green Initiatives

Since 2008, NASCAR has unveiled a series of programs to promote a “greener” or more environmentally friendly approach to the sport.  It began with the hiring of Mike Lynch as its new managing director of “NASCAR Green Innovation.”[117]  NASCAR’s goal for its Green Innovation program was to “lay out a comprehensive green strategy across all the activities of the sport” and “to have substantial and meaningful reduction in the environmental impact of the sport, while also being initiatives that our fans would resonate to in the right way.”[118]  These goals provide the framework for NASCAR’s green program: help the environment but also keep fans (and sponsors) happy.

Perhaps the most significant green initiative is the sport’s use of a new, more environmentally friendly fuel.  In 2011 NASCAR began using Sunoco GreenE15, a 15% ethanol blend made with American-grown corn.[119]  The fuel blend is touted by NASCAR as fostering U.S. energy independence while at the same time not diminishing performance.[120]  Thus far, the use of the ethanol fuel has generated few waves in competition.[121]  Although Sunoco GreenE-15 comes in part from NASCAR’s longstanding partnership with Sunoco as the official fuel of NASCAR,[122] the move to ethanol fuel coincided with a new partnership with U.S. ethanol producers as a whole.[123]  NASCAR CEO Brian France said of the partnership:

American Ethanol’s new partnership with NASCAR is much larger and more ambitious than a typical sports sponsorship.  Here we have an entire industry looking to NASCAR to communicate its message that America is capable of producing its own renewable, greener fuel.  The entire NASCAR industry will benefit from American Ethanol’s multi-faceted support of NASCAR, as well as from thousands of farmers and members of the ethanol supply chain now serving as new ambassadors for the sport.[124]

Right around the same time as NASCAR’s announcements, the Environmental Protection Agency announced that it would waive its restrictions on the use of E15 fuels.[125]  Although several more regulatory steps are necessary for E15 to be used by consumers, the EPA’s decision paves the way for E15’s introduction to the general public.[126]

In 2009, NASCAR announced a new program entitled “NASCAR Green Clean Air.”  In an attempt to reduce the environmental footprint of the sport and raise awareness of conservation among its fans, NASCAR pledged to plant ten trees for every green flag dropped during participating Sprint Cup Series events.[127]  The number of trees was calibrated to mitigate 100% of the carbon emissions produced by the race cars competing in each race.[128]  The program is expected to run for five years, during which time twenty acres of new trees will be planted each year.[129]  Officials from NASCAR, ISC, and the Daytona International Speedway helped plant 110 trees in April 2011 at the Daytona Beach International Airport.[130]  The Volusia County Chairman, Frank Bruno,  stated: “This event is a great showcase of community involvement in being green.  I applaud NASCAR and [Daytona International Speedway] for their substantial green efforts.”[131]

Recycling is also a big part of NASCAR’s sustainability efforts.  The company has partnered with its tracks as well as with Coca-Cola Recycling to process over eighty tons of waste and 2.5 million containers in 2009.[132]  In 2010, Coors Light, Office Depot, and UPS joined in to expand the program to include grandstands, concourses, suites, garages, and campgrounds.[133]  Office Depot was the lead partner in overall race-weekend efforts, while Coors Light focused on the speedway campgrounds, and UPS headed up the cardboard recycling initiative.[134]  NASCAR’s Lynch stated:

Each of these Fortune 500 companies are coming together to take on components of the recycling process relevant to their businesses.  We want to thank Office Depot, Coors Light and UPS for joining this unique and impactful consortium that broadens an event recycling program which is already the biggest in sports.[135]

These recent efforts join longstanding recycling programs for tires (with Goodyear), as well as oil, brake fluid, and other solvents (as managed by Safety-Kleen).[136]  In addition, NASCAR has a recycling effort underway at its offices, and two newly constructed buildings in Charlotte and Daytona Beach are LEED certified.[137]

One of the biggest sustainable stock car efforts comes not from NASCAR itself, but from one of its partners in the sport.  Pocono Raceway, an independently owned track, has installed a twenty-five-acre, three-megawatt solar farm.[138]  The power generated by the farm is sufficient not only for the track itself but also for one-thousand nearby homes.[139]  By December 2010 the farm had generated over one million kilowatt hours of electricity.[140]  Although not a project of NASCAR itself, current NASCAR CEO Brian France praised the solar installation:

This meaningful green project reflects the NASCAR industry’s collaborative approach to preserving the environment and highlights Pocono Raceway’s significant contribution as the first major U.S. sports venue to go green with 100% renewable energy.  We encourage other tracks and sponsors to follow this lead in making sustainable programs and renewable energy a continued priority for the sport.[141]

One NASCAR team has also taken up the sustainability mantle.  In 2009, the Hall of Fame Racing team joined up with, a supplier of accessories for hybrid cars and trucks, to offset the carbon footprint for the No. 96 car.[142]  Both and, the car’s primary sponsor, were to purchase carbon credits sufficient to offset the carbon emissions for the year.[143] CEO Paul Goldman stated:

As a hybrid automotive accessories business that really cares about the environment, we are excited to expand our green initiative into NASCAR with the support of, Hall of Fame Racing and Ford. . . . Not only does this initiative allow us to offset the carbon emissions of the No. 96 team, but it provides us a platform to bring this vital message to the attention of NASCAR’s 75 million fans.[144]

Overall, NASCAR has been praised for its sustainability efforts.  Because it is a privately held company, it is not eligible for listing on the Dow Jones Sustainability Index or other green- or CSR-related investment sites.[145]  However, as reflected in its initiatives as well as its rhetoric, NASCAR wants to be seen as a green company and a green industry.[146]  This concern for sustainability is reflected in its fans.  A recent survey found that 77 percent of NASCAR fans believe in a personal obligation to be environmentally responsible; 65 percent agree that companies should help consumers become more environmentally responsible; more than eighty percent of NASCAR households recycle; and approximately forty percent use energy efficient light bulbs (more than double the amount just five years earlier).[147]  Whether a cause or an effect of NASCAR’s green efforts, the fans’ interest in sustainable practices shows the importance of those practices to the sport.[148]

III.  NASCAR, the Firm, and the Problem of Sustainability

The hope for the sustainability movement is that it will cajole, nudge, or push firms into more sustainable practices without cumbersome or loophole-riddled environmental legislation.  The example of NASCAR provides some hope that firms will voluntarily adopt significant sustainable practices.  However, it also points up some of the difficulties in staking out the boundaries of sustainability when it comes to corporations themselves as well as the corporate law that creates them.

A.            Judging Corporate Sustainability

How do we judge the success of NASCAR’s sustainability efforts?  As a matter of first impression, NASCAR’s “Green Innovation” program has notched some notable successes.  Its change to E15 ethanol fuel will save on petroleum consumption and may make the fuel more palatable to consumers.  Its tree-planting program endeavors to offset the carbon emissions for the entire sport, and its recycling program reaches into every aspect of the racing experience.  NASCAR partners have also joined in the effort; most notably, the Pocono Speedway created a huge solar farm that powers the entire facility along with one-thousand nearby homes.[149]  Although praise has been somewhat muted, NASCAR’s efforts have been recognized as important steps toward greater sustainability.[150]

The mere recognition of sustainability as an important goal might be considered a significant victory in itself.  The sustainability movement is, at least in part, about changing mindsets to recognize the fragility of the environment and to consider future generations.  And indeed, given NASCAR’s modus operandi, it is somewhat surprising to see the company embrace green efforts at all.[151]

But it is unlikely that sustainability advocates believe it is enough to simply espouse the rhetoric.  After all, BP invested significant sums in its environmentally friendly image, only to see it clouded over with the oil spilling out of its well.[152]  The resulting disconnect between BP’s green image and its spotty safety and environmental record has prompted calls to make BP (and companies like it) liable for misrepresentation when its rhetoric does not match reality.[153]  But moving beyond rhetoric into substantive standards raises a host of difficulties.  The first, and most obvious, set of standards would be whether the company obeys the existing laws.[154]  But “sustainability” is about more than simple compliance.  It is about an ethos of going beyond what is legally required.  The movement should endeavor to reward those firms with stronger sustainability efforts and punish those with weaker ones.  To do this, some sort of baseline, some manner of measuring stick, is necessary to judge sustainability efforts.

NASCAR illustrates the problem of establishing a baseline.  First off, do we judge NASCAR the company or NASCAR the industry?  The company has an extremely important role to play in the industry as a whole.  But its efforts all involve some degree of cooperation or even delegation to its partners.  The rules requiring E15 fuel impose sustainability on the NASCAR teams that enter the race.[155]  Recycling programs are partnerships with local tracks and race teams, as are the tree-planting efforts.[156]  The solar-powered farm is owned by the Pocono Raceway, which has no ownership ties to NASCAR itself.[157]  The sustainability efforts that involve NASCAR the company, and only NASCAR, are limited to LEED certification for NASCAR buildings and the NASCAR offices’ recycling program.[158]  To the extent NASCAR’s efforts are remarkable, they involve the industry as a whole, rather than just the company.

Next, to whom or what do we compare NASCAR’s sustainability efforts?  The most obvious comparison would be to other motor sports industries, such as IndyCar[159]and FIA.[160]  In 2007, IndyCar (known at the time as the Indy Racing League, or IRL) transitioned its racers to 100% ethanol fuel.[161]  In contrast, the FIA requires that at least 5.75% of its fuel must be made of biocomponents, such as cellulosic ethanol or biogasoline.[162]  NASCAR’s ethanol initiatives seem to pale in comparison to IndyCar, and in fact IndyCar’s change may have prompted NASCAR’s move.[163]  Prior to the change, however, IndyCar racing had been using methanol, an alcohol-based fuel that is made from natural gas.[164]  Since open-wheel cars had been using methanol in the U.S. since the 1970s,[165] the transition to ethanol was much easier.  Stock cars are designed to be much closer to the automobiles driven by consumers, making an entirely ethanol-based product less saleable.[166]  One could argue that NASCAR’s endorsement of E15 will be better for the environment, since it is much more likely to be used by consumers in the short term.[167]  So while 100 percent seems to beat 15 percent, NASCAR’s program seems designed to have a broader effect than IndyCar’s.

The other major sports leagues have sustainability programs similar to NASCAR’s.  Several stadiums have installed solar panels, including the Staples Center in Los Angeles (home to professional basketball and hockey teams) and AT&T Park in San Francisco (baseball).  But these efforts are dwarfed by the Pocono Speedway installation; the Staples Center has 1700 solar panels, compared to Pocono’s 40,000, and Pocono puts out three megawatts of electricity, while AT&T Park only creates 120 kilowatts.[168]  The NFL has sought to offset the carbon created by the Super Bowl by planting trees and buying carbon credits.[169]  But NASCAR has sought to plant enough trees to offset the entire season.  The NBA celebrates a special “green week,” but the biggest aspect of the promotion seems to be the wearing of green uniforms.[170]  Again, however, it is hard to tell whether the concrete steps are more or less important than the cultural and ideological change these initiatives are trying to initiate.  To that extent, a program like the NBA’s may have less tangible effect on the environment but may be more effective in getting people to take green issues to heart.[171]

As mentioned earlier, NASCAR is not a publicly traded company, so it cannot be listed on one of the “green” or CSR indexes for public investors.[172]  Moreover, even if it were eligible, it is not clear that NASCAR would have earned a place there.  One example of such a list is the Corporate Knights Top 100 Most Sustainable Companies.[173]  The Corporate Knights, a Toronto-based media company, took 3000 publicly-traded companies, narrowed them down to 300 “based on financial performance and other criteria,” and then ranked those 300 “based on 10 environmental, social and governance performance metrics, including energy productivity, waste productivity and CEO-to-average-worker pay ratio.”[174]  The list was topped by Statoil, the Norwegian oil and gas producer, which performed well on water productivity and board diversity metrics.[175]  Last year’s number one company, General Electric, dropped to eleventh because other companies outstripped its carbon and energy productivity.[176]  And PG&E dropped forty-eight places because it scored lower on board diversity and taxes.[177]

CSR or sustainability lists like the Corporate Knights 100 show some of the perils of judging sustainability across industries.  The companies listed have wildly different metrics for leadership diversity, carbon productivity, and percentage of taxes paid, but somehow these factors are assigned different weights and collated into a top-100 list.  When it comes to cars or universities, slight changes in the weights given to various factors produce very different rankings.[178]  The inclusion of BP in many of these CSR lists (as well as law review articles on CSR) makes one even more skeptical about their categorical wisdom.[179]  Moreover, these lists tend to lump a variety of different factors into their calculations, such as corporate governance metrics, philanthropy, and even financial performance.[180]  Transparency is a “prerequisite” to being on the list, as the numbers cannot be crunched without it.[181]

NASCAR in its current form would have very low transparency and corporate governance factors.  It is closely held, privately owned, family run, and lacking in transparency.  It would surely score low on most corporate-governance metrics.  But those characteristics are separate and apart from its ability to adopt environmentally supportive practices and leverage those practices across the stock-car racing industry.  In fact, it is NASCAR’s “dictatorial” structure that gives it the immense power it has—for good or ill.  To the extent NASCAR seeks to promote green efforts, its structure will allow those efforts to be more quickly and efficiently adopted.  It is hard to know how much weight the non-environmental factors would be assigned in contrast to its environmental programs.  Indeed, it is hard to know how NASCAR’s environmental programs would be assessed as well.  Would they be measured in contrast to prior NASCAR practices?  In contrast to IndyCar or the NBA?  Or would they be measured against some average across all corporations?  And raising these questions provides no easy answers.  Is it enough that NASCAR has made racing more “green” when there is more that can be done?  Can NASCAR—a sport that is based on burning fuel at high speed, risking human lives merely for entertainment—ever really be considered sustainable?

And that brings me to my final challenge to sustainability advocates when it comes to a definition of the term in the corporate context.  The term “sustainability” most directly means the ability to survive.[182]  NASCAR has demonstrated terrific sustainability, if that means the ability of the corporation (and the industry) to survive and thrive over time.[183]  In the context of the corporate sustainability movement, however, sustainability more likely means the ability of humanity to survive and thrive over time.  Should a corporation disregard the first meaning and adopt only the second?  After all, a corporation is merely a tool—a legal instrument enabling a group of people to cooperate over time.  It makes sense that some corporations should see their own demise as a means of carrying out greater sustainability for humanity.[184]  But then how do we judge those corporations?  And is NASCAR one of them?  Should NASCAR be looking for a way to put itself out of business?

B.            Judging Corporate Law Sustainability

The problem of defining and then measuring sustainability is not a new one, and NASCAR is only one example of the difficulties in judging the sustainability of a particular company.[185]  This Article’s primary concern, however, is with the role of sustainability in corporate law.  NASCAR’s sustainability efforts point up some of the problems, not only with defining sustainability at the corporate level, but also with incorporating sustainability into corporate law.

To the extent NASCAR has been a sustainability success story, it is due not to its own solitary, internal efforts, but rather its ability to partner with other corporations.  Its ethanol program comes from partnering not only with an ethanol producer (Sunoco), but also a multi-year partnership with the ethanol industry’s trade group.[186]  NASCAR works with local tracks in carrying out its tree-planting program, and it has a variety of corporate sponsors with whom it shares recycling responsibilities.[187]  Stock car racing’s most prominent green initiative is the solar farm of Pocono Raceway.[188]  NASCAR’s green efforts are partnerships between entities, rather than the internal workings of one.

Corporate law theorists have largely worked with the corporation as the unit of analysis and measurement.  This focus makes sense, as corporate law is primarily about the internal structure of an individual corporation.  Certain “sustainability” factors have a lot to do with the internal structure of the corporation, such as its approach to corporate governance and the diversity of its leadership.  Other factors do not have much to do with corporate law, as currently constituted, but could be seen as matters of internal governance that corporate law could incorporate.  I am thinking here primarily of those efforts to change corporate law’s structure to accommodate employees and, to a lesser extent, other firm stakeholders.[189]  However, still other sustainability factors deal primarily with a firm’s business, rather than its corporate structure.  These matters—such as taxes, workplace safety, and environmental concerns—apply across corporations as well as other business law structures (such as LLCs and partnerships).  They are not really matters for corporate law.

Sustainability advocates may resist this characterization.  After all, the very core of the sustainability norm is to build those principles into the corporate DNA.  But any effort to put sustainability into corporate law must attempt to define sustainability and then impose it across all corporations.  It is easy enough to make clear that shareholder primacy is itself a rather weak and unenforceable norm, and leave corporations to their own devices.  But I do not think much more than that could be done.  At most, perhaps, states could add a new form of organization that would be purportedly limited to sustainable corporations[190] or allow existing shareholders to incorporate a sustainability norm into the corporation’s charter.[191]  While these reforms would help change existing norms about the corporate purpose, they do not seem too likely to create actual legal incentives for companies to act more sustainably.  They would likely either reinforce a norm that already exists or be neglected and forgotten.  Other efforts at corporate reform, such as providing voting rights to employees, might be characterized as “sustainable.”  But such a characterization would only illustrate (in my view) the fungibility of the term.

NASCAR is a privately held, family owned company.  It is utterly not transparent.  It is viewed within its sport as a “dictatorship.”[192]  In the past, it has taken steps to make sure that its drivers could not organize or join a union.[193]  It has been accused of using monopoly power to direct races to another corporation owned and controlled by the same family.[194]  But it has taken steps toward making its sport more environmentally friendly and sustainable as a matter of planetary survival.  These steps illustrate the types of voluntary corporate activities that sustainability advocates support.

With this in mind, this Essay makes two suggestions to corporate law sustainability advocates.  First, define sustainability in a way that focuses on environmental concerns.  My sense of the literature is that “sustainability” falls somewhere between “green,” which is purely environmental, and “CSR,” which includes environmental concerns as one of many “social responsibilities.”  Arguably, there is no need to add sustainability to our linguistic mix if it simply means one of these two things.  When it comes to the need to “sustain,” the life of humanity on the planet trumps all other sustainability concerns.  When using the term, sustainability advocates should focus on efforts to sustain the planet through environmentally friendly practices that can serve humanity over the longer term.[195]  Concerns about board composition, taxes paid, or even worker empowerment should not dilute the “sustainability” brand.[196]

Second, I would encourage sustainability advocates to focus their efforts on environmental regulations and tax policies that encourage green practices, rather than focusing on corporate law.  Corporate law structures the corporation; it establishes voting rights, power structures, fiduciary duties, and derivative actions.[197]  It generally has little to say about the actual business of the corporation.[198]  Sustainability, on the other hand, is all about encouraging sustainable business practices.  These practices can be mandated by environmental laws or encouraged through tax laws.  At most, corporate law can allow for such practices to be adopted.  And—for the most part—it already does.

I do not mean to downplay the importance of norms.  In fact, I mean to assert the opposite: the changing social norms about the importance of sustainability are far more important to the environment than corporate law ever could be.[199]  It is those changing norms that drive companies to act sustainably in the first place.  NASCAR is a great example.  It is the importance of sustainability as a social norm that is driving NASCAR to act more sustainably.[200]  And NASCAR is not acting on its own; it is joining hands with its many corporate partners to leverage sustainable practices across as wide a swath as possible.  Certainly, the temptation is to get more publicity than the underlying practices warrant.  But sustainability is not something that these corporations are pursuing individually; they are practices that reach across corporate boundaries and change entire industries.  Tax breaks and environmental regulations are ways to encourage or push for these changes more directly.  Corporate law is peripheral.[201]

Corporate law commentators tend to think of the corporation as an individual silo of activity, with shareholders, directors, officers, and other stakeholders interacting within the firm to create economic activity.  The example of NASCAR shows that the corporation may not be the appropriate level of granularity when it comes to sustainability efforts—or perhaps economic regulation more broadly.  NASCAR is an example of the “imbedded corporation”—a firm working within a complex set of partnerships, contracts, and other economic arrangements.  Sustainability makes sense within this framework.  Perhaps ultimately we will decide that rather than importing sustainability into the closed world of corporate law, we need to look beyond the corporation in regulating the basic structures of our economy.


Global climate change is a massive problem, and it calls for massive efforts to combat it.  In looking to make our world and our economy more sustainable, we may need to rethink some of our basic institutions, structures, and norms.  However, we also must not overlook that the problem is, at root, a straightforward one: we need to reduce our carbon emissions.  NASCAR has taken some important steps to bring down its overall carbon footprint and make its sport more sustainable.  These efforts are of the type—if not the extent—of reforms that sustainability advocates would like to see across the economy.  But they are the result not of one firm acting on its own, but rather collaborative efforts between NASCAR and its many partners.  Corporate law dictates the structure and allocation of power and profits within the corporation; it has little to say about interfirm dynamics.  At least for the near future, sustainability will likely have much more to do with corporations than it does with corporate law.

* Professor and Associate Dean for Research and Faculty Development, Saint Louis University School of Law.  I am grateful to Alan Palmiter, Dean Blake Morant, and the Wake Forest Law Review for the opportunity to participate in this Symposium.  Many thanks to John Orbe, Michael Ross, and Michael Kruse for their research assistance.  I am also grateful to Saint Louis University School of Law for summer research funding in support of this project.

[1]. See, e.g., Jonathan H. Adler, Eyes on a Climate Prize: Rewarding Energy Innovation to Achieve Climate Stabilization, 35 Harv. Envtl. L. Rev. 1, 2 (2011) (“Global climate change is a terribly vexing environmental problem.”); Jeffrey Rachlinski, The Psychology of Global Climate Change, 2000 U. Ill. L. Rev. 299, 300 (“The worst-case scenarios projected by the scientific community are biblical in proportion.”); Prospect of Limiting the Global Increase in Temperature to 2° C Is Getting Bleaker, Int’l Energy Agency (May 30, 2011), (“The challenge of improving and maintaining quality of life for people in all countries while limiting CO2 emissions has never been greater.”).

[2]. See Rachlinski, supra note 1 (“If the planet’s climate shifts as abruptly in the next century as some scientists believe, the first few decades of the new millennium will witness massive shifts in rainfall patterns, a rising sea level that threatens to inundate coastal communities, and a dramatic increase in the frequency and severity of storms.  These horrors could make many heavily populated regions virtually uninhabitable and turn valuable farmland into deserts.”).

[3]. See Richard J. Lazarus, Super Wicked Problems and Climate Change: Restraining the Present to Liberate the Future, 94 Cornell L. Rev. 1153, 1155–56 (2009) (“To reduce the nation’s greenhouse gas emissions from 1990 levels by as much as 60 percent to 80 percent by 2050 and then maintain that emissions level throughout the twenty-first century will require Congress to craft an ambitious mix of regulatory programs and economic incentives.”).

[4]. Id. at 1156.

[5]. John C. Dernbach, The Essential and Growing Role of Legal Education in Achieving Sustainability, 60 J. Legal Educ. 489, 503 (2011) (quoting Am. Bar Ass’n, Resolution and Report on Sustainable Development 2 (Aug. 11–12, 2003), available at
/sustainabledevelopment.pdf) (“[A]ll law should have sustainable development principles integrated into it.”).

[6]. See, e.g., Beate Sjåfjell, Internalizing Externalities in E.U. Law: Why Neither Corporate Governance nor Corporate Social Responsibility Provides the Answers, 40 Geo. Wash. Int’l L. Rev. 977, 977 n.2 (2009) (defining sustainable development as “development where economic, social, and environmental aspects are integrated”).

[7]. See Brundtland Report: Our Common Future, Sustainable Cities,
-our-common-future (last visited Aug. 28, 2011).

[8]. Rep. of World Comm’n on Env’t & Dev., 14th Session, June 8–19, 1987, Our Common Future, Ch. 2, ¶ 1, U.N. Doc. A/43/427 (1987).  The Commission was led by Norwegian Prime Minister Gro Harlem Brundtland.

[9]. See Dernbach, supra note 5, at 512–13.

[10]. See, e.g., Judd F. Sneirson, Green is Good: Sustainability, Profitability, and a New Paradigm for Corporate Governance, 94 Iowa L. Rev. 987, 1022 (2009) (“If we are to achieve sustainability as a society, corporations must be part of the solution.”).

[11]. See Susan DeFreitas, NASCAR Race Track Gets Solar Power, Earth Techling (Aug. 9, 2010), (“When you think ‘green,’ chances are NASCAR is not the next word that comes to mind.”).

[12]. Lynch: Ethanol Mix Continues Greening of NASCAR, NASCAR (Oct. 16, 2010),

[13]. See NASCAR Hires Lynch to Head “Green” Initiative, NASCAR, (Nov. 14, 2008),

[14]. See Sneirson, supra note 10, at 991.

[15]. See id. at 1013–17 (contrasting shareholder wealth maximization with stakeholder theory).

[16]. Mark D. Howell, From Moonshine to Madison Avenue: A Cultural History of the NASCAR Winston Cup Series 18 (1997).

[17]. See Mark Yost, The 200-MPH Billboard: The Inside Story of How Big Money Changed NASCAR 41–52 (2007).

[18]. Joaggquisho (Oren Lyons), Scanno, 28 Pace Envtl. L. Rev. 334, 334–35 (2010) (“Over a thousand years ago, a peacemaker came along to our people . . . .  He said, when you sit and you council for the welfare of the people, think not of yourself, or of your family, or even your generation.  He said, make your decisions on behalf of the seventh generation coming, those faces looking up from the earth, each generation waiting its time.  Defend them; protect them, so that they may enjoy what you enjoy today.”).  The name of Seventh Generation, Inc., a maker of environmentally-friendly cleaning products, is based on this idea.  Seventh Generation, (last visited Sept. 1, 2011).

[19]. For a discussion of the difficulties of creating an environmental “baseline,” see Todd S. Aagaard, Environmental Harms, Use Conflicts, and Neutral Baselines in Environmental Law, 60 Duke L.J. 1505 (2011).

[20]. Cf. Todd S. Aagaard, Environmental Law as a Legal Field: An Inquiry in Legal Taxonomy, 95 Cornell L. Rev. 221, 225 (2010) (arguing that “environmental problems—the factual context of environmental lawmaking—involve two core factual characteristics that are, in combination, both common and distinct to environmental law: physical public resources and pervasive interrelatedness”).

[21]. For example, one sustainability proponent describes the “three conditions” of sustainability as: “[a society’s] rates of use of renewable resources should not exceed their rates of regeneration; its rates of use of non-renewable resources should not exceed the rate at which sustainable renewable substitutes are developed; and its rate of pollution should not exceed the assimilative capacity of the environment.”  John Elkington, Cannibals with Forks: The Triple Bottom Line of 21st Century Business 55–56 (1998); see also Sneirson, supra note 10, at 993–95 (describing the “gearing up” framework for sustainability and using Nike’s design and recycling programs as an example).

[22]. Dernbach, supra note 5, at 498.

[23]. Triple Bottom Line, Economist (Nov. 17, 2009),

[24]. Grant E. Helms, Note, Fair Trade Coffee Practices: Approaches for Future Sustainability of the Movement, 21 Ind. Int’l & Comp. L. Rev. 79, 82–83 (2011); Economist, supra note 23.

[25]. Jayne W. Barnard, Corporate Boards and the New Environmentalism, 31 Wm. & Mary Envtl. L. & Pol’y Rev. 291, 293 (2007) (including child labor in a list of unsustainable practices); Vanessa R. Waldref, The Alien Tort Statute After Sosa: A Viable Tool in the Campaign to End Child Labor?, 31 Berkeley J. Emp. & Lab. L. 160, 189 (2010) (“Indeed, regulations that prohibit child labor and increase overall wages may best advance sustainable growth to benefit all workers and society.”).

[26]. To be completely inclusive, the Venn diagram of corporate law theories outside of shareholder primacy would also include progressive corporate law as well as the social enterprise movement.  See Antony Page & Robert A. Katz, Is Social Enterprise the New Corporate Social Responsibility?, 34 Seattle U. L. Rev. 1351, 1352–53 (2011).  However, these labels are not sufficiently distinct, in my view, to warrant separate treatment.  But see id. at 1353 (distinguishing social enterprise from corporate social responsibility).

[27]. See Sjåfjell, supra note 6, at 982–83 (“The corporate social responsibility debate typically stands on the outside of the corporation, however, and is concerned with the corporation’s responsibility toward those parties and interests which seem to be implicitly defined as being external to the corporation, even including the corporation’s own employees.”).

[28]. See, e.g., Einer Elhauge, Sacrificing Corporate Profits in the Public Interest, 80 N.Y.U. L. Rev. 733, 735–36 (2005) (beginning the discussion of social responsibility with the example of clear-cutting practices).

[29]. R. Edward Freeman, Strategic Management: A Stakeholder Approach 44–45 (1984) (“By using ‘stakeholder,’ managers and theorists alike will come to see these groups as having a ‘stake.’  ‘Stakeholder’ connotes ‘legitimacy,’ and while managers may not think that certain groups are ‘legitimate’ in the sense that their demands on the firm are inappropriate, they had better give ‘legitimacy’ to these groups in terms of their ability to affect the direction of the firm.”).

[30]. In some circumstances, the stakeholders are defined broadly enough that they overlap with traditional “societal” concerns.  See, e.g., Gerald P. Neugebauer III, Note,Indigenous Peoples as Stakeholders: Influencing Resource-Management Decisions Affecting Indigenous Community Interests in Latin America, 78 N.Y.U. L. Rev. 1227 (2003) (including indigenous peoples in areas affected by corporate oil drilling or other development as stakeholders of the firm).

[31]. See Milton Friedman, The Social Responsibility of Business Is to Increase Its Profits, N.Y. Times, Sept. 13, 1970 (Magazine), at 33.

[32]. 170 N.W. 668 (Mich. 1919).

[33]. See, e.g., D. Gordon Smith, The Shareholder Primacy Norm, 23 J. Corp. L. 277, 279 (1998) (“The shareholder primacy norm is nearly irrelevant to the ordinary business decisions of modern corporations.”); Lynn A. Stout, Bad and Not-So-Bad Arguments for Shareholder Primacy, 75 S. Cal. L. Rev. 1189, 1208–09 (2002) (“Corporate law, in fact, does allow directors to pursue strategies that reduce share price whenever this can be rationalized as somehow serving the often-intangible interests of other constituencies.”); Lynn A. Stout, Why We Should Stop Teaching Dodge v. Ford, 3 Va. L. & Bus. Rev. 163, 176 (2008) (“Corporations seek profits for shareholders, but they seek others [sic] things, as well, including specific investment, stakeholder benefits, and their own continued existence.  Teaching Dodge v. Ford as anything but an example of judicial mistake obstructs understanding of this reality.”).  Interestingly, after much scholarship debunking the notion that shareholder primacy is required under corporate law, the Delaware Court of Chancery recently issued an opinion explicitly upholding the shareholder primacy principle.  See eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1, 33 (Del. Ch. 2010) (“Promoting, protecting, or pursuing nonstockholder considerations must lead at some point to value for stockholders.”).

[34]. See Sneirson, supra note 10, at 998 (finding that thirty-three states have such statutes).  Several of these statutes expressly permit consideration of nonshareholder constituencies only in the takeover context.  See id. at 998 & n.52.

[35]. Lawrence E. Mitchell, A Theoretical and Practical Framework for Enforcing Corporate Constituency Statutes, 70 Tex. L. Rev. 579, 631 (1992).

[36]. For example, New York’s statute states: “Nothing in this paragraph shall create any duties owed by any director to any person or entity to consider or afford any particular weight to any of the foregoing or abrogate any duty of the directors, either statutory or recognized by common law or court decisions.”  N.Y. Bus. Corp. Law § 717(b) (McKinney 2006).  As a result, constituency statutes may be most useful to boards simply in giving them the freedom to act for any reason whatsoever (absent blatant loyalty violations).  See Matthew T. Bodie, Workers, Information, and Corporate Combinations: The Case for Nonbinding Employee Referenda in Transformative Transactions, 85 Wash. U. L. Rev. 871, 906–07 (2007); Mitchell, supra note 35, at 579–80.

[37]. See David Millon, Communitarianism in Corporate Law: Foundations and Law Reform Strategies, in Progressive Corporate Law 1, 30 (Lawrence E. Mitchell ed., 1995) (“However attractive [the constituency] model might be in theory, communitarian scholars have yet to show persuasively that it could function effectively in practice.”).

[38]. Although a variety of proposals have been made, they have thus far had little actual traction.  See, e.g., Kent Greenfield, The Failure of Corporate Law 182 (2006) (advocating for worker representation on corporate boards); Lawrence E. Mitchell, Corporate Irresponsibility 118–19 (2001) (arguing that boards of directors should be self-perpetuating); Bodie, supra note 36, at 875–79 (advocating for a nonbinding employee referendum whenever shareholders are to vote upon a transformative transaction); Lawrence E. Mitchell, On the Direct Election of CEOs, 32 Ohio N.U. L. Rev. 261, 263 (2006) (arguing for direct election of chief executive officers by shareholders, creditors, and employees, each voting as a class); Cynthia A. Williams, The Securities and Exchange Commission and Corporate Social Transparency, 112 Harv. L. Rev. 1197 (1999) (advocating for the U.S. Securities and Exchange Commission (“SEC”) to expand disclosure requirements regarding a company’s products, where it does business, and the labor and environmental effects of its operations).  Arguably, Professor Williams’ suggestion was taken up in part in the Dodd-Frank Act, which requires public issuers to calculate the ratio comparing the annual total income of the CEO and the median annual total income for all employees other than the CEO.  Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 953(b), 124 Stat. 1376, 1904 (2010).

[39]. See, e.g., eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1, 33 (Del. Ch. 2010) (“When director decisions are reviewed under the business judgment rule, this Court will not question rational judgments about how promoting non-stockholder interests—be it through making a charitable contribution, paying employees higher salaries and benefits, or more general norms like promoting a particular corporate culture—ultimately promote stockholder value.”).

[40]. Mark J. Roe, Delaware’s Competition, 117 Harv. L. Rev. 588, 631 (2003) (“And once managers decided to sell the firm, Revlon said that the firm had entered, as lawyers thereafter dubbed it, ‘Revlonland,’ where its managers had the fiduciary duty to sell the firm to the highest bidder.  But by the end of the decade, the takeover machine hit Time-Warner, and Revlonland became a very, very small place.”) (referring to Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986)).

[41]. See Jay A. Conger, Edward E. Lawler III & David L. Finegold, Corporate Boards: Strategies for Adding Value at the Top 146–48 (2001).

[42]. Jay W. Lorsch & Elizabeth MacIver, Pawns or Potentates: The Reality of America’s Corporate Boards 50 (1989).  Lorsch and MacIver claimed that only a minority of directors adhered to a strict belief in shareholder primacy.  Id. at 39.

[43]. See Conger et al., supra note 41, at 151 (“[I]n the boardrooms of large U.S. corporations, two decades of governance reforms had firmly entrenched the concept of ‘shareholder value,’ increased the independence of the board from management, and more closely aligned the interests of the board and the owners of the corporation.”); Terrence E. Deal & Allan A. Kennedy, The New Corporate Cultures: Revitalizing the Workplace After Downsizing, Mergers, and Reengineering 43–62 (1999) (discussing the rise of shareholder value as the primary corporate philosophy); Allan A. Kennedy, The End of Shareholder Value: Corporations at the Crossroads (2000).  For a more equivocal perspective on the presence of shareholder primacy in the boardroom, see Jill E. Fisch, Measuring Efficiency in Corporate Law: The Role of Shareholder Primacy, 31 J. Corp. L. 637, 654–55 (2006) (comparing studies and finding little consensus).

[44]. See, e.g., Mitchell, supra note 38, at 4–8; Jeffrey N. Gordon, The Rise of Independent Directors in the United States, 1950–2005: Of Shareholder Value and Stock Market Prices, 59 Stan. L. Rev. 1465, 1526–35 (2007) (discussing the “triumph” of shareholder value as the dominant paradigm in the 1990s).

[45]. The SEC (after many false starts) recently provided a proxy nomination process through which established shareholders can earn a place on the company’s proxy ballot.  The Dodd-Frank Act gave the Securities and Exchange Commission direct authority to allow shareholders to nominate directors for placement on the company’s own proxy ballot.  Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 971, 124 Stat. 1376, 1915 (2010) (“The Commission may issue rules permitting the use by a shareholder of proxy solicitation materials supplied by an issuer of securities for the purpose of nominating individuals to membership on the board of directors of the issuer . . . .”).  The SEC used this authority to pass regulations allowing proxy access for certain large, long-term shareholders.  See Facilitating Shareholder Director Nominations, 75 Fed. Reg. 56,668 (Sept. 16, 2010) (to be codified at 17 C.F.R. pts. 200, 232, 240 & 249).  However, the U.S. Court of Appeals for the D.C. Circuit has vacated these regulations, finding their promulgation to be in violation of the Administrative Procedure Act.  Business Roundtable v. S.E.C., No. 10-1305, 2011 WL 2936808 (D.C. Cir. July 22, 2011); see also Jeffrey N. Gordon, Proxy Contests in an Era of Increasing Shareholder Power: Forget Issuer Proxy Access and Focus on E-Proxy, 61 Vand. L. Rev. 475, 487–89 (2008) (arguing that the SEC’s e-proxy rules significantly reduce the costs of waging a proxy contest).

[46]. 2 James D. Cox & Thomas Lee Hazen, Treatise on the Law of Corporations § 13:23 (3d ed. 2011).

[47]. For example, in the 2004 election of Disney directors, forty-three percent of shareholders withheld their votes from Michael Eisner, who at the time was CEO and chairman of the board.  The next day, the Board removed Eisner as Chairman.  James B. Stewart, Disney War 510–12 (2005).

[48]. 3 Cox & Hazen, supra note 46, at § 15:9 (“In order to maintain a derivative suit to redress or prevent injuries to the corporation, the plaintiff must be either an owner of shares or have some beneficial interest therein when the suit is brought.  As a general rule, the plaintiff must continue to be a stockholder throughout the life of the suit . . . .”).

[49]. A good recent example is the sale of Anheuser-Busch, Inc. to international beverage conglomerate InBev.  The Anheuser-Busch board initially resisted efforts to sell the company to InBev; it contemplated a poison pill as well as a purchase of another brewer.  Julie MacIntosh, Dethroning the King: The Hostile Takeover of Anheuser-Busch, an American Icon 236, 259–73 (2011).  However, the board eventually agreed to the buyout when InBev raised its offer.  Id. at 283–89.  And even a stubborn board will eventually reach the limit on takeover defenses.  See eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1, 34 (Del. Ch. 2010) (“I cannot accept as valid for the purposes of implementing the Rights Plan a corporate policy that specifically, clearly, and admittedly seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders . . . .”).

[50]. See, e.g., Elhauge, supra note 28, at 743 (“To avoid possible misunderstanding, let me make clear what I am not saying.  I am not saying that managers have a legally enforceable duty to sacrifice corporate profits in the public interest; I am saying that they have discretion to do so.”).

[51]. See Sneirson, supra note 10, at 997–1000, 1019–20.

[52]. See id. at 1017–19.

[53]. See Heidi N. Moore, Does Financial Reform Give Shareholders Too Much Power or Not Enough?, CNNMoney (July 9, 2010),‑financial‑reform‑give‑shareholders-too-much-power-or-not-enough.

[54]. See Miriam A. Cherry & Judd F. Sneirson, Beyond Profit: Rethinking Corporate Social Responsibility and Greenwashing After the BP Oil Disaster, 85 Tul. L. Rev. 983, 1008 n.135, 1013 n.160 (2011).

[55]. Neal Thompson, Driving with the Devil: Southern Moonshine, Detroit Wheels, and the Birth of NASCAR 30–35 (2006).

[56]. Howell, supra note 16, at 8; Timothy Miller & Steve Milton, NASCAR Now! 11 (3d ed. 2008).

[57]. Brian Tarcy, The Complete Idiot’s Guide to NASCAR 13 (2008).

[58]. Miller & Milton, supra note 56; Tarcy, supra note 57, at 15.

[59]. See Miller & Milton, supra note 56; Tarcy, supra note 57, at 15–18; History of NASCAR, NASCAR (March 8, 2010),

[60]. See Miller & Milton, supra note 56; Howell, supra note 15, at 16.

[61]. Tarcy, supra note 57, at 18; History of NASCAR, supra note 59.

[62]. Tarcy, supra note 57, at 18.

[63]. History of NASCAR, supra note 59.

[64]. Tarcy, supra note 57, at 18.

[65]. Id.; S. Joseph Modric, The Good Ole’ Boys: Antitrust Issues in America’s Largest Spectator Sport, 1 DePaul J.  Sports L. & Contemp. Probs. 159, 161 (2003).

[66]. Modric, supra note 65, at 161.  France believed that “if fans could identify with the cars on the tracks, they would bond with the sport.”  Miller & Milton, supra note 55, at 11.

[67]. Howell, supra note 15, at 21.

[68]. Miller & Milton, supra note 56; Tarcy, supra note 57, at 19.

[69]. Thompson, supra note 55, at 290–92; Michael A. Cokley, In the Fast Lane to Big Bucks: The Growth of NASCAR, 8 Sports Law. J. 67, 71 (2001).

[70]. Tarcy, supra note 57, at 20; History of NASCAR, supra note 59.

[71]. Miller & Milton, supra note 56.

[72]. Yost, supra note 17, at 62.

[73]. Id.

[74]. Id. at 64.

[75]. Id. at 77–78.  The name would stay with NASCAR’s premier series for the next thirty-three years.  See History of NASCAR, supra note 59.

[76]. Id.

[77]. Id. at 79.

[78]. Id. at 28.

[79]. Miller & Milton, supra note 56, at 8–9.

[80]. Yost, supra note 17, at 36.

[81]. Miller & Milton, supra note 56, at 45.

[82]. Officials to Announce Series Name Change to Sprint Cup,, (last visited Sept. 1, 2011).

[83]. Meri J. Van Blarcom-Gupko, Should NASCAR be Allowed to Choose the Tracks at Which Its Series’ Races are Run?, 16 Seton Hall J. Sports & Ent. L. 193, 210 (2006).

[84]. Howell, supra note 16, at 13; Juliet Macur, Nascar at Crossroads After Years of Growth, N.Y. Times, Apr. 15, 2007, § 8, at 1.

[85]. See Howell, supra note 16 (“From the absolute beginning, NASCAR was operated on the basis of control by a limited few.”); Van Blarcom-Gupko, supra note 83, at 210.

[86]. Van Blarcom-Gupko, supra note 83, at 210.

[87]. Macur, supra note 84.

[88]. See Michael D. Tucker, Exploring the Copperweld Analysis in Kentucky Speedway: Single Entity Treatment for NASCAR and International Speedway Corporation,15 Sports Law. J. 99 (2008); Van Blarcom-Gupko, supra note 83.

[89]. Howell, supra note 16, at 20.

[90]. NASCAR’s sponsorships are not limited to the title sponsor.  There are nearly sixty-eight brands in its “Family of Sponsors” ranging from the Official Frequent Heartburn Remedy (Prilosec OTC) to the Official Cheese Filled Product (Combos).  A.J. Perez, Sponsors of NASCAR, Teams Bang Fenders, USA Today, Mar. 20, 2007, at 1C; Official Sponsors: 2011 NASCAR Season, NASCAR, (last visited May 31, 2011) (listing all current sponsors).

[91]. Yost, supra note 17, at 130; Cokley, supra note 69, at 86.

[92]. The NFL, NBA, MLB, and NHL are all unincorporated organizations whose membership is made up of participating teams.  Oakland Raiders v. Nat’l Football League, 113 Cal. Rptr. 2d 255, 260 (Cal. Ct. App. 2001) (describing the NFL as “an unincorporated nonprofit association of 30 [now 32] football clubs”); Phila. World Hockey Club, Inc. v. Phila. Hockey Club, Inc., 351 F. Supp. 462, 469 (E.D. Pa. 1972) (describing the NHL as “an unincorporated nonprofit association”); Denver Rockets v. All-Pro Mgmt., Inc., 325 F. Supp. 1049, 1054 (D.C. Cal. 1971) (“NBA is an unincorporated association organized to operate and engage in the business of operating a league of professional basketball teams.”); Gregor Lentze, The Legal Concept of Professional Sports Leagues: The Commissioner and an Alternative Approach from a Corporate Perspective, 6 Marq. Sports L.J. 65, 68–69 (1995) (noting that MLB is actually composed of two independent “unincorporated non-profit associations,” the American League of Professional Baseball Clubs and the National League of Professional Baseball clubs).  The PGA and ATP are associations whose members are the individual competitors.  PGA Tour, Inc. v. Martin, 532 U.S. 661, 665 (2001) (describing PGA Tour as “a nonprofit entity formed in 1968”); ATP, How It All Began, ATPWorldTour, (last visited Sept. 1, 2011) (“In 1972, the leading professionals joined forces to create the Association of Tennis Professionals.”).

[93]. See Miller & Milton, supra note 56, at 49–52; Tarcy, supra note 57, at 15.

[94]. Int’l Speedway Corp., Annual Report (Form 10-K) (Jan. 28, 2011).

[95]. Macur, supra note 84.

[96]. See, e.g., Ky. Speedway, LLC v. NASCAR, 588 F.3d 908, 921 (6th Cir. 2009); Mayfield v. NASCAR, 713 F. Supp. 2d 527, 542–43 (W.D.N.C. 2010); Ferko v. NASCAR, 216 F.R.D. 392, 393 (E.D. Tex. 2003).  In fact, the close association between NASCAR and ISC led one court to conclude that it might be difficult to find that they are in fact separate entities.  Ky. Speedway, 588 F.3d at 920 (“[Plaintiff] KYS would thus need to show that despite having overlapping ownership, NASCAR (wholly owned by three members of the France family) and ISC (of which the France family owns 65% of the voting stock and for which the family makes all of the major decisions) are not under common ownership or control and do not share a single ‘corporate consciousness.’”).

[97]. See Driver Table: 2011 NASCAR Sprint Cup Series, NASCAR, (last visited May 31, 2011).

[98]. See id.

[99]. See Van Blarcom-Gupko, supra note 83, at 214; Marty Smith, Pointed Discussion: Top 35 in Owners Points Becoming Fertile Ground for Competition, NASCAR (Feb. 10, 2006),
/10/owners.points/index.html.  One of the problems for team owners in this free-enterprise system is that they must assume all financial responsibilities, and if they cannot secure sufficient sponsorship deals they may have to fold.  Id.  Many owners have called for franchising to guarantee them a spot in the races so they have a guaranteed shot at money.  Instead of granting franchises, NASCAR has come up with the “Top-35 Rule” to help guarantee a racing spot.  The “Top-35 Rule” works by giving the top thirty-five teams in owners points at the end of the previous season (points are earned by place finished in the races over the course of the season) a guaranteed spot in the top thirty-five spots for all the races.  Id.  The top thirty-five are guaranteed the first thirty-five spots but the actual starting position is determined by the qualifying speeds before the race.  Id.  Not only does this rule guarantee a shot at the money for team owners but it helps ensure that sponsors who spend big bucks to be on the top-owners’ cars will be in each race and have a chance for their logos to be exposed.  Tarcy, supra note 57, at 45.

[100]. Jenna Fryer, Without Pension, NASCAR Stars Forgotten, USA Today (Feb. 6, 2007),

[101]. David Newton, NASCAR’s Free-Market System Unlike Any Other, ESPN (June 23, 2007),

[102]. Howell, supra note 16, at 32.  The bans were later lifted in 1965 when NASCAR needed the once-popular racers to return to the tracks to boost excitement for the sport.  Id. at 34.

[103]. Id. at 42.  The nascent drivers’ union, known as the Professional Drivers’ Association (“PDA”), had organized a boycott of Talladega over concerns about the bumpy track surface.  To dispel these concerns, Bill France Sr. himself hopped in a car and ran fifty laps on the track.  However, the PDA was unmoved.  France was able to round up enough replacement drivers to run the race without further incident, and soon thereafter the PDA dissolved.  See Mark Aumann, Boycotted Race in ‘69 Led to Surprise Winner, Changes, NASCAR (Apr. 23, 2009),

[104]. Newton, supra note 101.

[105]. Peter J. Schwartz, NASCAR’s Highest-Earning Drivers, Forbes (Feb. 9, 2009),
-nascar09_0209_drivers.html; With Jr. Leaving DEI, Merchandise Sales Booming, ESPN (May 17, 2007),

[106]. See Jonah Freedman, The Fortunate 50, Sports Illustrated, (last visited Sept. 1, 2011) (listing Dale Earnhardt Jr. and Jeff Gordon among the top-nineteen in earnings by American athletes).

[107]. Schwartz, supra note 105.

[108]. Howell, supra note 16, at 27.

[109]. Susanna Hamner, NASCAR’s Sponsors, Hit by Sticker Shock, N.Y. Times, Dec. 13, 2008, at BU1 (“In the 2008 racing season, 400 companies put up more than $1.5 billion to sponsor races, cars and drivers.”).

[110]. Tarcy, supra note 56, at 137; Yost, supra note 16, at 35–36; Kevin McKeough, Where Sponsors Are King; Why Pay $5 Million to Back a NASCAR Race? 75 Million Hardworking, Beer-Drinking Fans, Crain’s Chi. Bus., July 31, 2006, at 26.

[111]. See Lack of Sponsorship Forces Ganassi to Shut Down Franchitti’s Team, ESPN (July 2, 2008),

[112]. McKeough, supra note 110.  One older example of the power of the NASCAR brand is Folgers coffee.  In 1986, when Folgers signed on as a sponsor with Hendrick Motorsports, it was the fourth-best-selling coffee in America.  By the end of the year, Folgers had become number one.  Yost, supra note 17, at 109.

[113]. Id. at 47–48 (discussing how corporate sponsors have access to garage and pit areas and often have drivers and team members speak to their guests before races).

[114]. Newton, supra note 101.

[115]. Roy S. Johnson, Speed Sells, Fortune (Apr. 12, 1999),

[116]. Macur, supra note 84 (internal quotation marks omitted).

[117]. NASCAR Hires Lynch to Head “Green” Initiative, supra note 12.

[118]. Scott Wright, Q&A: Mike Lynch, Managing Director of NASCAR Green Innovation, Oklahoman, Apr. 7, 2011, § C, at 2.

[119]. Eric Loveday, Sunoco Green E15 to Become Official Fuel of NASCAR for 2011 Season, Autoblog Green (Oct. 18, 2010, 11:04 AM),

[120]. Lynch: Ethanol Mix Continues Greening of NASCAR, supra note 11.

[121]. Dave Rodman, Fill ‘Er Up: Teams Off and Running with E15 Fuel, NASCAR (Jan. 22, 2011),

[122]. NASCAR, Sunoco, (last visited May 31, 2011).  The partnership dates back to 2003. Lee Montgomery,Sunoco to Become Official Fuel of NASCAR, NASCAR (Aug. 15, 2003),; Report: NASCAR Near Deal with Ethanol Group, NASCAR (Oct. 4, 2010),

[123]. NASCAR officially partnered with Growth Energy, a coalition of U.S. farmers and other members of the ethanol supply chain, under the name American Ethanol. American Ethanol Becomes an Official Partner, NASCAR (Dec. 2, 2010),

[124]. Id.

[125]. Sebastian Blanco, EPA Says E15 is Ready for Prime Time—and Your New-ish Car, Autoblog Green (Oct. 13, 2010, 3:56 PM),

[126]. Id.

[127]. NASCAR Announces Tree Planting Program at Tracks, NASCAR (June 12, 2009),

[128]. Id.

[129]. Id.

[130]. Press Release, Daytona International Speedway, NASCAR Green Clean Air Tree Planting Project Plants 110 Trees at Daytona Beach International Airport (Apr. 20, 2011), available at

[131]. Id.

[132]. NASCAR Sponsors Join Forces in Recycling Project, NASCAR (Apr. 15, 2010),

[133]. Id.

[134]. Id.  At the Earth Day celebration at Texas Motor Speedway, Office Depot and Coca-Cola Recycling had cobranding on all of the recycling elements at the track, including ink cartridge recycling containers.  Id.

[135]. Id.

[136]. Bob Pockrass, Increased Recycling Should Only be the Start of NASCAR’s Green Effort, SceneDaily (Apr. 29, 2010),

[137]. NASCAR Announces Tree Planting Program at Tracks, supra note 125.

[138]. Owners Install Solar Farm on Parking Lot, ESPN (Aug. 4, 2010),  The solar farm was installed on a converted parking lot across the street from the 2.5-mile tri-oval track.  The 40,000 solar panels are arranged in groups in parallel rows, mostly hidden from view.  Id.

[139]. Id.  The website for Pocono Speedway states:

Consisting of nearly 40,000 American made photovoltaic modules covering 25 acres, the Project will produce more than 72 million kilowatt hours (kWh) of energy over the next 20 years.  The environmental attributes associated with the system will offset more than 3,100 Metric Tons of carbon dioxide annually, Carbon Dioxide emissions from 106,529 propane BBQ grills and it will generate enough power to provide the electricity needs for close to 1,000 homes beyond the power needs of the Raceway.

Go Green Solar Project, Pocono Raceway
/pocono-raceway-solar-energy.html (last visited Sept. 1, 2011).

[140]. NASCAR Pocono Raceway Solar Hits One Million kWh Mark, Lime Light Times (Dec. 13, 2010),
-solar-hits-one-million-kwh-mark.  The power output from the farm is monitored live online at

[141]. DeFreitas, supra note 11.

[142]. No. 96 Team Goes Green by Offsetting Carbon Footprint, NASCAR (Feb. 20, 2009),

[143]. Id.

[144]. Id.

[145]. See Thompson, supra note 55, at 241–42.

[146]. See Wright, supra note 118.

[147]. DeFreitas, supra note 11 (citing an Experian Simmons National Consumer Survey).

[148]. Paul Thomasch, Stock Car Racing Going Green—At Own Pace, Envtl. News Network (Nov. 27, 2007), (“I haven’t met anybody in the last couple years who doesn’t think it’s a good idea to be as efficient and be as environmentally friendly as you can.”) (quoting NASCAR CEO Brian France).

[149]. See Owners Install Solar Farm on Parking Lot, supra note 138.

[150]. DeFreitas, supra note 10 (“[T]his fuel-guzzling motorsport circuit has initiated a major campaign to green its operations.”); David A. Gabel, The Greening of NASCAR, Envtl. News Network (Oct. 18, 2010), (“NASCAR is not exactly a model for environmental friendliness, but the new fuel is a significant step in the right direction. . . . Hopefully they will continually adopt new fuel-efficiency technologies as they emerge.  In the grand scheme of things, it is interesting to know that even a sport as gas-guzzling as NASCAR is trying to green their image.”).

[151]. Cf. Cokley, supra note 69, at 67 (“What do you get when you inject 700 to 750 horsepower into 3400 pounds of metal capable of achieving speeds in excess of 200 m.p.h. and then add in 100,000 to 200,000 rabid fans and a mix of young, good-looking, hotshot drivers, along with established veterans?”).

[152]. Cherry & Sneirson, supra note 54, at 1002 (“During the past decade, BP made a series of strategic branding decisions designed to green the company’s image.”).

[153]. Id. at 1025–38.

[154]. Id. at 995–99 (criticizing BP for its environmental and safety violations); Sneirson, supra note 10, at 993 (noting that the first level of the “gearing up” sustainability strategy is compliance with applicable labor and environmental standards).

[155]. Loveday, supra note 119.

[156]. See NASCAR Announces Tree Planting Program at Tracks, supra note 127.

[157]. See Owners Install Solar Farm on Parking Lot, supra note 138.

[158]. NASCAR Announces Tree Planting Program at Tracks, supra note 127.

[159]. IndyCar is the latest instantiation of the sanctioning body for “indy car,” or single-seat, open-wheel racing in the United States.  Prior to 2011 it was known as the Indy Racing League, or IRL.

[160]. FIA, or Fédération Internationale de l’Automobile, is the nonprofit association that operates as the primary governing organization for international Formula One racing.  See About FIA, Fédération Internationale de l’Automobile,
-fia/Pages/AboutFIA.aspx (last visited Sept. 1, 2011).

[161]. Liz Clarke, IndyCar Makes Switch to Ethanol, Wash. Post, Mar. 21, 2007, § E, at 3; IndyCar Goes 100% Ethanol, EPIC Plans National Marketing Campaign, Envtl. Leader (Mar. 19, 2007),
-plans-national-marketing-campaign; IndyCar Series Switching to Ethanol in ‘06, ESPN (Mar. 2, 2005),

[162]. Shell Corp., Powered by V-Power, Protected by Helix: FIA Rules & Regulations Fuel & Lubricants 6 (Dec. 24, 2010), available at

_regulations.pdf (“A minimum of 5.75% (m/m) of the fuel must comprise bio-components.  Shell V-Power race fuel contains two advanced biofuels: [c]ellulosic ethanol, an advanced biofuel made from straw and ‘biogasoline’, a biofuel converted directly from plant sugars.”); Fuel, Formula 1, (last visited Sept. 1, 2011) (“Formula One cars run on petrol, the specification of which is not that far removed from that used in regular road cars.”).

[163]. See Clarke, supra note 161 (noting in 2007 that “NASCAR, the country’s most popular form of auto racing, has no plans to explore renewable fuels at the moment”).

[164]. IndyCar Series Switching to Ethanol in ‘06, supra note 161.

[165]. Id.

[166]. See Howell, supra note 16, at 21 (“[Bill] France and his associates figured that people would like to see American-built, production-based cars in racing competition, especially since the cars being used were ones that the fans could actually purchase from a dealership.”); Thompson, supra note 55, at 227 (“By definition, a stock car was a pure, unalloyed passenger vehicle without any alterations or modifications.”).

[167]. And this is leaving aside the scientific debate about the extent to which ethanol or ethanol-gasoline blends are better for the environment than gasoline.  Ethanol promotes energy independence, as it replaces fossil fuels, and it burns cleaner than pure gasoline.  However, most ethanol is produced from corn, which requires significant resources to grow, and ethanol production increases the price of corn on the international market, making it more expensive for third-world communities.  SeeRoberta F. Mann, Back to the Future: Recommendations and Predictions for Greener Tax Policy, 88 Or. L. Rev. 355, 373–75 (2009); Tudor van Hampton, Collectors Go Looking for Nonalcoholic Blends, N.Y. Times, Mar. 18, 2011, at AU1 (“Still, many consumers would rather not have any alcohol in their gasoline.  Their reasons include reductions in fuel economy—a gallon of ethanol contains about one-third less energy than a gallon of gasoline—and alcohol’s affinity for moisture, which can cause a multitude of engine problems.”).

[168]. Owners Install Solar Farm on Parking Lot, supra note 138.

[169]. Alex Davidson, Greening the Super Bowl, Forbes (Jan. 19, 2007),
.html; Amanda Lee Myers, NFL Using Clean Energy to Offset Super Bowl’s Impact, USA Today (Feb. 3, 2008),
/environment/2008-02-03-green-nfl_N.htm; Susan Thurston, How This Year’s Super Bowl is Going Green, St. Petersburg Times (Dec. 22, 2008),

[170]. See NBA Green, NBA, (last visited May 26, 2011).

[171]. Davidson, supra note 169 (“Sporting events are thus becoming fertile testing grounds for new environmental practices, and the events leave lasting examples of how events can change their practices for the better.”).

[172]. See Thompson, supra note 54, at 241–42.

[173]. Helen Coster, Ranking the World’s Most Sustainable Companies, Forbes (Jan. 29, 2011),

[174]. Id.  The metrics went to eleven with an overall “transparency” factor.  Id.

[175]. Id.

[176]. Id.

[177]. Id.  Its board diversity dropped from 30% of its directors being women last year to 18% this year.  Id.

[178]. Malcolm Gladwell, The Order of Things, New Yorker, Feb. 14, 2011, at 68.

[179]. Cherry & Sneirson, supra note 54, at 1007–08 (discussing investment fund managers as well as academics who praised BP for its corporate social responsibility); Telis Demos, Beyond the Bottom Line: Our Second Annual Ranking of Global 500 Companies, Fortune (Oct. 23, 2006),
/index.htm (ranking BP second on a list of socially responsible companies).

[180]. See Corporate Sustainability, Dow Jones Sustainability Indexes,
.html (last visited Sept. 1, 2011) (defining sustainability in terms of “meeting shareholders’ demands for sound financial returns,” “[f]ostering loyalty by investing in customer relationship management and product and service innovation,” and “[s]etting the highest standards of corporate governance and stakeholder engagement, including corporate codes of conduct and public reporting”); Coster, supra note 173 (discussing various factors such as leadership diversity and financial performance).  Corporate Knights was proud to report that its list had posted a total return of 54.95%, outperforming the MSCI AWCI [Morgan Stanley Capital International All-World Company Index] by more than sixteen points.  Id.

[181]. Coster, supra note 173.

[182]. See, e.g., American Heritage Dictionary 1225 (2d College ed. 1982) (defining “sustain” as “[t]o keep in existence; maintain”); Kent Greenfield, New Principles for Corporate Law, 1 Hastings Bus. L.J. 87, 92 (2005) (defining sustainability as “the ability of businesses to survive over time”).

[183]. W. Duane Cox (as Crabber 1967), NASCAR and Fuel Injection: “Sustainability” or Survival?, Bleacher Rep. (Dec. 3, 2009),
-sustainability-or-survival (“NASCAR will do whatever it will take, not to be sustainable, but to survive.”).

[184]. Sjåfjell, supra note 6, at 999 (“Finally, and most dramatically, the sustainable-development guideline may require a corporation to close down its business if it is not possible to adopt alternative ways of doing business that do not cause irreparable damage to the interests of the global community.”).

[185]. For efforts to address the market for CSR, see Janet E. Kerr, The Creative Capitalism Spectrum: Evaluating Corporate Social Responsibility Through a Legal Lens, 81 Temp. L. Rev. 831, 831 (2008) (discussing definitional problems for CSR and proposing the “creative capital spectrum” to measure a corporation’s degree of social responsibility); Michael R. Siebecker, Trust & Transparency: Promoting Efficient Corporate Disclosure Through Fiduciary-Based Discourse, 87 Wash. U. L. Rev. 115 (2009) (pointing out the excess of unreliable CSR information and proposing a fiduciary duty approach to corporate disclosures); Williams, supra note 38, at 1293–1306 (proposing a system of disclosure for environmental information).

[186]. See supra Part II.B.

[187]. See supra Part II.B.

[188]. See supra Part II.B.

[189]. See, e.g., Brett H. McDonnell, Employee Primacy, or Economics Meets Civic Republicanism at Work, 13 Stan. J.L. Bus. & Fin. 334 (2008).

[190]. See, e.g., Sneirson, supra note 10, at 1017–19 (discussing B corporations).

[191]. Id. at 1019–21.  These charter provisions do not appear to have any enforcement mechanisms.  Id.

[192]. Howell, supra note 16, at 13.

[193]. Id. at 37–48.

[194]. See, e.g., Ky. Speedway, LLC v. NASCAR, 588 F.3d 908, 921 (6th Cir. 2009).

[195]. But see Sneirson, supra note 10, at 989 (using “green” and “sustainable” interchangeably).

[196]. I do not mean to denigrate these concerns; in fact, most of my work relates to worker empowerment.  See, e.g., Bodie, supra note 36.  I only mean to suggest how “sustainability” should be used in the corporate law literature.

[197]. Kent Greenfield, Proposition: Saving the World with Corporate Law, 57 Emory L.J. 948, 950 (2008) (“Corporate law determines the rules governing the organization, purposes, and limitations of some of the largest and most powerful institutions in the world.”); D. Gordon Smith, Response: The Dystopian Potential of Corporate Law, 57 Emory L.J. 985, 990 (2008) (“Pared to its core, ‘corporate law’ is the set of rules that defines the decision-making structure of corporations.”).

[198]. Indeed, as discussed earlier, sustainability advocates have sought to establish this when it comes to dispelling the shareholder primacy norm.

[199]. Cf. Bernard S. Black, Is Corporate Law Trivial?: A Political and Economic Analysis, 84 Nw. U. L. Rev. 542, 544 (1990) (“Thus, it is no small matter to disprove even the extreme hypothesis that all of state corporate law is trivial.”).

[200]. Eddie Gossage, president of the Texas Motor Speedway, describes the importance of green initiatives to companies whose businesses are not focused on eco-friendly, sustainable products:

There are some companies that aren’t going to get involved with you if you don’t have a green initiative.  They want to be environmentally conscious and sound.  If you make a presentation to sponsor your car or race, it’s, ‘Well, tell us what you’re doing about green concerns.’  If you don’t have an answer, that may shut the door for you.  They might not have an interest.  There are some companies that are going to have budgets set aside exclusively for people that are actively green.  There is a smart economical benefit to this.

Nate Ryan, NASCAR Going Green, Moving to Ethanol Blend Fuel in 2011, USA Today (Oct. 16, 2010),

[201]. Again, I do not mean to suggest that corporate law is peripheral to all matters—only to sustainability issues (as I’ve defined them).  Matters relating to the corporation’s internal power structure should be the stuff and substance of corporate law.  As to issues like board governance and worker empowerment, I agree that “[c]orporate law is a big deal.”  Greenfield, supra note 197, at 950.


By: Judd F. Sneirson*


What is a sustainable corporation and why aren’t there more of them?  This Article argues that corporate law’s conventional focus on shareholder profits stifles sustainability efforts inasmuch as sustainable corporations take a broader view of the firm and its goals.  The Article also weighs alternatives for increasing the number of sustainable corporations and encouraging corporations of all stripes to act more sustainably.  These alternatives include imposing sustainability on corporations, requiring or encouraging sustainability disclosures, and raising awareness that sustainable business practices fully comport with corporate laws and even typically enhance long-term firm value for all of a corporation’s stakeholders.


Sustainable businesses, both corporate and otherwise, seem to be everywhere, trumpeting their bona fides to garner the interest and dollars of consumers and investors.  Yet a closer examination of these businesses reveals that their dedication to sustainability is often superficial, driven by and limited to their pursuit of shareholder profits.  That is, most mainstream corporations today engage in sustainable business practices only when they appear to create immediate financial benefits for the firm.  This Article blames this limitation on corporate law’s conventional focus on shareholder profits and suggests that corporations need not so restrict themselves.  In making this argument, this Article addresses three related questions: (1) what is a sustainable corporation, (2) why aren’t there more of them, and (3) what can be done about it?

I.  What Is a Sustainable Corporation?

Sustainability, according to its first and best-known definition, denotes the ability to meet current needs without impairing the ability to continue to do so in the future.[1]  For a society to be sustainable, it

needs to meet three conditions: its rates of use of renewable resources should not exceed their rates of regeneration; its rates of use of non-renewable resources should not exceed the rate at which sustainable renewable substitutes are developed; and its rates of pollution should not exceed the assimilative capacity of the environment.[2]

The concept of sustainability, originally balancing development with conservation,[3] has since evolved into a broader principle that governments, organizations, and individuals should conduct themselves without impinging on the environment and society, now or in the future.[4]

Applied to the business context, sustainability involves attaining financial goals while simultaneously improving, or at least not worsening, the environment and society in the short or long term.[5]  This three-dimensional view of a company’s performance has come to be known as its “triple bottom line”: “the traditional bottom line of financial performance (most often expressed in terms of profits, return on investment . . . , or shareholder value)” plus two additional bottom lines reflecting the business’s environmental and social performance.[6]  One commentator prefers the term “triple top line,” taking the more positive view that sustainable businesses should seek to create “financial benefits for the company, natural world benefits, and social benefits for employees and members of the local community.”[7]  From whichever perspective, sustainability measures these impacts or benefits over the long term.  As a result, a sustainable business takes a view of the firm that is both broader and longer than the typical, conventional focus on short-term financial gains.[8]

A sustainable business should therefore pursue financial goals while at the same time treading as lightly as possible on the earth and its natural resources, supporting the business’s employees and local communities, and developing products, services, and technologies that contribute to larger societal efforts to live more sustainably.[9]  This might entail being more than minimally compliant with environmental regulations, more than minimally generous with employees and communities, or paying more for goods and services that are sustainably harvested or produced.

Such efforts might sacrifice profits, at least in the short run in that money that might otherwise be distributed to shareholders as dividends is reinvested in the company, environmental efforts, or employees and communities.  But such expenditures often benefit the firm, financially and otherwise, over the long run; indeed, several studies have shown that—particularly in consumer-oriented industries, but in the business-to-business context as well—sustainable business practices tend to pay for themselves and frequently turn a profit.[10]

One means of putting these sustainable business concepts into practice is to seek out areas where the firm’s financial, environmental, and social goals overlap.[11]  For example, reductions in energy consumption and waste save on production, fuel, and disposal costs while also improving environmental impact and, in the case of fuel costs, reducing dependence on foreign oil.[12]  Firms can also realize “eco-efficiencies” through better design: by designing (or reconfiguring) production systems and products with sustainability in mind, a firm can make better use of manufacturing inputs, use fewer chemicals, create less pollution, make workplaces safer, and benefit financially.[13]

Firms may also use the triple bottom line as an accounting tool.  By measuring environmental, social, as well as financial activity over a given period, firms can track and report their performance in each of the triple bottom line areas.  In the environmental component, for example, a firm might include its “compliance against [environmental] regulations and other standards; the performance of internal management systems; trends in energy usage, waste production, and recycling; and the use of eco-efficient technologies.”[14]  And on the social front, a firm might address “community relations, product safety, training and education initiatives, sponsorship, charitable donations of money and time, and employment of disadvantaged groups.”[15]  To the extent that “managers ‘manage what they measure,’” such recordkeeping might impel managers to run their firms in a way that maximizes financial, social, and environmental benefits while minimizing related costs.[16]

Firms may incorporate these sustainability principles in their operations to varying degrees.  At one end of the spectrum, a firm may have no sustainability ambitions whatsoever and may in fact be out of compliance with applicable labor and environmental laws and regulations.[17]  This first type of firm focuses on profits to the exclusion of all other considerations and may even deliberately violate laws in order to maximize profits.[18]  A second, slightly more sustainable firm, complies with applicable laws and perhaps engages in generic corporate philanthropy but does little beyond that.[19]  Such firms see “no business case” for going beyond compliance or serving stakeholders’ interests; by bare compliance (and paying taxes), these firms see themselves as fulfilling their societal obligations.[20]

A third type of firm goes beyond bare compliance with applicable social and environmental laws but does so only where it would be profitable.[21]  These profit-driven firms may view sustainability and social responsibility primarily as a public relations matter, for particularly in consumer-focused industries social responsibility attracts customers and social irresponsibility repels them.[22]  Or these companies may simply want to save resources, reduce waste, achieve production efficiencies, and anticipate changing conditions, regulations, and consumer preferences.[23]  While these firms may incorporate environmental, ethical, and social considerations at all levels of their operations and decision making, they only act upon these decisions when it would benefit their financial bottom lines.[24]

A fourth type of firm routinely balances economic, social and environmental considerations and does so not in order to comply with applicable laws or to make a profit.[25]  Rather, these firms are motivated to “do good” for their various constituencies and for the planet, while still producing returns for their shareholders.[26]  These firms also tend to be more pro-active, partnering with government, suppliers, customers, and others in their industry to together innovate sustainable solutions to environmental and other problems.[27]

At the next level, a fifth type of firm integrates sustainability principles into its strategy and business processes, starting with product or service development, such that the way of doing business is “built in, not bolted on.”[28]  For example, companies at this stage may rethink their design and production processes to reduce waste and utilize improved, sustainable, and even reusable materials, and in some cases eliminate the use of harmful materials altogether.[29]

And at the sixth and highest level, sustainability “is fully integrated and embedded in every aspect of the organization, which is committed to contributing to the quality and continuation of life of every being and entity, now and into the future.”[30]  Here, companies also redesign or “reengineer” their business models, finances, and markets to identify and root out any underlying causes inconsistent with sustainability and social responsibility.

Aside from a few outliers, however, most businesses limit themselves to the first three of these levels; that is, most firms engage in sustainable business practices, if at all, only to the extent it returns profits.[31]  While this might encompass a great deal of sustainable business behavior,[32] and have an enormous impact,[33] this limitation is unfortunate and unnecessary.  As the next part of this Article argues, corporate law’s conventional focus on shareholder profits fuels this limitation, stifling corporate efforts toward greater sustainability and perpetuating an overly narrow view of the firm and its purposes.

II.  Why Aren’t There More Sustainable Businesses?

Why aren’t there more sustainable businesses and why are mainstream businesses seemingly unable to move beyond a profit focus and deepen their commitments to sustainability?  The answer to both of these questions lies in the conventional view in law and business that corporations are to be managed for the sole purpose of maximizing shareholder profits.

This attitude—known as “shareholder primacy”—prioritizes shareholder interests above all other considerations and renders deep commitments to sustainability difficult.[34]  According to this view, corporate managers may not sacrifice potential profits to benefit society, the environment, or future generations; rather, firms should aim to maximize shareholder returns and eschew sustainable alternatives that are not profit-maximizing.  For example, a firm should incur workplace safety costs only to the extent necessary to comply with applicable laws and regulations, or to the extent such expenditures are otherwise financially justifiable (in that they improve employee morale, attendance, or productivity, or that they result in lower insurance premiums or other corporate outlays).[35]  Some profit-maximizing firms may even deliberately violate applicable laws and regulations on the view that any fines or penalties incurred are mere costs of doing business and preferable if outweighed by expected costs of compliance.[36]

Perhaps the most famous expression of the shareholder primacy view appears in Dodge v. Ford Motor Company.[37]  There, in rejecting the decision of company founder and majority shareholder Henry Ford to suspend the company’s practice of paying special dividends, the Supreme Court of Michigan wrote:

A business corporation is organized and carried on primarily for the profit of the stockholders.  The powers of the directors are to be employed for that end.  The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the nondistribution of profits among its stockholders in order to devote them to other purposes.[38]

Noted economist Milton Friedman echoed this sentiment some fifty years later, writing that a corporate executive’s responsibility is “to make as much money as possible” for the firm’s shareholders, and that expenditures not tied to shareholder wealth amount to stealing what rightfully belongs to shareholders.[39]

These and similar statements create the impression that shareholder primacy is a corporate-law mandate, a social norm that should be abided, and the proper result of market forces.  The following sections examine these propositions, and their implications for sustainability, in more detail.

A.            Law

No corporate law statute or court decision explicitly requires firms to adhere to the shareholder primacy view.[40]  While the Dodge case speaks of shareholder profit as the central purpose of the corporation,[41]and three subsequent decisions contain similar expressions,[42] all of these passages appear in dicta, and none of these cases hold or stand for the legal proposition that a corporation must maximize shareholder profits.  In fact, later decisions cite these cases for other points of law, if at all.[43]

A few corporate law decisions do seemingly endorse and encourage shareholder primacy, however subtly.  For example, under Delaware law, corporate decision makers may have regard for nonshareholder constituencies like workers and the environment, but any decisions that benefit these stakeholders must benefit the firm’s shareholders as well.[44]  Thus, in choosing between two competing merger partners, a board may opt for the less generous proposal only if it represents a better strategic combination, preserves valuable company culture, or similarly enhances firm value in the long term.[45]  Similarly, in making normal operational decisions, corporate fiduciaries may only benefit nonshareholder constituencies if some benefit will ultimately redound to shareholders.

Corporate law also projects a shareholder-centric bent in describing the nature of corporate fiduciaries’ legal obligations.  Although corporate fiduciary duties are generally understood to run to the enterprise,[46] many judicial opinions state “that corporate directors have a fiduciary duty to act in the best interests of the corporation’s shareholders,”[47] or alternatively, that corporate fiduciaries must act in the best interests of the corporation and its shareholders.[48]  While, at least in the long run, there may not even be a discernable difference between these three statements,[49] the recurring message is that shareholders and their profits trump all other considerations.[50]

Perhaps the American Law Institute’s (“ALI”) Principles of Corporate Governance best summarizes corporate law on this point.[51]  According to the ALI, “a corporation should have as its objective the conduct of business activities with a view to enhancing corporate profit and shareholder gain.”[52]  This “enhancing” (as opposed to maximizing)[53] is to be over the long term,[54] and firms may also pursue limited objectives beyond profit and shareholder gain:

Even if corporate profit and shareholder gain are not thereby enhanced, the corporation, in the conduct of its business . . . may take into account ethical considerations that are reasonably regarded as appropriate to the responsible conduct of businesses; and may devote a reasonable amount of resources to public welfare, humanitarian, educational, and philanthropic purposes.[55]

Complicating this conclusion somewhat is the business judgment rule—even if corporate law requires some degree of shareholder focus, the business judgment rule affords corporate decision makers so much latitude as to render any such requirement unenforceable and meaningless.[56]  Under the business judgment rule, courts defer to fiduciaries’ business judgments so long as no conflict of interest is present and the decision is reached conscientiously, on the basis of reasonably full information, and with a good-faith belief that the decision is in the best interests of the firm.[57]  If these predicates are met, company decisions, including sustainability-motivated decisions that depart from a profit-maximizing objective, will withstand shareholder challenges.[58]

Further, most state corporation codes contain provisions reaffirming this stance.  These “other constituency” statutes further protect business decisions made in the interests of the entire firm, typically stating that directors and officers may consider all of the firm’s constituencies—not just its shareholders—when determining what constitutes the company’s best interests.[59]  About two-thirds of these provisions are generally applicable, providing an extra measure of comfort where corporate managers make decisions that serve the firm through its nonshareholder constituencies; the remaining third are limited to the takeover context and therefore only offer this statutory protection to a narrower class of decisions.[60]

In sum, while corporate law can be read to encourage adherence to the shareholder primacy view, it simultaneously refuses to enforce any such requirement.[61]  Perhaps by this contradiction courts intend to endorse but not enforce a profit-focused norm, in keeping with corporate law’s traditional deference to informed business judgments.[62]  For whatever reason, the law fosters this ambivalence, lending support both to the view that corporations exist to serve their shareholders through profit maximization, and to the contrary view that firms may safely engage in sustainable business practices that might detract from shareholder profits.  The resulting uncertainty may be enough to dissuade interested firms from aspiring to deeper levels of sustainability.

B.            Norms

Even if no law requires shareholder primacy, a prevalent social norm can have much the same effect.[63]  That is, whether or not corporate law requires managers to maximize shareholder wealth, social norms may induce many of them to do so, because that is what they learned in business school, because that is how they view their jobs, because that is what they perceive is expected of them, and because they believe—rightly or wrongly—that the law requires them to do so.[64]  Some have concluded that such a norm grips mainstream American business culture, has “been fully internalized by American managers,”[65] and constitutes “the appropriate goal in American business circles.”[66]

Others argue that this description vastly overstates the prevalence of the shareholder primacy norm, observing that corporate managers routinely make decisions that do not maximize shareholder value and citing studies showing “ambivalence” among directors toward shareholder wealth maximization.[67]  What is more, norms governing business decision making may be evolving to reflect a business purpose broader than shareholder profit as environmental and social issues continue to enter the American mainstream.[68]  Business schools have reflected “this trend, integrating [stakeholder] concepts in core and extracurricular courses, and in the increasing desire by MBA students to fuse social endeavors with profit-making ones.”[69]  While these changes may not indicate a wholesale abandonment of the shareholder primacy norm, they perhaps portend a “paradigm shift” toward a new norm of balancing the shareholder-profit objective with longer-term, sustainable, and socially responsible business practices.[70]

C.            Markets

Markets—the stock market, the market for capital, the market for managerial talent, and the market for corporate control—also influence corporate decision making by focusing corporate decision makers, in many instances, on shareholder returns.[71]  Because stock price is a commonly used metric for assessing executive performance, executives pay considerable attention to it, particularly when their compensation is tied to it.[72]  Robust stock prices also facilitate raising capital and fend off unwelcome takeover attempts which might culminate in corporate executives losing their positions.[73]  To this extent, corporate decision makers have strong incentives to maximize shareholder returns and stock prices and avoid sustainable behaviors that might detract from them.

However, these pressures should not discourage all sustainable business efforts.  As noted above, a great many sustainable business practices contribute to, rather than reduce, corporate profits.[74]  These market forces should therefore encourage corporate decision makers to pursue such initiatives, not discourage them from being more sustainable.  Furthermore, according to a leading financial economist, running a business in this way—with a broader understanding of the firm, and focused on more than just shareholders and profits—best maximizes the value of the firm over the long run.[75]

III.  What Can Be Done About It?

While corporate law, norms, and markets each have the potential to impede sustainability efforts, such does not have to be the case: corporate law permits sustainability considerations in decision making, markets affirmatively encourage a great number of sustainable business practices, and sustainable business concepts are gradually gaining acceptance as a new social norm.  What can be done to further sustainability in light of this state of affairs?  Some options include requiring firms to be more sustainable through legal requirements, encouraging sustainable behavior through legal and nonlegal means, or simply continuing the current practice of permitting firms to engage in sustainable business practices but doing nothing to promote such activity.

Sustainability is not for every firm, and broadly imposing it would disrupt central tenets of modern corporate law.  For one, requiring firms to be sustainable would be inconsistent with corporate law’s enabling approach that permits firms to engage in a broad range of business activity with few mandatory rules.[76]  A law requiring sustainability would also be difficult to enforce—under the business judgment rule, informed and disinterested decisions thought to be in the best interest of the firm enjoy deference, whether they are sustainable, unsustainable, or somewhere in between.[77]  Discarding the business judgment rule and limiting board authority would constitute a radical change to corporate law, and it would be most unrealistic to expect legislatures or courts in Delaware or elsewhere to take such extreme measures.[78]

A slightly more palatable approach would offer firms the choice of complying with sustainability goals, such as triple bottom line reporting, or following sustainable decision-making procedures, or explaining publicly to their shareholders why they have not done so.[79]  This middle ground between mandatory reforms and voluntary action can work to establish the suggested behaviors as new norms supporting sustainability and exert subtle pressure on firms to comply instead of explain.

Other, strictly voluntary ways of encouraging sustainable business would require no changes to current corporate law.  One of these involves sustainability reporting.  Although the securities laws do not currently require it,[80] many firms voluntarily disclose their environmental and social activities,[81] and investor pressure seems to induce even more firms to follow suit.[82]  As noted above, disclosing environmental and social performance alongside financial performance creates incentives to produce results one would be proud or at least not embarrassed to report.[83]  Two recognized drawbacks with voluntary triple bottom line reporting have been the variability in formats and related difficulty in comparing different companies’ performances, but the Global Reporting Initiative Sustainability Reporting Guidelines, now in their third version, provide some standardization and may alleviate these problems.[84]

Another voluntary means of encouraging sustainable business draws on private certifications.  Like a Good Housekeeping seal of approval, private certifications can be used to harness consumer and investor preferences for sustainable businesses and products.[85]  B Labs offers one such certification, blessing corporations that are sufficiently benevolent and responsible with its “B Corporation” mark,[86] and similar private certifications exist for fair-trade coffee and chocolate and for sustainably-harvested wood.[87]  As these and similar symbols develop further prominence, they may encourage greater sustainability through the force of the markets for goods, services, and capital.

A final way of encouraging greater sustainability is simply to raise awareness in law and business circles that corporate law does not require shareholder primacy and profit maximization, that firms may wholeheartedly engage in sustainable business practices without breaching legal duties or contravening social norms, and that such efforts even tend to pay off financially.[88]  Such efforts, including this symposium, can perhaps have a greater impact on business, the environment, and society than any set of corporate law reforms.


For too long, the shareholder primacy view and its incessant focus on profits have stifled corporate efforts to become more sustainable.  As a result, shareholders have profited at the expense of the environment, society, and the future.  This need not be the case: corporate laws, norms, and markets should not stand in the way of sustainable business efforts and, to a large degree, should affirmatively encourage corporate decision makers to pursue sustainable goals for the benefit of the entire enterprise.  Only then, when corporations take a broader view of the firm, its purposes, and fiduciary obligations to it, will we create a future where business, the environment, and society may all continue to thrive.



* Visiting Associate Professor, Hofstra University School of Law.  B.A. Williams College; J.D. University of Pennsylvania.  I thank Alan Palmiter and Kent Greenfield for inviting me to take part in this wonderful symposium, my fellow panelists and conference participants for their helpful and insightful comments, the dedicated editors of the Wake Forest Law Review for their hard work on this symposium and Article, and Joshua Ebersole for his adept research assistance.

[1]. Rep. of  U.N. World Comm’n on Env’t & Dev., 14th Sess., Our Common Future 43, U.N. Doc. A/43/427 (1987) (defining sustainability, in the context of sustainable development, as “[meeting] the needs of the present without compromising the ability of future generations to meet their own needs”).  The document is commonly known as the “Brundtland Report” after Norwegian Prime Minister Gro Harlem Brundtland, who led the commission.  See Brundtland Report: Our Common Future, Sustainable Cities,
-our-common-future (last visited Aug. 28, 2011).

[2]. John Elkington, Cannibals with Forks: The Triple Bottom Line of 21st Century Business 55–56 (1998) (paraphrasing economist Herman Daly of the World Bank).  Buckminster Fuller expressed a similar sentiment about the earth’s finite resources and renewable energy in R. Buckminster Fuller, Operating Manual for Spaceship Earth 110–12 (1969).

[3]. Robert W. Kates et al., What Is Sustainable Development? Goals, Indicators, Values, and Practice, 47 Env’t: Sci. & Pol’y for Sustainable Dev. 8, 10 (2005).

[4]. See Elkington, supra note 2, at 70–71; see also John R. Ehrenfeld, Sustainability by Design: A Subversive Strategy for Transforming Our Consumer Culture 6 (2008) (defining sustainability as “the possibility that human and other life will flourish on the planet forever”).

[5]. The terms “green business” and “sustainable business” have much in common.  A green business looks to improve the natural environment while at the same time benefit financially.  See, e.g., Dennis D. Hirsch,Green Business and the Importance of Reflexive Law: What Michael Porter Didn’t Say, 62 Admin. L. Rev. 1063, 1065 (2010) (defining green business as taking “voluntary actions . . . aimed at achieving better environmental performance and, simultaneously, making the company more competitive”).  Green business lacks sustainability’s “social” component, although people of course benefit from an improved environment.

[6]. Andrew W. Savitz & Karl Weber, The Triple Bottom Line: How Today’s Best-Run Companies Are Achieving Economic, Social, and Environmental Success—and How You Can Too xii (2006).

[7]. Matthew Tueth, Fundamentals of Sustainable Business 45–46 (2010).  Some depict sustainability’s financial, environmental, and social goals with a metaphorical three-legged stool, where an imbalance among the three axes would cause the seat to topple.  See Judd F. Sneirson, Green Is Good: Sustainability, Profitability, and a New Paradigm for Corporate Governance, 94 Iowa L. Rev. 987, 991 n.12 (2009).

[8]. See David Millon, Two Models of Corporate Social Responsibility, 46 Wake Forest L. Rev. 523, 530–33 (2011) (emphasizing the long view sustainable businesses take).

[9]. See id. at 530 (noting that profit remains an important sustainability goal, in that without it the business would cease to exist).

[10]. See generally Marc Orlitzky et al., Corporate Social and Financial Performance: A Meta Analysis, 24 Org. Stud. 403, 427 (2003) (“[P]ortraying managers’ choices with respect to [sustainability and profitability] as an either/or trade-off is not justified in light of 30 years of empirical data.”); Joshua D. Margolis et al., Does It Pay to be Good? A Meta-Analysis and Redirection of Research on the Relationship Between Corporate Social and Financial Performance 21 (July 2007) (unpublished manuscript), available at,%20Jim%20Does%20It%20Pay%20to%20Be%20Good.pdf.  On consumer-oriented industries, see Janet E. Kerr, Sustainability Meets Profitability: The Convenient Truth of How the Business Judgment Rule Protects a Board’s Decision to Engage in Social Entrepreneurship, 29 Cardozo L. Rev. 623, 664–65 (2007) (citing studies measuring “a strong positive relationship between CSR [“Corporate Social Responsibility”] behaviors and consumers’ reactions to a company’s products and services”); Raymond J. Fisman et al., Corporate Social Responsibility: Doing Well by Doing Good? (Sept. 2005) (unpublished manuscript), available at
/heal.pdf (noting that corporate social responsibility is more positively related to profitability in advertising-intensive, consumer-oriented industries); see also Elkington, supra note 2, at 110, 119 (relating anecdotes on business-to-business transactions).

[11]. See Savitz, supra note 6, at 22–27 (terming this area of overlap “the sustainability sweet spot”).  Dennis Hirsch’s work on green business identifies several areas in which environmental and financial goals overlap:

(1) directly reducing their own regulated—or unregulated—environmental impacts in ways that will reduce regulatory risk, improve company brand, and allow firms to get out in front of anticipated regulations; (2) reducing their customers’ environmental impacts and decreasing their customers’ exposure to unhealthy substances; (3) increasing their reuse and recycling of materials used in the production process; (4) improving their energy efficiency or that of their customers; (5) improving their resource productivity or that of their customers; (6) implementing systems to indentify waste reduction, pollution prevention, energy efficiency, or resource productivity opportunities throughout the company or facility; (7) collecting and disseminating more information about the firm’s environmental impacts and performance than the law requires; (8) providing more opportunities for stakeholder input into corporate environmental decision making than the law requires; and (9) financing and investing in green products and business models, such as those described above.

Hirsch, supra note 5, at 1072.

[12]. Amory B. Lovins et al., A Road Map for Natural Capitalism, 77 Harv. Bus. Rev. 145, 146 (1999) (advocating the more productive use of manufacturing inputs); Allison Linn, Wal-Mart Aims to Cut Energy Use—and Costs, MSNBC, Apr. 19, 2007, (discussing the retailer’s fuel-efficiency efforts, which reduced emissions, fuel consumption, and transportation costs by between $35 and $50 million annually).

[13]. William McDonough and Michael Braungart offer an extended example of this involving their design of a better upholstery fabric:

The team decided on a mixture of safe, pesticide-free plant and animal fibers for the fabric: wool, which provides insulation in winter and summer, and ramie, which wicks moisture away. Together these fibers would make for a strong and comfortable fabric.  Then we began working on the most difficult aspect of the design: the finishes, dyes, and other process chemicals. Instead of filtering out mutagens, carcinogens, endocrine disrupters, persistent toxins, and bioaccumulative substances at the end of the process, we would filter them out at the beginning. . . .

[W]e eliminated from consideration almost eight thousand chemicals that are commonly used in the textile industry; we also thereby eliminated the need for additives and corrective processes. Not using a given dye, for example, removed the need for additional toxic chemicals and processes to ensure ultraviolet-light stabilization (that is, colorfastness) . . . .  What might seem like an expensive and laborious research process turned out to solve multiple problems and to contribute to a higher-quality product that was ultimately more economical.

The fabric went into production.  The factory director later told us that when regulators came on their rounds and tested the effluent (the water coming out of the factory), they thought their instruments were broken . . . .  Not only did our new design process bypass the traditional responses to environmental problems (reduce, reuse, recycle), it also eliminated the need for regulation, something that any businessperson will appreciate as extremely valuable.

The process had additional positive side effects.  Employees began to use, for recreation and additional workspace, rooms that were previously reserved for hazardous-chemical storage.  Regulatory paperwork was eliminated.  Workers stopped wearing the gloves and masks that had given them a thin veil of protection against workplace toxins.  The mill’s products became so successful that it faced a new problem: financial success, just the kind of problem businesses want to have.

William McDonough & Michael Braungart, Cradle to Cradle: Remaking the Way We Make Things 107–09 (2002); see also Sneirson, supra note 7, at 994 (discussing Nike’s efforts at “considered design,” including the sportswear company’s switch from chemical adhesives to stitching in some of its footwear lines).

[14]. Elkington, supra note 2, at 82.

[15]. Id. at 87–88.

[16]. Cynthia A. Williams, The Securities and Exchange Commission and Corporate Social Transparency, 112 Harv. L. Rev. 1197, 1295 (1999) (arguing for social and environmental disclosures and alluding to Louis Lowenstein, Financial Transparency and Corporate Governance: You Manage What You Measure, 96 Colum. L. Rev. 1355 (1996)).

[17]. See Marcel van Marrewijk & Marco Werre, Multiple Levels of Corporate Sustainability, 44 J. of Bus. Ethics 107, 112 (2003) (deriving levels of sustainability from Clare Graves’s psychology research on value systems and levels of existence and terming this first sustainability level “pre corporate sustainability”).

[18]. On intentional noncompliance to maximize profits, see infra note 36 and accompanying text.

[19]. See Janet E. Kerr, The Creative Capitalism Spectrum: Evaluating Corporate Social Responsibility Through a Legal Lens, 81 Temp. L. Rev. 831, 857 (2008) (terming this category “mere or reactive compliance”); SustainAbility Ltd., Gearing Up: From Corporate Responsibility to Good Governance and Scalable Solutions 34–37 (2004) [hereinafter “Gearing Up”] (terming this category “compliance”); van Marrewijk & Werre, supra note 17, at 112 (terming this category “compliance-driven” corporate sustainability).

[20]. See Gearing Up, supra note 19, at 35.

[21]. See id. at 35 (labeling this type of firm a corporate social responsibility “volunteer”); van Marrewijk & Werre, supra note 17, at 112 (describing this level as “profit-driven” corporate sustainability).

[22]. See supra note 10; see also Jayne W. Barnard, Corporate Boards and the New Environmentalism, 31 Wm. & Mary Envtl. L. & Pol’y Rev. 291, 291 (2007) (noting a “growing consumer preference for products sold by companies that are good corporate citizens”).

[23]. See supra notes 11–13 and accompanying text; see also Barnard, supra note 22, at 291 (noting that “sophisticated corporate managers” are “[taking] into account the possibility of increased governmental regulation; the increasing risk of a costly response to changing environmental conditions”).

[24]. See van Marrewijk & Werre, supra note 17, at 112.

[25]. See Gearing Up, supra note 19, at 36 (labeling this the “partner” level); van Marrewijk & Werre,supra note 17, at 112 (describing this level as “caring” corporate sustainability); Kerr, supra note 19, at 857–58 (labeling these firms “pro-active” in corporate social responsibility).

[26]. See van Marrewijk & Werre, supra note 17, at 112.

[27]. See Gearing Up, supra note 19, at 36; van Marrewijk & Werre, supra note 17, at 110; see, e.g., Linn,supra note 12 (noting Wal-Mart’s efforts to reduce its suppliers’ needless packaging).

[28]. See Gearing Up, supra note 19, at 36 (labeling this level “integrate”); van Marrewijk & Werre, supranote 17, at 112 (describing this level as “synergistic” corporate sustainability); Cynthia A. McEwen & John D. Schmidt, Leadership and the Corporate Sustainability Challenge, Avastone Consulting,  1, 17 (2007), (“What you have to do is build responsibility into every aspect of the way you do business, so it’s built in, not bolted on.” (quoting a pharmaceutical manufacturer’s vice president of corporate responsibility)).

[29]. See supra note 13.

[30]. Marcel van Marrweijk, A Developmental Approach Towards Corporate Sustainability: The European Corporate Sustainability Framework for Managing Complexity and Corporate Transition 1, 5 (2005),available at; seeGearing Up, supra note 19, at 36 (calling this level “reengineer”); Kerr, supra note 19, at 858 (calling this “creative capitalism”); van Marrewijk & Werre, supra note 17, at 112 (terming this level “holistic” corporate sustainability).

[31]. See Gearing Up, supra note 19, at 37.

[32]. Joseph A. Grundfest, Corporate Social Responsibility: Why the Concept Is, and Will Always Be, Confusing and Controversial, Keynote Address at Hofstra University Zarb School of Business (Dec. 1, 2011) (estimating that eighty percent of socially responsible business behavior can be rationalized as profitable over the long term and that the remaining twenty percent involves much heavy lifting for little gain).

[33]. For example, whether it is motivated by profit or by a genuine care for the environment, Wal-Mart’s success in conserving fuel and reducing wasteful packaging has had a significant impact environmentally and on the retail industry.  See Linn, supra note 12 (“The company is so big, and the network of companies that supply its products so vast, that experts see the potential for Wal-Mart to have a tangible impact on problems such as greenhouse gas emissions.”).

[34]. See, e.g., D. Gordon Smith, The Shareholder Primacy Norm, 23 J. Corp. L. 277, 290–91 (1998).

[35]. See Miriam A. Cherry & Judd F. Sneirson, Beyond Profit: Rethinking Corporate Social Responsibility and Greenwashing After the BP Oil Disaster, 85 Tulane L. Rev. 983, 984 (2011) (arguing that BP’s environmental compliance and workplace safety suffered as a result of the company’s undue focus on shareholder profits); see also Sabrina Tavernise, Report Faults Mine Owner for Explosion That Killed 29, N.Y. Times, May 20, 2011, at A11 (quoting a government report that faulted Massey Energy’s workplace safety compliance in the company’s 2010 coal mine disaster).

[36]. In weighing costs of compliance and the potential fines and penalties, firms often discount the latter according to the likelihood of getting caught, prosecuted, and found liable.  See Kent Greenfield, The Failure of Corporate Law: Fundamental Flaws and Progressive Possibilities 73–74 (2006) (criticizing the view that “[t]he obligation to obey the law is subservient to the obligation to make money” and arguing that courts should treat decisions not to comply with applicable laws as ultra vires and hold decision makers personally liable to the corporation for any fees and penalties).  For arguments in favor of the “law as price” view of corporate compliance, see Robert Cooter, Prices and Sanctions, 84 Colum. L. Rev. 1523, 1524–25 (1984); Frank H. Easterbrook & Daniel R. Fischel, Antitrust Suits by Targets of Tender Offers, 80 Mich. L. Rev. 1155, 1168 n.36 (1982); David Engel, An Approach to Corporate Social Responsibility, 32 Stan. L. Rev. 1, 1 (1979).

[37]. Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919).

[38]. Id. at 684 (stating also that “it is not within the lawful powers of a board of directors to shape and conduct the affairs of a corporation for the merely incidental benefit of shareholder and for the primary purpose of benefitting [sic] others”).

[39]. Milton Friedman, The Social Responsibility of Business is to Increase Its Profits, N.Y. Times Mag., Sept. 13, 1970, at 33.

[40]. See Sneirson, supra note 7, at 995–1007 (arguing that corporate law contains no requirement of shareholder profit maximization).

[41]. See supra note 38 and accompanying text.

[42]. See Granada Invs., Inc. v. DWG Corp., 823 F. Supp. 448, 459 (N.D. Ohio 1993) (“[T]he sole duty of a corporation’s officers is to maximize shareholder wealth.”); Katz v. Oak Indus., Inc., 508 A.2d 873, 879 (Del. Ch. 1986) (“It is the obligation of directors to attempt, within the law, to maximize the long-run interests of the corporation’s stockholders.”); Long v. Norwood Hills Corp., 380 S.W.2d 451, 476 (Mo. Ct. App. 1964) (“[T]he ultimate object of every ordinary trading corporation is the pecuniary gain of its stockholders . . . .”).  The recent decision in eBay Domestic Holdings, Inc. v. Newmark, C.A. No. 3705-CC, 2010 WL 3516473 (Del. Ch. Sept. 9, 2010), suggests something similar in dicta.  There, in invalidating the controlling shareholders’ dead-hand poison pill, the Chancery Court wrote, “Having chosen a for-profit corporate form, the craigslist directors are bound . . . to promote the value of the corporation for the benefit of its stockholders.  The ‘Inc.’ after the company name has to mean at least that.”  See id. at *34.  This statement is closer to the Delaware requirement that corporate decisions ultimately benefit the firm’s shareholders than a requirement to maximize, as oppose to merely promote, shareholder welfare. See infra note 44,

[43]. See Sneirson, supra note 7, at 1003–04 (examining the citation history of these decisions).  Interestingly, a recent reexamination of Dodge v. Ford concluded that the case was more about close corporations and minority-shareholder oppression than dividends and shareholder wealth.  See Smith,supra note 34, at 318–19.

[44]. See Revlon, Inc. v. MacAndrews & Forbes Holdings Inc., 506 A.2d 173, 182 (Del. 1985) (“A board may have regard for various constituencies in discharging its responsibilities, provided there are rationally related benefits accruing to the stockholders.”); see also eBay, 2010 WL 3516473, at *33 (“Promoting, protecting, or pursuing nonstockholder considerations must lead at some point to value for stockholders.”).  This rule and caveat applies to normal governance issues under Delaware corporate law; where the company is undergoing a “change in control” or sale and inevitable breakup, shareholder-centric duties kick in and preclude the board from sacrificing shareholder interests to serve other stakeholders. See Revlon, 506 A.2d at 182.

[45]. See, e.g., Paramount Comms., Inc. v. Time, Inc., 571 A.2d 1140, 1144 n.4 (Del. 1989) (validating Time’s efforts to prefer Warner over Paramount as merger partners, a preference which was ostensibly motivated to protect the “Time culture” of  journalistic integrity).  This assumes that the Revlon duties described in the previous footnote have not been triggered.  See supra note 44.

[46]. See E. Norman Veasey & Christine T. DiGuglielmo, How Many Masters Can a Director Serve? A Look at the Tensions Facing Constituency Directors, 63 Bus. Law. 761, 764 (2008) (citing N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla, 930 A.2d 92, 101 (Del. 2007) (“It is well settled that directors owe fiduciary duties to the corporation.”)).

[47]. See Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985) (“[O]ur analysis begins with the basic principle that corporate directors have a fiduciary duty to act in the best interests of the corporation’s stockholders.”).

[48]. See Veseay & DiGuglielmo, supra note 46, at 764 (citing a different passage in N. Am. Catholic Educ. Programming Found., Inc., 930 A.2d at 99) (“It is well established that the directors owe their fiduciary obligation to the corporation and its shareholders.”).  For a cogent explanation of this inconsistency, see Lawrence E. Mitchell, A Theoretical and Practical Framework for Enforcing Corporate Constituency Statutes, 70 Tex. L. Rev. 579, 590–96 (1992) (positing that courts speak in terms of the corporation’s best interests when resolving a “vertical conflict of interest” between the firm and its managers, and the shareholders’ best interests when resolving a “horizontal conflict of interest” between shareholders and other stakeholder groups).

[49]. See Smith, supra note 34, at 285 (“‘[T]he best interests of the corporation’ are generally understood to coincide with the best long-term interests of the shareholders.”); see also Stephen M. Bainbridge, In Defense of the Shareholder Wealth Maximization Norm: A Reply to Professor Green, 50 Wash. & Lee L. Rev. 1423, 1439 (1993) (“In most situations, shareholder and nonshareholder constituency interests coincide.”); Millon, supra note 8, at 530; Veasey & Di Guglielmo, supra note 46, at 764–65 & n.9 (acknowledging that “operating a business in an environmentally sustainable way” may make “good business sense and therefore increase[] long-term financial value”).

[50]. Corporate law also prefers shareholders by granting them, but no other corporate constituency, the power to elect directors and sue derivatively on behalf of the organization.

[51]. See American Law Institute, Principles of Corporate Governance: Analysis and Recommendations (1994).

[52]. See id. § 2.01(a).

[53]. See William W. Bratton, Confronting the Ethical Case Against the Ethical Case for Constituency Rights, 50 Wash. & Lee L. Rev. 1449, 1456 (1993) (noting that the ALI eschews the term “maximization” for the more equivocal term “enhancement”).

[54]. See ALI, supra note 51, § 2.01(a) cmt. f (“[E]nhancing corporate profit and shareholder gain . . . does not mean that the objective of the corporation must be to realize corporate profit and shareholder gain in the short run.”); see also id. illus. 1 & 2.

[55]. See id. § 2.01(b).

[56]. See Jill E. Fisch, Measuring Efficiency in Corporate Law: The Role of Shareholder Primacy, 31 J. Corp. L. 637, 651 (2007) (“Although Dodge v. Ford is frequently cited, no modern court has struck down an operational decision on the ground that it favors stakeholder interests over shareholder interests.”); Thomas W. Joo, Race, Corporate Law, and Shareholder Value, 54 J. Legal Educ. 351, 361 (2004) (“[D]irectors’ supposed duty to ‘maximize’ shareholder wealth is a toothless one.  No courts actually require management to maximize shareholder wealth . . . [i]ndeed, such a showing would be all but impossible.”); Jonathan R. Macey, A Close Read of an Excellent Commentary on Dodge v. Ford, 3 Va. L. & Bus. Rev. 177, 180–81 (2008) (arguing that corporate law requires shareholder wealth maximization but conceding that, like the speed limit on the Merritt Parkway, it is not enforced because enforcement would prove to be difficult or impossible); Mark J. Roe, The Shareholder Wealth Maximization Norm and Industrial Organization, 149 U. Pa. L. Rev. 2063, 2072 (2001) (noting that “corporate law’s instructions to managers” to enhance shareholder gain do not “determine what they do”); Smith, supra note 34, at 286 (“[T]he business judgment rule makes the shareholder primacy norm virtually unenforceable against public corporations’ managers.”).

[57]. See Joy v. North, 692 F.2d 880, 885–86 (2d Cir. 1982) (presenting rationales for the business judgment rule); William T. Allen et al., Function over Form: A Reassessment of Standards of Review in Delaware Corporation Law, 56 Bus. Lawyer 1287, 1297 (2001) (describing the business judgment rule as “an expression of a policy of non-review of a board of directors’ decision”); see also Stephen M. Bainbridge, Corporation Law & Economics § 6.2 (2002) (viewing the business judgment rule as an abstention doctrine).  For an analysis of the “reasonably full information” predicate, see Judd F. Sneirson,Doing Well By Doing Good: Leveraging Due Care for Better, More Socially Responsible Corporate Decisionmaking, 3 Corp. Governance L. Rev. 438, 465–68 (arguing that the duty of care’s information component requires fiduciaries to assess and consider effects on the firm’s nonshareholder constituencies).

[58]. See, e.g., Joy, 692 F.2d at 880; Gagliardi v. TriFoods Int’l, Inc., 683 A.2d 1049, 1052 (Del. Ch. 1996); Shlensky v. Wrigley, 237 N.E.2d 776 (Ill. App. 1968) (upholding the decision not to install lights at Wrigley Field); Kamin v. Am. Express Co., 383 N.Y.S.2d 807 (Sup. Ct. 1976) (upholding a dividend that squandered a sizable corporate tax deduction).

[59]. The Illinois provision is typical of the American statutes.  It provides:

In discharging the duties of their respective positions, the board of directors, committees of the board, individual directors and individual officers may, in considering the best long term and short term interests of the corporation, consider the effects of any action (including without limitation, action which may involve or relate to a change or potential change in control of the corporation) upon employees, suppliers and customers of the corporation or its subsidiaries, communities in which offices or other establishments of the corporation or its subsidiaries are located, and all other pertinent factors.

805 Ill. Comp. Stat. 5/8.85 (2011).  Most of the states that enacted these provisions did so during the surge of corporate-takeover activity in the 1980s, often to help local corporations fend off out-of-state suitors. See Sneirson, supra note 7, at 997–98.

[60]. See Sneirson, supra note 7, at 998 nn.52–53 (surveying “other constituency” statutes).

[61]. See William T. Allen et al., The Great Takeover Debate: A Meditation on Bridging the Conceptual Divide, 69 U. Chi. L. Rev. 1067, 1068 (2002) (identifying this ambivalence); Christopher M. Bruner, The Enduring Ambivalence of Corporate Law, 59 Ala. L. Rev. 1385, 1386 (2008) (same); Lyman Johnson, The Delaware Judiciary and the Meaning of Corporate Life and Corporate Law, 68 Tex. L. Rev. 865, 902 (1990) (same).

[62]. Brett McDonnell, Comment to Shareholders Versus Stockholders, (May 5, 2010, 8:00 AM), (“[Perhaps] courts put forth a norm that boards should maximize return to shareholders but outside a few special circumstances they do not enforce that norm in a way that gives rise to liability for violating it.”).

[63]. Norms are “informal social regularities that individuals feel obligated to follow because of an internalized sense of duty, because of a fear of external non-legal sanctions, or both.”  See Richard H. MacAdams, The Origin, Development, and Regulation of Norms, 96 Mich. L. Rev. 338, 340 (1997); see also Lawrence Lessig, Code and Other Laws of Cyberspace 235 (1999) (defining norms as “those normative constraints imposed not through the organized or centralized actions of a state, but through the many slight and sometimes forceful sanctions that members of a community impose on each other”); Cass R. Sunstein, Social Norms and Social Roles, 96 Colum. L. Rev. 903, 914 (1996) (defining norms as “social attitudes of approval and disapproval, specifying what ought to be done and what ought not to be done”). See generally Symposium, Norms & Corporate Law, 149 U. Pa. L. Rev. 1607 (2001).

[64]. See Fisch, supra note 56, at 654–55 (noting a study finding “that the norm of shareholder wealth maximization was implicit in most business school courses”); Lawrence E. Mitchell, A Critical Look at Corporate Governance, 45 Vand. L. Rev. 1263, 1288 (1992) (“Directors seem to believe that their legal duty is to the stockholders.”); Roe, supra note 56, at 2073 (“Norms in American business circles, starting with business school education, emphasize the value, appropriateness, and indeed the justice of maximizing shareholder wealth.”).

[65]. Stephen M. Bainbridge, Participatory Management Within a Theory of the Firm, 21 J. Corp. L. 657, 717 (1996).

[66]. Roe, supra note 56, at 2065.

[67]. See Smith, supra note 34, at 290–91 (citing studies and relating that “managers often make decisions that do not maximize value for shareholders”); Fisch, supra note 56, at 655 (citing similar, subsequent studies).

[68]. See Lisa M. Fairfax, The Rhetoric of Corporate Law: The Impact of Stakeholder Rhetoric on Corporate Norms, 31 J. Corp. L. 675, 677–78, 699, 710 (2006) (suggesting “a growing [societal and investor] dissatisfaction with the shareholder primacy norm” and that these groups find the broader stakeholder model of corporate governance “acceptable if not more palatable than shareholder primacy”); Robert C. Illig, Al Gore, Oprah, and Silicon Valley: Bringing Main Street and Corporate America into the Environmental Movement, 23 J. Envtl. L. & Litig. 223, 229 (2008) (noting popular acceptance of environmental concerns).

[69]. Fairfax, supra note 68, at 677.

[70]. See Sneirson, supra note 7, at 1012.

[71]. See Lessig, supra note 63, at 235–36 (identifying four categories of regulators in cyberspace and elsewhere: “the law, social norms, the market, and architecture”).

[72]. See, e.g., Richard A. Posner, Are American CEOs Overpaid, and, if so, What if Anything Should be Done About It?, 58 Duke L.J. 1013, 1026–27 (2009) (criticizing the common practice of showering CEOs with stock options as unduly focusing executives on the short term).

[73]. See Sneirson, supra note 7, at 1007–09.

[74]. See supra notes 10–13 and accompanying text.

[75]. See Michael C. Jensen, Value Maximization, Stakeholder Theory, and the Corporate Objective Function, 14 J. Applied Corp. Fin. 8, 16–17 (2001) (setting forth an “enlightened stakeholder theory” whereby corporate decision  makers maximize the long-term value of the firm by tending to all of the firm’s constituencies).

[76]. See Bainbridge, supra note 57, § 2.1, at 40 (characterizing modern corporate law as “enabling”); Leo E. Strine, Jr., The Delaware Way: How We Do Corporate Law and Some of the New Challenges We (and Europe) Face, 30 Del. J. Corp. L. 673, 674 (2005) (“[O]ur statute is, by design, a broad enabling one that permits and facilitates company-specific procedures . . . [and] keeps statutory mandates to a minimum.”).

[77]. See supra notes 56–58 and accompanying text.

[78]. See, e.g., David G. Yosifon, The Public Choice Problem in Corporate Law: Corporate Social Responsibility After Citizens United, 89 N.C. L. Rev. 1198 (forthcoming 2011) (expressing pessimism about the future of corporate influence over legislatures).

[79]. Cf. Sarbanes-Oxley Act of 2002 § 406, 15 U.S.C. § 7264(a) (2011) (requiring issuers to adopt ethics codes for senior financial officers or explain why they have not done so); Jennifer G. Hill, Regulatory Responses to Global Corporate Scandals, 23 Wis. Int’l L.J. 367, 377 (2005) (discussing the “comply or explain” approach of recent British corporate law reforms).

[80]. See Thomas Joo, Global Warming and the Management-Centered Corporation, 44 Wake Forest L. Rev. 671, 672 (2009) (concluding that climate-change disclosures are not required per the securities laws’ materiality filter).

[81]. See, e.g., Fairfax, supra note 68, at 691–93, 713–15 (noting that most of the Fortune 500 in 2005 made voluntary social-responsibility disclosures in their annual reports or in separate social-responsibility reports).  This trend has continued through at least 2010, with all but four of the Fortune 50 making voluntary social-responsibility disclosures in their annual reports or in separate social-responsibility reports.  See generally Jousha T. Ebersole, Voluntary CSR Disclosures of Fortune 50 Companies (Apr. 25, 2011) (on file with author).

[82]. See id. at 691, 702–03 (noting such a trend and concluding that investors desire such information as well as socially responsible corporate behavior).

[83]. See supra note 16 and accompanying text.

[84]. See Elkington, supra note 2, at 82, 84 (noting difficult comparisons); Marc J. Epstein, Making Sustainability Work: Best Practices in Managing and Measuring Corporate Social, Environmental, and Economic Impacts 224–25 (2008) (discussing the “GRI” guidelines and noting that nearly one thousand firms in more than sixty countries use the GRI framework and “34 companies in the [Standard & Poor’s] 100 Index use . . . it for their external reporting”).  But see Holger Meyer, Varieties of Capitalism and Environmental Sustainability: Institutional Explanation for differences in Firms’ Corporate Environmental Responsibility Reporting Across 21 OECD Economies, Soc. Sci. Res. Network, (last visited Aug. 28, 2011) (challenging “the common perception of a trend towards more homogeneous global corporate responsibility” reporting and arguing instead that reporting standards “remain embedded in national institutional frameworks”).

[85]. See supra note 10 (noting sustainable businesses’ success in consumer-oriented industries); see alsoGood Housekeeping Seal,‑testing/history/about‑good‑housekeeping-seal (last visited Aug. 28, 2011).  Good Housekeeping also maintains a “green” version of its seal for products that meet the magazine’s environmental criteria.  See id.

[86]. See Sneirson, supra note 7, at 1017–19 (discussing the “B Corporation” concept and mark).  Several states recently enacted legislation to create a statutory counterpart to “B Corporation” certifications.  SeeDana Brakman Reiser, Benefit Corporations—A Sustainable Form of Organization?, 46 Wake Forest L. Rev. 591, 594 (2011) (describing “benefit corporation” enactments in Maryland, New Jersey, Vermont, and Virginia).  For a different state statutory model, see Sneirson, supra note 7, at 1019–20 (discussing Oregon’s 2007 corporate law amendment, codified at Or. Rev. Stat. § 60.047(2)(e), permitting Oregon corporations to include in their articles of incorporation a provision “authorizing” or “directing” that the firm be run in an environmentally and socially responsible manner).

[87]. See Fair Trade USA, (last visited Aug. 28, 2011); Forest Stewardship Council, (last visited Aug. 28, 2011).

[88]. See supra Part II.


By: David G. Yosifon*


Corporate theory typically construes consumption activity as involving a series of arms-length, atomistic transactions in which consumers exchange money for discrete corporate goods or services.  Canonical accounts expect satisfied consumers to engage in repeat transactions, but the transactions themselves are (implicitly or explicitly) assumed to be isolated, fully contained dealings with the firm.  Such a view of consumption supports the inference that consumers can readily manage their own interests in corporate operations through serial decisions to “take it,” “leave it,” repeat, or refuse to repeat patronization of a firm.  This assessment plays an important part in justifying American corporate governance law, which charges corporate directors with fiduciary obligations only to shareholders, not consumers or other stakeholders.  In this Article, I begin to explore some ways in which consumer associations with the corporate “nexus of contracts” are more relational and indeterminate, and less atomistic, than mainstream corporate theory typically presumes.  I draw on and extend Ronald Coase’s transactional theory of the firm by exploring ways in which some  important consumption decisions are made “in-house” by firm managers rather than “in the market” by individual consumers.  This positive theory of “firm-based consumption” poses a challenge to the view that corporate governance law should require directors to manage firms exclusively on behalf of shareholders.


Consumption is a fundamental part of life.  We must consume air, water, and food to stay alive.  More than mere survival, consumption is an important technique through which we make our lives fully human.  We express ourselves and forge group associations, in part, through our consumption patterns.[1]  Influential economic and political theories hold that our social prosperity is dependent upon extensive and deepening patterns of consumption.[2]  Consumption activity is creeping ever more pervasively into the lives of people already living in consumer-based societies, and more and more societies the world over are becoming consumer based.[3]  How we consume is in part a function of our social, economic, and legal institutions.  In this Article, I explore some undertheorized aspects of the corporate organization of consumption.[4]  In particular, by drawing on and extending Ronald Coase’s work on the theory of the firm,[5] I explore ways in which some consumption decisions are made “in-house” by corporate managers, rather than “in the market” by individual consumers.[6]  I then argue that this analysis of “firm-based consumption” presents a new challenge to prevailing justifications of the view (presently dominant in corporate theory and corporate law) that corporate directors should manage firms exclusively on behalf of shareholders.

I.  Consumers in the Corporate Nexus

The corporation is a “nexus of contracts” comprised of all those with a stake in the firm’s operations, including shareholders, workers, consumers, and the broader social and political community.[7]  Under the prevailing view, shareholders are the exclusive beneficiaries of fiduciary obligations from corporate directors not because shareholders “own” the corporation, but because shareholders have a unique need for fiduciary ties in firm governance that other stakeholders can do without.[8]

Once shareholders invest their capital in corporate enterprise, they have little ability to control or monitor its use.[9]  After they turn over their money, shareholders are entitled only to whatever “residual” profits directors decide to pay in dividends after all other corporate obligations have been satisfied (e.g., payments to creditors, wages for workers, taxes to the state, etc.).[10]  The inability of dispersed shareholders to control corporate operations, combined with rank indeterminacy in what they are owed, leaves shareholders with little confidence that turning capital over to the firm would be a good idea.  One of corporate law’s basic solutions to this problem of shareholder vulnerability is to make directors fiduciaries, exclusively, of shareholders.[11]  Directors are charged with managing firm operations on behalf of shareholders without, at the end of the day, any formal regard for themselves or non-shareholding stakeholders, “however hard the abnegation.”[12]

Nonshareholding corporate stakeholders must rely on nonfiduciary mechanisms to guard their interests.  According to the standard account, workers are intimately involved in firm operations (physically, at the plant, or through electronic communications) and can therefore monitor their interests and negotiate their interest in corporate operations with firm managers either individually or collectively through unions.  Moreover, workers’ fundamental stake in the firm is wages, which unlike “residual” profits, can be contractually specified, ex ante, with precision.  They therefore do not need fiduciary attention in firm governance.[13]

Critical corporate scholars have repudiated this view, arguing that workers, like shareholders, also have unfixed, indeterminate interests in corporate operations.[14]  After all, workers want not only wages, but also job security, raises, promotions, and safe working conditions.  Once they invest their human capital (learning and becoming expert at firm-specific tasks) it becomes more and more difficult for laborers to “exit” a particular corporate nexus by quitting and getting work at a different firm.  Without a credible threat of exit, it becomes easier for directors to deal sharply with workers as one way of satisfying corporate law’s central command that directors pursue profits for shareholders.[15]  Further, some important elements of employment are difficult for workers to monitor on their own.  It is at least as hard for workers to spot asbestos hiding in construction materials, or carpel-tunnel syndrome lurking in repetitive key strokes, as it is for shareholders to see the frailty of investments in bundled subprime mortgages.  Because of the irreducibly relational nature of corporate employment, critical corporate scholars have sometimes argued that corporate boards should be required to serve as fiduciaries of workers in addition to shareholders.[16]

Fewer scholars have critically examined the nature of the consumer interest in corporate operations.[17]  Neither theorists nor the law have thought it necessary to afford consumers fiduciary protections in firm governance.  Corporations, the standard account goes, must already serve consumer interests if they hope to stay in business at all—neither taxes nor wages, creditors nor shareholders, can be paid unless consumers are satisfied and patronize the firm.[18]  Moreover, consumers can look after their own interests by inspecting corporate goods and services before making any purchases.  While consumers rarely negotiate the terms of their deals with corporate operatives, the decision to “take” or “leave” what firms offer is thought to be a sufficient contract-based safeguard to protect consumer interests.[19]  Of course, consumers will sometimes find it hard to evaluate important aspects of goods.  It is difficult, for example, for most consumers to inspect or understand the relevance of nicotine levels in cigarettes, trans fats in french fries, or escalating interest rates in home mortgages.  Nevertheless, mainstream corporate theory and extant law ascribe a protective role in such circumstances not to corporate decision makers, but to external government regulators who are charged with insulating consumers from the pernicious effects of misleading advertising or hazards that are difficult to observe.[20]

In previous work, I have challenged these fundamental justifications for keeping consumer interests out of corporate boards’ formal responsibilities.[21]  First, wedded as it is to unreconstructed “rational actor” and “common sense” conceptions of the sources of individual behavior, corporate theory has failed to adequately address what social science tells us about the ease with which consumer perceptions of risk and other product attributes can be manipulated by corporations through advertising and marketing activity.[22]  Corporations may be serving shareholder interests not by discerning and satisfying consumer preferences, but by inducing preferences and manipulating perceptions.[23]  Second, corporate theorists have failed to attend to the substantial public choice problems that preclude the development of the external regulatory structures that the canonical view claims should protect consumers where individual judgment is inadequate or exploited.[24]  After all, firms charged with maximizing shareholder profits will be motivated to work within the political sphere to stunt the development of such regulatory regimes in service to their shareholders.  After the Supreme Court held in Citizens United v. Federal Elections Commission[25] that the First Amendment forbids government from stifling corporate political speech, corporate interference in regulatory development will prove to be an even more significant hitch in shareholder primacy theory.[26]  In light of these problems, I have argued that it may be prudent for corporate law to vindicate a voice for consumers not only at cash registers and in the halls of government, but also in corporate board rooms, by making directors actively attend to the interests of consumers at the level of firm governance.

Here, I want to bracket my analysis of corporate manipulation of consumer preferences and political processes and focus instead on more deeply situating consumption activity within the general theory of the firm.  The positive assessment of the corporate organization of consumption that I begin to sketch here will provide a more complete foundation for my normative claim that corporate boards, or some corporate boards, should be required to attend to consumer interests at the level of firm governance.[27]

II.  Firm-Based Consumption

While equity and (sometimes) labor are viewed as having extended, unfixed relationships with the corporate nexus, corporate theorists typically construe consumption activity as involving arms-length, atomistic transactions in which consumers exchange money for discrete corporate goods or services.[28]  Under the canonical account, consumers might be expected to engage in repeat transactions,[29] but the transactions themselves are seen as isolated, finite, fully contained dealings with the firm.  The presumption that consumers have simple, fixed, and determinate claims on the corporation is an important basis for the conclusion that consumers can take care of their own interests and do not need fiduciary attention in corporate governance.  I believe that this presumption oversimplifies contemporary consumption patterns, which are far more relational in nature than is appreciated in mainstream corporate theory.

A.            Consumption and Corporate Philanthropy

Recently I made my weekly trip to Whole Foods Market, Inc. (a publicly traded company).  Thrilled with my chosen lot of fresh fruit, vegetables, breads, and prepared (but purportedly healthy) delectables I had chosen, I paid for the goods and left the store.  As I pushed the grocery cart to my car I saw a notice printed on the sides of the brown paper grocery bags announcing that on September 22, Whole Foods would be giving 5% of its sales to something called the California Coastal Cleanup Day.  I thought to myself, is this a promise or a threat?  I wondered, why would Whole Foods give 5% of the price it charges me for groceries to this cleanup project, instead of reducing its prices by 5% such that I could then have a little extra to spend on cancer prevention, the search for extra-terrestrial life, prisoner rights advocacy, my still-festering law school loans, or, if I wanted, coastal cleanup?  Why would I be better off with Whole Foods deciding how to spend this money than I would be if I made the decision myself?  Whole Foods might as well fill up my grocery cart for me, and I could just meet them at the checkout.  The mystery deepens when you consider that if I donated to the Coastal Cleanup with cash savings from reduced prices I could take a tax deduction on the donation.  At least with respect to the prepared food I purchased, I had to pay sales tax on the purchase price (which was inflated by the cost of the coastal cleanup contribution) and I get no personal tax deduction for the money Whole Foods donates to the Coastal Cleanup.[30]

For a moment I thought that maybe it really was a kind of warning and that if I wanted no part of the cleanup I could just avoid patronizing Whole Foods on September 22.  But then I realized that I had, obviously, already paid for part of the beach cleanup through the prices on the purchases I had just made (before I even learned about the Coastal Cleanup); indeed, I had paid for it in the purchases I had made the previous week too, and the week before that.  The money that Whole Foods was going to use to pay for the cleanup could have been used instead to lower prices throughout the year.  Or was Whole Foods trying to make me think that the 5% for coastal cleanup would be coming only out of “residual” profits, and thus coming from shareholders’ pockets, rather than coming out of the gains-to-trade that all stakeholders in the corporate enterprise, including workers and consumers, must split?[31]

Perhaps Whole Foods is able to accomplish an economy of scale by drawing consumers to its stores with promises of coastal cleanups, economies that reduce the overall cost of produce to the consumer.[32]  Indeed, one of the justifications that scholars and courts propound for why corporations are permitted to make charitable donations is that consumers like it and are more likely to patronize firms that do it, thereby making such conduct profitable for shareholders.[33]  But this just begs the question, why do promises of coastal cleanups, rather than promises of greater cash savings, attract consumers and produce this economy of scale?  Upon further inquiry (i.e., by Googling it), I learned that the California Coastal Cleanup is also supported by contributions from, among others, Oracle, Inc., Kohls, Inc., Delta, Inc., KPMG, Inc., Fairmont Hotels & Resorts, Inc., and See’s Candies, Inc.[34]  It turns out that one’s consumption of computer services, household goods, travel, accounting, lodging, and candy all come with a side of beach cleanup.  Now, I generally favor coastal cleanups and other environmental ventures, and am happy to help pay for them.  What begs explicit analysis, however, is the realization that I am paying for them not just through direct contributions, or through tax-and-transfer programs, but as part of my day-to-day consumption activity.  Of course, the California Coastal Cleanup is just one of many charitable ventures supported by corporations.  In 2009, American corporations made an estimated $14.4 billion in charitable donations.[35]

In the penultimate section of this Article, I will turn to the issue of consumers’ desire for goods that are produced and disseminated in an environmentally sustainable fashion (rather than products that are bundled with charitable contributions).[36]  I hold that issue in abeyance in this Part in order to first square up the analytic issues involved in “firm-based” consumption through two further examples that I think introduce the issue in a more direct, graspable fashion.

B.            Loyal Consumption

My highly organized wife is a proponent of cultivating and using “points” or “miles” by participating in retail and credit card company loyalty and reward programs.  By staying as often as possible at Marriott International, Inc. hotels, we generate “points” which can be used for a “free” (ahem) hotel stay in the future.[37]  By using an American Express, Inc. credit card to pay for all manner of consumption, we can receive “free” (ahem) hotel rooms, baseball tickets, household electronics, or gift cards for retailers, such as Home Depot, Inc., or Linens ‘n Things, Inc.[38]  Consumer loyalty programs have a long and quirky history, but the modern practice can be traced to the introduction of “frequent flyer” miles by American Airlines, Inc. in 1981.[39]  The success of that program spurred imitators not just in the airline industry, but throughout retail markets.[40]  Analysts have found that the average American consumer belongs to fourteen different rewards programs, and is actively engaged in six of them.[41]  So why would a consumer prefer to receive “points” that she can put towards future consumption of a limited range of goods that American Express or some other business offers through its rewards program, rather than receiving a present cash discount (equal to whatever it costs the business to run the rewards program), which she could then spend on anything at all?  This pattern is especially mysterious given robust evidence from social psychology that consumers usually behave as “hyperbolic discounters.”[42]  That is, consumers are generally thought to strongly prefer more present consumption over the possibility of higher levels of consumption in the future.[43]  Why do firms compete on the basis of offering better “miles” or rewards programs, rather than on price?[44]

C.            Employee Consumption of Benefits

I am principally concerned here with analyzing the nature of consumer associations with corporate enterprise.  This task will be aided by briefly considering an important employee-specific form of firm-based consumption: employee benefits, or “in kind” employee compensation programs.  Such benefits most prominently include health insurance, but also include maternity, paternity, and other family leave programs, fitness and recreational programs, meals and entertainment (group or individual tickets to baseball games, etc.), and reduced costs for company products and services.[45]  A 2002 study by the U.S. Chamber of Commerce found that benefits programs comprised a (surprisingly high) 42.3% of total employee compensation for American workers.[46]

Why would a worker prefer to receive specific goods or services as compensation rather than higher wages that the worker could use to buy anything she wanted, including health insurance, opera tickets, or coastal cleanups?  Analysts give two fundamental explanations, only the second of which is directly relevant to the present inquiry.  First, unlike ordinary wages, some in-kind benefits are not taxed as income under the United State Tax Code.[47]  These include big-ticket, obvious items like health insurance, but also less-obvious, less-tractable items like “free” air conditioning in the office.[48]  The tax explanation is important, but it is not complete, as many benefits do count as income under the tax code.[49]  In fact, the default rule is that benefits are taxed as income, although, as stated, there are important exceptions.[50]  Examples of nonexcludable benefits include routine snacks and meals, athletic club memberships, gift certificates to department stores, and the like.  The second, nontax explanation for why firms give employees benefits instead of higher wages is that firms sometimes have a cost advantage in procuring the in-kind item and can make it available more cheaply than their employees could acquire it in the open market.[51]  The cost advantage can be split between the firm and the worker, making both better off than they would be if the firm paid the worker enough cash to purchase the benefit outside of the firm.  As one scholar succinctly puts it: “When the firm can buy a benefit for a lower cost than the employee could buy it on their own, the firm is essentially acting as a buying agent for the worker.”[52]

III.  A Coasian Approach to a Firm-Based Theory of Consumption

A firm that wants to sell pencils might go into the open market and contract with a woodchopper for the chopping of wood, then make a deal with a graphite miner for the mining of graphite, then contract with a designer for the pencil’s design, then make a deal with a factory to compile all these elements into a pencil, which the firm would then sell.  Alternatively, a pencil business might organize these production components “in-house” by employing and deploying its own woodchoppers, miners, designers, and manufacturers.  How do firms decide how to organize pencil production?

In his groundbreaking 1937 essay The Nature of the Firm, Ronald Coase explained why production (pencil and otherwise) is sometimes accomplished through a series of arms-length contractual exchanges “in the market,” and at other times is organized by command and control “in the firm.”[53]  Coase famously argued that “[t]he main reason why it is profitable to establish a firm would seem to be that there is a cost of using the price mechanism.  The most obvious cost of ‘organizing’ production through the price mechanism is that of discovering what the relevant prices are.”[54]  The high cost of discovering—Coase includes the cost of “negotiating” in this notion of discovery—prices for various inputs, such as raw materials and labor, can sometimes make it cheaper to just vertically integrate production components within one firm, where the combination and use of such components is determined by the day-to-day fiat of firm managers, rather than continually negotiated with outsiders.[55]

Coase’s “transactional” theory of the firm has had tremendous influence in economics generally and in corporate law scholarship in particular.[56]  Coase’s insights, however, have not been deployed to make sense of consumption activity.  Coase himself touched only very briefly on the issue of consumption in his article.  His one statement on the matter comes in an obscure footnote to a famous rhetorical question: “[W]hy, if by organizing one can eliminate certain costs and in fact reduce the cost of production, are there any market transactions at all?”[57]  The Coasian answer to the rhetorical question is, of course, that in some circumstances transaction costs in the market are lower than organizing (and monitoring) costs in the firm.[58]  But in the footnote to his rhetorical question Coase stumbles (well, Coase never stumbles, he jaunts) into consumption:

There are certain marketing costs which could only be eliminated by the abolition of ‘consumers’ choice’ and these are the costs of retailing.  It is conceivable that these costs might be so high that people would be willing to accept rations because the extra product obtained was worth the loss of their choice.[59]

I argue that this is not just conceivable, but is in fact widespread in the contemporary corporate organization of consumption.  Where price information and other transaction costs are relatively cheap, consumers prefer to make their own consumption decisions through spot transactions “in the market.”  But where information and other transaction costs are high, consumers fare better turning consumption decisions over to be made “in-house” through firm governance.[60]  Just as the worker sometimes gets higher wages by turning discretion over the use of her labor to corporate managers, rather than bargaining for its use in individual projects in the marketplace, and capital sometimes receives higher returns by relinquishing to firm managers discretion over how its money will be invested, so also does the consumer sometimes do better turning over discretion regarding what exactly will be consumed to firm managers.  The consumer sometimes finds it more efficient to eat what is “rationed” to her on “islands of conscious power” rather than go casting her own net about in the open sea.[61]

The consumer who purchases groceries, candy, insurance, hotel stays, or computer software all with a side of coastal cleanup[62] of course is free to patronize a different set of firms not tying their wares to beach cleanup, buy groceries, insurance and candy at a slightly cheaper price, and then separately make her own donations to the charities of her choice.  It is difficult to tell exactly what amount of beach cleanup one would be getting with a purchase of groceries, candy, or software, just as it is difficult to tell how much beach cleanup one can get with a direct donation.  That is to say, it is difficult for the consumer in these areas to determine prices.  The quantum of the individual consumer’s portion of the corporate donation with each purchase is so small that the opportunity costs involved in seeking out and executing atomistic purchases and donations would far outweigh any efficiency loss in just leaving the decision making up to an otherwise trusted firm and taking the corporate bundle.[63] The firm-based decisions will not exactly accord with the consumers’ private preferences, but the consumer has no better preference-maximizing option in serial spot markets, which are very costly to negotiate.[64]  These are precisely the conditions that Coase explained would cause activity to be brought in-house and managed by fiat, rather than left to the market.[65]

A similar analysis helps to explain the phenomena of consumer loyalty and rewards programs.  Rather than holding onto more cash with which they could buy a greater range of future goods, consumers in such programs turn over a quantum of future consumption decisions to the firm and take whatever “ration[s]” the firm later provides.  The consumer is willing to turn these decisions over to the firm because the opportunity and transaction costs of open-market activity would leave the consumer with less than she receives in the end by just taking what firms she knows she already likes and trusts decide by fiat to give her.  This kind of firm-based consumption corresponds in a sense to economists’ explanation of the service that conglomerates (firms that own companies in numerous distinct industries, but not every industry) provide for capital investors.  The conglomerate accomplishes for investors “a breadth-for-dept tradeoff . . . as the firm selectively internalizes functions ordinarily associated with the capital market.”[66]  Consumers similarly trade breadth-for-depth by relying on the firm’s capacities and expertise to select a limited set of consumption goods, in exchange for the full breadth of options that are available in spot markets.  This trade-off makes sense because the opportunity and transaction costs of open market activity would leave the consumer with less than if she simply took what the firm decides to give her.[67]

IV.  Reforming Corporate Law to Account for Firm-Based Consumption

The ubiquity of corporate charitable giving and consumer rewards programs makes implausible the view that what consumers want (or get) from their corporate associations is merely a product or service on offer, and nothing more, with no relational strings attached.  Consumers rely in ongoing fashion on the fiat of firm-based decision making.  This positive assessment can contribute to the normative case for making firm directors fiduciaries of their consumers.[68]  The shareholder primacy norm relies in part on the presumption that consumers manage their interests in corporate enterprise through serial, arms-length, fully-determined transactions (with government regulators as a backstop).[69]  In fact, the consumer’s dealings with the firm can be far more relational than the conventional depiction would lead us to believe.  Firm-based consumption decisions can only reliably be in the consumer’s interest if firm managers are taking consumer interests into account when making them.  If firm managers are charged only with pursuing shareholder interests then there is reason to doubt that consumer deference to the firm’s consumption decisions is reliably well placed.

Moreover, firm-based consumption may put consumer interests in more direct conflict with shareholder interests than is anticipated by canonical justifications for the shareholder primacy regime. Consider the case of rewards programs.  The consumer who participates in such a program pays a premium on earlier transactions (rather than taking a cash discount) in order to receive discounts or perks in connection with future consumption.  The consumer now has a stake in the long-term viability of the firm with which she has a loyalty association and wants that firm to be managed in a conservative, risk-averse fashion.  Shareholders are generally thought to be relatively more risk preferring as to the operations of any individual firm with which they are invested, given that most shareholders are highly diversified, enjoy limited liability for firm losses, and receive unlimited upsides from very profitable firms.[70]  This conflict bears not only on the survival of individual firms, but also on business decisions while the firm is a going concern.  Directors of a corporation with many retail outlets might consider it profitable to close a number of stores, or an airline might decide it can make more money by shutting down some routes.  While shareholders may benefit from such a move, consumers in loyalty programs may find that their points, miles, or discounts are worth less than when they were earned.[71]  Bringing this analysis together with concerns about the incentive (and ability) that shareholder-primacy corporations have to manipulate consumer risk perceptions and external regulations, the case for requiring corporate directors to manage their firms with fiduciary attention to consumers, in addition to shareholders, begins to look stronger.

Such an extension of the board’s fiduciary obligations may seem like a radical proposal at first, but this impression surely fades when one considers how little is actually required of corporate directors before corporate law will say their fiduciary duties are satisfied.  Corporate law does not permit courts or law professors to review the substance of the business judgments that corporate boards make.  Absent fraud or self dealing, courts will not second-guess the business judgment of corporate boards.[72]  This “business judgment rule” in corporate law ensures that it is the board, with its particular institutional expertise, that ultimately has authority over corporate operations, rather than some other less qualified institution.[73]  While corporate law abstains from substantive evaluation, it nevertheless does impose process obligations on the firm’s decision makers.  To satisfy fiduciary obligations to shareholders, corporate law requires directors to deliberate in an informed and sincere fashion about what course of action will be in the shareholders’ best interests.[74]  Imposing such obligations on the board with respect to consumers would help to ensure that decisions consumers turn over to corporate boards are made at least with consumer interests explicitly on the table.  Despite the ease with which these fiduciary obligations may be satisfied, canonical corporate theory holds that the process obligations do presently substantially benefit shareholders.[75]  This mechanism can also pay dividends to the consumer interest.[76]

More dramatic approaches to multi-stakeholder corporate governance are also cognizable.  One such possibility would be to provide consumers with an active voice in corporate governance, by extending to them the corporate suffrage that shareholders now exclusively enjoy.  Instead of getting soy milk with a side of coastal cleanup, consumers might get soy milk with a side of coastal cleanup and a fraction of a vote in the next corporate election.[77]  Consumers could be given access to the corporate proxy mechanism, allowing them to author and vote on “stakeholder proposals” through a process similar to the Securities and Exchange Commission’s Rule 14-a mechanism, which allows shareholders to author and vote on “proposals” broadly relating to firm operations.[78]  Mainstream corporate theorists consider such mechanisms presently to be only a weak kind of “backup” safeguard even for shareholder interests,[79] but they do provide a bit of backup protection, which might at least serve as a credible threat against directors by encouraging them to work hard and honest on behalf of their consumer stakeholders.

V.  Collective Consumer Preferences for Sustainability

As this Article was developed for a symposium on the subject of the “sustainable corporation,” I want to briefly examine some implications of firm-based consumption and multi-stakeholder corporate governance for spurring corporate “sustainability” in the sense of corporate operations that are environmentally sound.[80]  This issue is distinct from corporate charitable contributions to environmental projects unrelated to the firm’s business, and is arguably a much more important issue when it comes to environmental protection generally.  Some corporations tout sustainable production as an attribute of the product they are selling.  As I write these words I am sipping on a cup of coffee from Starbucks, Inc.  On the side of the cup it reads: “You.  Bought 228 Million Pounds of Responsibly Grown, Ethically Traded Coffee Last Year.  Everything We Do, You Do.”  The cup has many slogans on it, but the one that best encapsulates the point under analysis here is this: “You and Starbucks.  It’s bigger than coffee.”  While many product attributes are difficult for consumers to inspect and verify on their own,[81] the environmental consequences of a good’s production and distribution dynamics are almost always unverifiable through individual consumer evaluation.[82]  Starbucks is assuring me that the coffee I am drinking has been responsibly grown—but is this “mere” puffery, or can I take Starbucks’ word for it?[83]  Douglas Kysar has argued that even as consumers have in the last several decades developed a “preference for processes” (i.e., a desire for products made and disseminated with sound environmental practices), consumer protection laws have been stunted in their continued focus on advertising relating to the attributes of end products, failing to require firms to provide information about the processes through which products are created.[84]

If consumers desire sustainable business practices, then firms charged with attending to consumer interests at the level of firm governance might adhere to such practices more sincerely than firms charged merely with pursuing profits for shareholders.  Moreover, addressing consumer preferences for processes at the level of firm governance might help consumers overcome what I call “the consumer collective action problem.”[85]  In surveys, consumers routinely say that they prefer products that are made in an environmentally responsible fashion; however, they do not always put their money where their mouth is: “[t]here appears to be a significant gap between consumers’ explicit attitudes toward sustainable products and their consumption behavior. . . . [O]ne study suggests that though 40% of consumers report that they are willing to buy ‘green products,’ only 4% actually do so.”[86]  From the perspective of revealed preference theory, it might seem that consumers are not sincere when they tell researchers they prefer sustainability, given that they are unwilling to actually pay for it.[87]  But the seeming contradiction between asserted and revealed preferences may instead be evidence of a collective action problem.  Any one consumer knows that, because of the very marginal impact of any one product on environmental sustainability, the environment will only be sustained if other consumers, and not her alone, are also willing to purchase sustainable products.[88]  If a consumer assumes that others will be too selfish to purchase a (higher priced) sustainably produced good, then she is throwing good money after bad if she purchases the sustainably produced good: it costs her more, and the environment will not be sustained anyway.  Somewhat more deviously, if she assumes that other consumers will pay the premium for the sustainable product, then she may free ride and purchase the cheaper, unsustainable product, thinking she will still enjoy a sustained environment because of everyone else’s consumption habits.  Since all consumers are prone to this logical assessment, nobody ends up paying extra for the environmentally sustainable products, even though everyone is willing to—and indeed, would prefer to—but only if they could be assured everyone else was going to do so as well.

Charging corporate boards with attending to consumer interests at the level of firm governance provides one way of overcoming this consumer collective-action problem.  If firm directors explicitly strive to attend to consumer interests and to produce their products in a way that furthers those interests, they may choose to produce only sustainable products in a given product category, thus helping consumers to overcome their collective action problem.  This would be another invocation of the “rationing” program that Coase identified may sometimes be in the consumer interest.[89]

This argument is a specific application of the general principle that government action can help overcome collective-action problems that otherwise stymie solutions to enduring social problems (like building roads or providing for national defense).[90]  It may be wise, however, to have some kinds of governance decisions made at the level of individual firms, rather than in state or federal governments or administrative agencies, none of which can exercise the kind of informed, specific, and localized “business judgment” that corporate boards can in their own area of expertise.[91]

Of course, consumers and other stakeholders do not necessarily want sustainability.  Some consumers, or consumers at some times, may be indifferent to future environmental conditions.[92]  To the extent that this is true, then corporate law may have to find a way of making some other stakeholders’ interests, beyond shareholders and consumers (e.g., the community at large or even future generations) a part of corporate governance concerns.


Integrating consumption into theories of the firm, and considering ways in which corporate law can make firms more responsive to consumer interests, may contribute to corporate “sustainability” in more than just the environmental sense.  Corporations are highly useful mechanisms for gathering, organizing, and deploying resources in socially useful ways.  To sustain the availability of the corporate instrument, we must safeguard the institution against its own worst inclinations that might otherwise lead to its untimely demise.  Public opinion and popular political movements on both the right and the left seem to be fed up with corporations and appear to be galled in particular by the selfish, myopic nature of corporate operations.[93]  Among the reasons for such animosity is undoubtedly widespread dissatisfaction with the narrow, shareholder-focused agenda of corporate governance, which has been the driving force behind pollution of not just the natural environment, but our political landscape as well.[94]  This Article has argued that consumers, just like shareholders, already rely on the authoritative decision making structure of the firm.  Corporate governance reforms, which put directors into the business of talking about and working for not just shareholders, but workers, consumers, and other stakeholders, might contribute significantly to the long-term sustainability of not just the environment, but also the corporation in our society.

* Assistant Professor, Santa Clara University School of Law.  I would like to express my sincere thanks to Alan Palmiter, Kent Greenfield, and the editors of the Wake Forest Law Review’s Symposium, “The Sustainable Corporation,” for their invitation to participate in this symposium.  My thanks to Marx Sexton for her help in obtaining research materials.

[1]. See Albert C. Lin, Virtual Consumption: A Second Life for Earth, 2008 BYU L. Rev. 47, 62 (“Consumption often involves an attempt to satisfy nonmaterial needs—such as affection, participation, relationship, and understanding—through material means.”) (emphasis added) (citing Tim Jackson, Live Better by Consuming Less?, 9 J. Indus. Ecology 19, 25 (2005)).  See also id. at 64 (“[C]onsumption choices can also serve as a means of liberation from the constraining norms of closed communities.”).

[2]. See Martha T. McCluskey, Efficiency and Social Citizenship: Challenging the Neoliberal Attack on the Welfare State, 78 Ind. L.J. 783, 802–07 (2003) (attributing these ideas to the influence of economist John Maynard Keynes).

[3]. See Lin, supra note 1 (reviewing the rapid expansion of consumption across the globe, emphasizing the adverse environmental impact of such consumption, and exploring the possibility that “virtual” consumption may offer a solution to adverse environmental impact of this pattern, but concluding that such a solution is not very promising).

[4]. This work builds on my recent scholarship, which has endeavored to flesh out a more robust conception of the consumer interest in the corporation than is otherwise available in corporate law scholarship.  See generally David G. Yosifon, The Consumer Interest in Corporate Law, 43 U.C. Davis L. Rev. 253 (2009) [hereinafterConsumer Interest]; David G. Yosifon, The Public Choice Problem in Corporate Law: Corporate Social Responsibility after Citizens United, 89 N.C. L. Rev. 1197 (2011) [hereinafter Public Choice Problem]; David G. Yosifon, Discourse Norms as Default Rules: Structuring Corporate Speech to Multiple Stakeholders, 21 Health Matrix 189 (2011) [hereinafter Discourse Norms].

[5]. See Ronald Coase, The Nature of the Firm, 4 Economica 386 (1937).

[6]. As this Article has been developed for a symposium on the “sustainable corporation,” the focus here will be on the ways in which consumer preferences for sustainable consumption are sometimes managed “in-house,” within the firm, rather than through individual consumer transactions in the market.

[7]. Commentators employing “nexus of contracts” models of the corporation usually presuppose, typically without elaboration, that consumers are part of the “nexus,” along with investors, workers, and communities.  See Reinier Kraakman et al., The Anatomy of Corporate Law 6 (2004) (“[A] firm fundamentally serves as a nexus of contracts: a single contracting party that coordinates the activities of suppliers of inputs and of consumers of products and services.”); Michael C. Jensen & William H. Meckling, Theory of the Firm, 3 J. Fin. Econ. 305, 307 (1976) (describing the corporation as being “in a very real sense only a multitude of complex relationships (i.e., contracts) between the legal fiction (the firm) and the owners of labor, material and capital inputs and the consumers of output”).

[8]. For authoritative justifications of modern corporate theory and doctrine, see generally Stephen M. Bainbridge, The New Corporate Governance in Theory and Practice (2008); Frank H. Easterbook & Daniel R. Fischel, The Economic Structure of Corporate Law (1991); Henry Hansmann & Reinier Kraakman, The End of History for Corporate Law, 89 Geo. L.J. 439 (2001).

[9]. My focus here is on large, publicly traded corporations. Closely held firms present unique analytic challenges, which I do not address here.  See Stephen Bainbridge, Corporation Law and Economics 797–842 (2002) (summarizing governance issues unique to close corporations).

[10]. Once shareholders turn over their capital to a corporation, they cannot demand that the firm cash them out by buying back their shares.  This exacerbates shareholder agency problems.  Shareholders can alienate their shares on secondary markets, but only at a price that is discounted by whatever corporate problems (managerial or otherwise) are motivating the sale.  See Larry E. Ribstein, The Rise of the Uncorporation 71–72 (2010); infra note 27.

[11]. See Bainbridge, supra note 8, at 28–30.

[12]. Meinhard v. Salmon, 164 N.E. 545, 548 (N.Y. 1928) (describing fundamental requirements of fiduciary obligation); see also Bainbridge, supra note 8, at 53 (“[T]he shareholder wealth maximization norm . . . indisputably is the law in the United States.”).

[13]. See Kent Greenfield, The Failure of Corporate Law 57–60 (2007).

[14]. See id. at 41–71 (synthesizing and extending corporate law scholarship critical of shareholder primacy, largely from the labor perspective).

[15]. Id. at 52–53.

[16]. Id. at 60–71.

[17]. See Consumer Interest, supra note 4, at 261–63.

[18]. See id. at 259–60.

[19]. See id.

[20]. This reliance on external government regulations, rather than internal firm governance, is also prescribed to protect workers from health and safety concerns that they cannot effectively protect themselves from through contract.  See Greenfield, supra note 13, at 60–66.

[21]. See supra note 4.

[22]. See Consumer Interest, supra note 4, at 261–70; see also Jon Hanson & David Yosifon, The Situational Character: A Critical Realist Perspective on the Human Animal, 93 Geo. L.J. 1, 169–70 (2004) (reviewing social science emphasizing the general failure of human intuition to appreciate the magnitude of situational influence over human behavior).

[23]. See Consumer Interest, supra note 4, at 169–71.

[24]. See Public Choice Problem, supra note 4, at 1198.

[25]. 558 U.S. 50 (2010).

[26]. See Public Choice Problem, supra note 4, at 1199.

[27]. As the “Toward” in my title implies, this Article is the first step in what will be an ongoing research project.  I continue this analysis in a forthcoming article,Locked-In: Shareholders, Consumers, and the Theory of the Firm [hereinafter Locked-In] (draft on file with author), which explores ways in which consumers can find themselves “locked-in” to consumption relationships with particular firms.  The problem of consumer “lock-in” presents a challenge to prevailing views of corporate governance, which typically considers “lock-in” to be a problem that only needs to be solved for shareholders.

[28]. See Consumer Interest, supra note 4, at 261–62.

[29]. Indeed, the imperative of encouraging repeat transactions in order to keep the firm going is among the justifications that proponents of shareholder primacy in firm governance give for why consumers do not need fiduciary duties.  See e.g., Frank H. Easterbrook & Daniel R. Fischel, The Economic Structure of Corporate Law 4 (1991) (asserting that firms succeed by promising and delivering what people value); see also id. at 38 (“The more appealing the goods to consumers, the more profit.”).

[30]. Corporations can deduct charitable contributions from their federal income taxes (up to ten percent of their taxable income).  See IRS Publication 526 (2010), Charitable Contributions, available at
/publications/p526/index.html.  This corporate tax savings may to some extent be reflected in discounted prices to the consumer, but the discount would be less than the possible savings available from foregoing coastal cleanup altogether.

[31]. See Margaret M. Blair & Lynn A. Stout, A Team Production Theory of Corporate Law, 85 Va. L. Rev. 247, 290–92 (1999) (emphasizing the role of the board of directors in divvying up gains-to-trade among all stakeholders in corporate enterprise).

[32]. Whole Foods’ corporate ethos generally expresses a commitment to sound environmental practices.  But a number of journalistic inquiries have drawn attention to elements of Whole Foods’ business practices that may be misleading in this regard.  See, e.g., Field Maloney, Is Whole Foods Wholesome?, Slate, Mar. 17, 2006, (arguing that Whole Foods misleads consumers about the amount of organic food it supplies from small, family-owned farms and claiming that Whole Foods’ promotions “artfully mislead customers about what they’re paying premium prices for”).

[33]. See, e.g., Victor Brudney & Allen Ferrell, Corporate Charitable Giving, 69 U. Chi. L. Rev. 1191, 1192–94 (2002); Geoffrey Miller, Narrative and Truth in Judicial Opinions: Corporate Charitable Giving Cases, 2009 Mich. St. L. Rev. 831, 842–43.

[34]. See Press Release, Cal. Coastal Comm’n, California Coastal Commission Announces the 26th Annual California Coastal Cleanup Day (Aug. 31, 2010), available at

[35]. See Charitable Giving Statistics, Nat’l Philanthropic Trust, (last visited Aug. 30, 2011).  It is possible to analyze this as a “tying” problem under anti-trust laws which prohibit firms with monopolistic power in one consumer market from requiring consumers who want to purchase their product to also purchase a distinct or “tied” product.  See generally Einer Elhauge, Tying, Bundled Discounts, and the Death of the Single Monopoly Profit Theory, 123 Harv. L. Rev. 397 (2009); Alan J. Meese, Tying Meets the New Institutional Economics, 146 U. Pa. L. Rev. 1 (1997).  Commentators appear to sometimes use the term “bundle” to refer to benign or competitive “tying” arrangements.  A stricter usage refers to “bundles” as the discounted, grouped sale of two or more items that are otherwise sold separately, and “ties” as sales of two or more items that a firm will only sell together.  See Daniel A. Crane, Mixed Bundling, Profit Sacrifice, and Consumer Welfare, 55 Emory L. J. 423, 433 n. 38 (2006).  Using these terms, the coastal cleanup example appears to be a benign tie, because the markets that I am describing, grocery stores (even health food stores), clothing retailers, insurance, and candy are all quintessentially competitive markets.  The coastal cleanup is not, strictly speaking, bundled with these firms’ goods, since the firms will not sell you soy milk, insurance, candy, etc. without the slice of beach cleanup (i.e., will not reimburse your pro-rata share of the contribution if you want to refuse to be a part of it).  So again, the question is why are these firms competing with ties (or more loosely, bundles) that involve their own products and largely distinct sustainability initiatives, rather than on price?

[36]. See infra text accompanying notes 80–93.

[37]. See Marriott Rewards, Marriott,
/rewards-program.mi (last visited Aug. 30, 2011).

[38]. See Get the Card, American Express, (last visited Aug. 31, 2011).

[39]. See generally Frederick F. Reichheld, Loyalty Rules! (2001).

[40]. See id.

[41]. Tim Donnelly, How to Start a Customer Rewards Program, (Aug. 17, 2010),

[42]. See Hanson & Yosifon, supra note 22, at 44–46 (reviewing studies on hyberbolic discounting); Christine Jolls, Cass R. Sunstein & Richard Thaler, A Behavioral Approach to Law and Economics, 40 Stan. L. Rev. 1471, 1539–42 (1998) (exploring policy implications of hyberbolic discounting).

[43]. See Hanson & Yosifon, supra note 22, at 44–46.

[44]. Commentators have provided idiosyncratic explanations for specific programs.  For example, airline “miles” programs have been explained as a method of (open) secret compensation for employees, who are reimbursed for corporate (or law school) related travel by employers, but keep the accumulated miles in their personal rewards account for future personal travel.  Moreover, this compensation has typically evaded taxation.  See Abhijit Banerjee & Lawrence Summers, On Frequent Flyer Programs and Other Loyalty-Inducing Economic Arrangements, Harvard Institute of Economic Research, Discussion Paper Number 1337 (1987), available at (last visited Aug. 21, 2011).  Lawrence Ausebel has argued that credit card companies compete on the basis of rewards programs rather than on interest rates because most consumers (mistakenly) predict that they will use credit cards merely for convenience and will not use the credit; they therefore do not distinguish between interest rates when deciding which cards to patronize.  Lawrence M. Ausubel, The Failure of Competition in the Credit Card Market, 81 Am. Econ. Rev. 50, 70–76 (1991).  Others argue that rewards programs are the bounty of transfers from the relatively poor, who cannot qualify for credit cards with rewards programs, to relatively wealthy consumers who do use them, since credit card interchange fees are impounded into the price of commodities by retailers who do not offer discounts for cash payments (retailers are forbidden by credit card companies from offering such discounts).  See, e.g., Adam J. Levitin, Priceless? The Economic Costs of Credit Card Merchant Restraints, 55 U.C.L.A. L. Rev. 1321 (2008).  These interesting arguments undoubtedly go some distance in explaining specific programs, but the ubiquity of rewards programs in consumer markets suggests that something more general may help explain their use.  See Banerjee and Summers, supra, at 2.  Moreover, these accounts do not explain why airlines or credit cards attract consumers with rewards offering a limited universe of consumption, rather than cash, which consumers could put to any privately preferred use.  I explore a “firm-based consumption” explanation infra, text accompanying notes Part II.B.

[45]. Anthony M. Marino & Jan Zabojnik, A Rent Extraction View of Employee Discounts and Benefits (Oct. 16, 2005), available at

[46]. Id.

[47]. 26 U.S.C. § 132 (2006).

[48]. See generally Taxable Fringe Benefits Guide, Internal Revenue Service (2011), (examining various benefits exempt from taxation under the Internal Revenue Code).

[49]. Moreover, without some other explanation for benefits programs, we might expect that many employees would still prefer to have cash, even if they had to pay taxes on it, rather than taking a limited set of in-kind goods tax-free.

[50]. See Taxable Fringe Benefits Guide, supra note 48, at 7 (“In general, taxable fringe benefits are reported when received by the employee and are included in employee wages in the year the benefit is received.”) (citing 26 U.S.C. §451(a) (2006)).

[51]. See Marino & Zabojnik, supra note 45, at 1.

[52]. Darren Lubotsky, The Economics of Employee Benefits, in Employee Benefits: A Primer for Human Resource Professionals 34 (Joseph Martoccio ed., 2004).  A third interesting (though not directly relevant to the present inquiry) explanation for the prevalence of benefits in lieu of more cash is that it provides employers a cheap mechanism through which to distinguish more desirable from less desirable job applicants.  See Marino & Zabojnik, supra note 45, at 10.  For example, if firm managers believe that employees who exercise regularly are likely to be more productive than workers who do not exercise, then firms might find it useful to offer a mix of cash and gym memberships rather than all cash as compensation.  Workers who are likely to use the gym membership will value it and be attracted to the compensation package, while workers who do not value gym memberships will be less likely to apply for the job.  The compensation structure is a more reliable sorting mechanism than would be simply asking applicants whether or not they enjoy exercising, which might seem both rude and legally risky.  See id.

[53]. See Coase, supra note 5.  The Nature of the Firm was Coase’s first article.  He published it at the age of twenty-seven, reportedly based on a lecture he first developed at the age of twenty-one.  See Donald N. McCloskey, The Lawlerly Rhetoric of Coase’s The Nature of the Firm, 18 J. Corp. L. 425, 426 n.79 (1993).

[54]. Id. at 390.

[55]. Id. at 388 (“Outside the firm, price movements direct production, which is co-ordinated through a series of exchange transactions on the market.  Within a firm, these market transactions are eliminated and in place of the complicated market structure with exchange transactions is substituted the entrepreneur-co-ordinator, who directs production.”).

[56]. See Jason Scott Johnston, The Influence of The Nature of the Firm on the Theory of Corporate Law, 18 J. Corp. L. 213, 214 (1993).

[57]. Coase, supra note 5, at 394.

[58]. Id. at 395 (“[A] firm will tend to expand until the costs of organizing an extra transaction within the firm become equal to the costs of carrying out the same transaction by means of an exchange on the open market or the costs of organizing in another firm.”).

[59]. Id. at 394 n.2.

[60]. See id.

[61]. See D.H. Robertson, The Control of Industry 85 (1930) (describing business corporations as “islands of conscious power in this ocean of unconscious co-operation [i.e., the price mechanism in the market] like lumps of butter coagulating in a pail of buttermilk.”).

[62]. See supra Part II.A.

[63]. See M. Todd Henderson & Anup Malani, Corporate Philanthropy and the Market for Altruism, 109 Colum. L. Rev. 571, 576–77 (2009).

[64]. See Coase, supra note 5, at 114–19.

[65]. My analysis here bears some resemblance to Henry N. Butler and Fred S. McChesney’s assessment of corporate charitable giving from the shareholder perspective in Why They Give at the Office: Shareholder Welfare and Corporate Philanthropy in the Contractual Theory of the Corporation, 84 Cornell L. Rev. 1195 (1999).  Butler and McChesney take as their point of departure the idea that some corporate philanthropy benefits shareholders because it creates goodwill for the firm in dealing with workers, consumers, and communities, leading to more profit opportunities (their example is General Motors sponsoring a Ken Burns documentary).  Id.  It is conceivable, Butler and McChesney argue, that rather than firms giving directly, shareholders could make donations in their individual capacity, contingent on the recipient noting their support from “shareholders of GM.”  Id. at 1203.  This might achieve the same kind of goodwill for GM, but at a much higher cost.  “[I]t is not hard to see why in fact shareholders wold prefer to give at the office . . . .  [T]he firm already has the earnings (current or past) necessary for the philanthropy.  Distributing the earnings as dividends which [shareholders] can contribute individually simply imposes an additional transaction cost . . . .  Each shareholder must send in his [or her] own check; write a letter explaining that the gift is made in the firm’s name . . . .”  Id. at 1203.  Consumers benefit from charitable giving in a similar fashion.  To the extent that such giving creates goodwill for the firm it may more easily attract shareholders, reducing the cost of capital, or workers, reducing the cost of labor, all of which will reduce the prices that consumers have to pay for the firm’s goods and services.  Individual consumers could donate to the coastal cleanup in their own name, but then they lose such collateral benefits.  They could make the donation conditional on the recipient noting support from “consumers of GM,” but in doing so they take on unnecessary transaction costs.  Further, as Butler and McChesney note, if individual shareholders were to make donations qua GM shareholders, then nondonating shareholders would free ride on those who make donations (making would-be donors less likely to contribute, since they anticipate the free riding).  Firm-based philanthropy helps shareholders and consumers alike overcome this free-riding problem.  Butler and McChesney acknowledge that firm managers may sometimes exploit the firm by donating to charities they privately prefer rather than charities that would benefit the firm, but such costs have to be balanced against the gains that are otherwise available through corporate charitable giving.  Id. at 1205.

I am taking the argument a step further to suggest that corporate charitable giving may serve the private interests of individual consumers irrespective of the benefits to the firm, in that firms may enjoy transaction cost advantages over individuals in making charitable donations, even without considering the impact of such donations on corporate reputation.  Large firms can make it somebody’s entire job to study and manage the organization’s philanthropic activity.  There is some evidence that firms are beginning to make use of sophisticated metrics to evaluate the utility of their philanthropic activity, something that is well beyond the capacity of most individuals or families.  See, for example, materials collected at, the website for an international organization of corporate CEOs called the Committee Encouraging Corporate Philanthropy, which collects research on best practices in corporate philanthropy.  See also Henderson & Malani, supra note 63 (arguing that business corporations sometimes have a competitive advantage in the supply of “altruism” over nonprofit and government entities, and urging tax reforms that treat nonprofits and for-profits more equally).

[66]. Oliver Williamson, The Modern Corporation: Origins, Attributes, Evolution, 19 J. Economic Lit. 1537, 1546 (1981).

[67]. Of course, an alternative explanation is that consumers do not benefit at all from charitable-giving ties or loyalty programs, but rather that such programs succeed only by manipulating consumer perceptions in the service of corporate managers or shareholders.  Such an alternative explanation is plausible and would support arguments I have otherwise made for requiring firms to treat consumers in a fiduciary, rather than an arms-length, fashion.  See Consumer Interest, supra note 4.  However, as noted, here I am trying to (at least temporarily) leave the question of manipulation to the side and am trying to ground justifications for consumer-oriented firm governance in a more general theory of firm-based consumption.

[68]. Note that Coasian analysis of the contours or “nature” of the firm provides no deductively applicable answers regarding what rights or duties should run to those stakeholders determined to be inside or outside the firm.  See Oliver Hart, An Economist’s Perspective on the Theory of the Firm, 89 Colum. L. Rev. 1757, 1764 (1989) (arguing that the intellectual turn in the second half of the twentieth century from entity to nexus-of-contract theories of the firm merely “shift[s] the terms of the debate” from a focus on distinctions between entities and markets to an assessment of “why particular ‘standard forms’ [or terms within standard forms] are chosen”).

[69]. Id. at 258–61.

[70]. See Bainbridge, supra note 8, at 114–20 (explaining risk preferences of diversified shareholders).

[71]. Some firms’ reward programs purport to reserve the right to unilaterally change the terms of their programs at any time, at their discretion, even as to already accumulated “points” or “miles.”  See Peter A. Alces & Michael M. Greenfield, They Can Do That? Limitations on the Use of Change-of-Terms Clauses, 26 Ga. St. U. L. Rev. 1099, 1103–04 (2010) (citing examples from JetBlue, Inc., and, Inc.).  Some economists argue that loyalty programs “artificially” inflate consumers’ cost of switching from one seller to another, resulting in higher prices.  See Gianluca Faella, The Antitrust Assessment of Loyalty Discounts and Rebates, 4 J. Competition L. & Econ. 375, 402–03 & n.96 (2008) (noting the issue and citing literature).  I explore the problem of “switching-costs” in Locked-In, supra note 27.

[72]. See Bainbridge, supra note 8, at 106–26 (reviewing doctrine of and justifications for the business judgment rule).

[73]. Id.

[74]. See Discourse Norms, supra note 4, at 1236.

[75]. See Bainbridge, supra note 8, at 77–100.

[76]. See Discourse Norms, supra note 4, at 1236.

[77]. The loyalty and rewards programs that many firms have in place suggest that the technological means to track consumer purchases, and apportion consumers votes in corporate elections, is already available.

[78]. See Consumer Interest, supra note 4, at 311–12.

[79]. See Bainbridge, supra note 8, at 201–19.

[80]. See generally Jeff Civins & Mary Mendoza, Corporate Sustainability and Social Responsibility: A Legal Perspective, 71 Tex. B.J. 368, 369 (2008).

[81]. See supra text accompanying notes 18–19.

[82]. See supra text accompanying notes 18–19.

[83]. “Responsibly” is obviously a less tractable concept than is a label specifying the amount of caffeine or sugar in the drink (which, come to think of it, my beverage is lacking).  When I speak of taking the firm’s “word” for it when it says the coffee it sells is responsibly grown, I am asking if I can trust that the firm means by “responsible” what I reasonably mean by the word, what workers involved in the coffee production reasonably mean by the word, and what the law and ethics generally mean by the word.  See Discourse Norms, supra note 4, at 104 (applying Michael Jensen’s work on integrity to an exploration of the viability of multi-stakeholder corporate governance).

[84]. See Douglas A. Kysar, Preference for Processes: The Process/Product Distinction and the Regulation of Consumer Choice, 118 Harv. L. Rev. 525, 641 (2004) (“[The] process/product distinction has been invoked to question the authority of an importing nation to ban or label products that are developed using processes deemed objectionable by its citizens; to rationalize ignoring overwhelming consumer support for mandatory labeling of food products that contain genetically engineered ingredients; and to narrow the constitutional conditions under which states may force manufacturers to disclose process information or to face legal challenges for disclosing false or misleading process information.”).

[85]. See Consumer Interest, supra note 4, at 283–85.

[86]. Michael G. Luchs, et al., The Sustainability Liability: Potential Negative Effects of Ethicality on Product Preference, J. Marketing, Sept. 2010, at 18, 18.  See alsoKysar, supra note 84.

[87]. Economists typically treat preferences as being “revealed” by conduct. Paul A. Samuelson, A Note on the Pure Theory of Consumer’s Behaviour, 5 Economica 61, 62 (1938).

[88]. This assumes that consumers do not have a fetishistic desire for products produced with sound processes, in the sense that what they really desire is to possess products with such transcendent qualities.  Rather, what they want is both to have the basic product and to have environmental sustainability.  See Margot J. Pollans,Bundling Public and Private Goods: The Market for Sustainable Organics, 85 N.Y.U. L. Rev. 621, 637–38 (2010).

[89]. See supra text accompanying notes 53–59.

[90]. See Mancur Olson Jr., The Logic of Collective Action 12–16 (1965).

[91]. Cf. Stephen M. Bainbridge, Catholic Social Thought and the Corporation (2003), available at
?abstract_id=461100 (describing and applying the principle of subsidiarity—the idea that other things equal decisions should be made at the most local level possible, rather than at a distance by hierarchical decision-makers—to corporate law concerns, although concluding that corporate governance should have no role other than pursuing shareholder value).

[92]. See Luchs et al., supra note 86.

[93]. See Evan Osborne, The Rise of the Anti-Corporate Movement: Corporations and the People Who Hate Them 41–70 (2009).

By: Brett H. McDonnell*


One way to make U.S. corporations more sustainable is to broaden the group of stakeholders whose interests are considered in making decisions.  One of the most important groups of stakeholders is corporate employees, both because their own stake is critical to their well-being and because employees may value the interests of other stakeholders more than corporate shareholders or managers do.  Yet, corporate law does nothing to encourage any role for employees in corporate governance.[1]  Corporate law focuses on just three groups within the corporation: shareholders, directors, and officers.  This Article evaluates a number of possible strategies for creating a role for employees in corporate governance.  The strategies include:

Using areas other than business association law to enhance the legal rights of individual employees;

Encouraging officer or director power, hoping that officers and directors will side with employees and other interests more than shareholders;

Encouraging shareholder power, hoping that employees agree with shareholders on the need to keep managers accountable;

Supporting unions as a source of countervailing power;

Promoting means for directly giving employees a collective voice within corporations, e.g. through employee representation on the board, employee councils, nonbinding employee votes on particular matters, employee surveys, or similar means;

Promoting noncorporate legal forms of business association in which employees can play a greater role; or

Promoting changes in corporate culture and norms that empower employees.

This Article suggests criteria for evaluating these strategies.  One must balance the probability of success of a strategy with the net benefits it would achieve if successful.  The benefits and costs of each strategy must include effects on the internal efficiency of corporations, on employee well-being, on the environment, and on the broader community.  One must also balance short-term and long-term effects of the differing strategies.  This Article applies these criteria to the seven listed strategies, and suggests a mix of strategies that appears most attractive at this point.  No strategy has much chance of improving sustainability in the short run.  But, in the long run, the last three strategies above—experimenting within states and corporations with various ways of giving employees voice within corporations and other legal forms—look most promising (or more accurately, least unpromising).

The Article is organized as follows: Part I considers the relationship between employees and sustainability; Part II lays out the competing strategies; Part III describes criteria for choosing among the strategies; and Part IV applies the criteria to the strategies to suggest the mix that appears most attractive.

I.  Employees and Sustainability

Why look to corporate governance as a way to promote sustainability?  Why not instead focus on legal changes that force or encourage companies to behave more sustainably?[2]  Such external approaches have serious limits.[3]  First, it would be quite difficult, and highly intrusive, to write laws that adequately constrain or price all external effects of corporate actions.[4]  Second, even if the laws were fully adequate in principle, they are likely to be under-enforced; therefore, enforcement depends on corporate actors to voluntarily comply.[5]  Third, corporations built to ruthlessly pursue profit are likely to capture the political system and prevent many needed laws from ever being passed.[6]  Thus, an external legal strategy needs to be supplemented by efforts to make corporations internally consider their effects on the environment and society.

Yet, any approach that looks to changes in corporate governance as a strategy for promoting sustainability faces serious objections from the conventional economic picture of the firm.  Markets should push firms to efficiently use available resources, and corporate governance itself should be adapted to minimize transaction costs.[7]  How can changes in governance improve the markets?  Part of the answer is that if, as just suggested, the law has not forced prices to internalize all relevant externalities, then we may want corporate decisionmakers to voluntarily choose to internalize those externalities.  But doing so, by definition, requires accepting a lower financial surplus than would otherwise be available.  Is it plausible that changes in governance can induce companies to do that?

I see two broad ways in which stakeholder theories of corporate governance hope to address this challenge.  First, they hope that giving more power to parties with environmentally friendly preferences will induce companies to be more “green.”  But there are two major limits to that answer.  One must explain why shareholder-focused companies will not take on such green-friendly actions themselves, if such actions will induce stakeholders to associate with the company more cheaply.  The answer to this is that, presumably, companies that give some real power to other stakeholders are able to more credibly commit to promoting their interests, and hence can better earn their commitment and loyalty.  The other, more severe limit, is that it would appear that most members of the major stakeholder groups, at least in the current state of human culture, are only willing to go a modest distance in accepting lowered economic returns in a trade-off for better environmental performance.[8]

A more promising reason arises for believing corporate governance can help if one believes that many, indeed most, current companies have large amounts of waste in their performance—as suggested by X-efficiency theory.[9]  If this is so (as I suspect it is, although that is a major debate), then there may well be room for improving the environmental impact of companies without lowering the stakeholder’s economic returns.  For addressing global warming, more efficient energy use by companies is a very promising area.[10]  Even if one believes this possibility exists, one must still explain why involving stakeholders in governance may help improve X-efficiency.  I suggest here why that may be so in the case of employees.

The relationship between employees and sustainability depends in part on the notoriously slippery concept of “sustainability.”[11]  A key focus is clearly on the environment, but many definitions also consider goals such as meeting present needs[12] or achieving a satisfactory moral and spiritual existence.[13]  One popular concept in business social responsibility is the “Triple Bottom Line,” the idea that businesses should measure their performance in terms of conventional profits and the impact on people and the environment.[14]  We should thus consider both the direct effect of the involvement in decision making on employees themselves, and the indirect effect of such involvement on both economic productivity and the environment.  I consider these effects quite briefly, in part because I have already explored them in an earlier paper.[15]

The first bottom line is conventional profits.[16]  Employee involvement may increase productivity and hence create stronger economic growth in a narrow material sense.  Heightened employee satisfaction may lead to improved effort and less need to engage in expensive monitoring.[17]  Moreover, employees are naturally knowledgeable about what is going on within a business and are likely to have good ideas about how to improve.[18]  There are, it must be said, a variety of countervailing costs.  I have considered these elsewhere.[19]  I believe the first bottom line, at least in large U.S. corporations, is that employees frequently have a suboptimal level of involvement in decision making even when looking only at increasing economic productivity and output.[20]  This is an instance of X-inefficiency at work.[21]

The second bottom line looks at how companies affect people.  Much evidence suggests that people feel better off if they are involved in making important decisions that affect their lives.[22]  Work is a major part of most adults’ lives, and research suggests that job satisfaction increases when employees are involved in decision making.[23]  Skills and habits learned through participation at work may also lead to greater participation in decisions in other spheres of life, leading to further increases in satisfaction.[24]

Of greatest importance to a discussion of sustainability, though, is how employee involvement might change the external impacts of corporations, particularly their impact on the environment—the third bottom line.[25]  Since environmental laws do not go far enough on their own to force businesses to internalize all the effects they have on the environment, we want internal decision makers to take into account—above and beyond any legal requirements—the environmental effect of their company’s actions.[26]  My claim: involving employees in corporate decision making will cause companies to more fully internalize such environmental effects.

Are there any good reasons to believe that claim?  I think there are a few, although it remains an open empirical question with little systematic evidence of which I am aware.[27]  One reason goes back to the first bottom line.  Inefficient use of energy and other natural resources may be widespread, and employees may have much useful knowledge about that waste.  For another, many[28] environmental externalities mainly affect communities near the place of work.  Compare the interest of employees with such local effects versus the interests of shareholders in a public corporation, shareholders in a closely held corporation, and top managers.  Employees work in the affected area and live nearby.  They are thus likely to feel the effects of environmental harm themselves and would like to avoid such harm.  Shareholders in a public corporation, on the other hand, do not live nearby and are thus not as likely to feel the effects of environmental harm.[29]  Shareholders in a closely held corporation are more likely to be as locally rooted as their employees.  However, such shareholders have a greater personal economic stake in a corporation’s profit than employees do, making them care less about goals other than profit maximization.  Managers are as likely to work and live locally as employees, hence they might be as prone to consider environmental effects as employees if they are not motivated to pursue shareholder interests,[30] although it is possible that high level corporate managers are likely to be more physically mobile in their careers than lower level employees, possibly dissipating their interest in the welfare of the local community.

Employee involvement could also change the norms felt by corporate decision makers.  A telling critique of the shareholder primacy model is that it induces shareholders and managers to adopt a simple measure of maximizing shareholder wealth as the sole criterion for judging corporate success.[31]  This is true even for managers who in their personal lives may care a lot about the environment: at work, they feel morally obliged to look after shareholders and the bottom line first.[32]  In corporations that focus significantly on responding to the ideas and preferences of their own employees, those employees are less likely than shareholders or managers to focus on a narrow norm of achieving a high stock price.

II.  Strategies for Increasing Employee Involvement

There are many possible strategies for encouraging businesses to take greater account of the interests of their employees.  I group these strategies into seven clusters, and briefly delineate and discuss them here.

Laws other than business association law.  One can try to protect the interests of employees through other areas of the law.  General contract law, agency law, and especially employment law, are widely used to protect employees.[33]  This gives individual employees a certain set of rights, either rights dictated for all employees of a certain kind within a legal jurisdiction, or rights negotiated between a company and its employees.  If a company violates one of these rights, employees may be able to sue in court to protect their rights or seek remedies from an administrative agency.[34]

Encourage officer or board power.  American corporate law[35] focuses on three main groups: shareholders, directors, and officers.  Employees play little part.  There is an ongoing power struggle between shareholders and managers (directors and officers) over what legal powers a public corporation’s shareholders have and what legal powers they should have.[36]  To encourage greater attention to the interests of employees while operating within this traditional focus of corporate governance, one must side with one or two of these nonemployee groups and hope that one’s preferred group will tend to act in the interests of employees.  Some scholars favorable to the interests of employees have argued for siding with corporate officers and directors over siding with shareholders, hoping that inside managers (who are themselves a kind of employee, after all) will choose to side with the employees with whom they work instead of the more abstract and distant interests of shareholders.[37]

Encourage shareholder power.  Perhaps employees share more common interests with shareholders than managers.  It may be that both would be hurt by self-dealing if managers are left too unaccountable.[38]  Shareholder interests may be brought closer to the interests of employees since most of the leading institutional shareholder activists are union or public employee pension funds.[39]  Indeed, some have even termed the growing clout of such funds “pension fund socialism.”[40]

Support unions.  Historically, the leading way in which employees have found a voice in a large number of companies was through unions.  Unions have been in decline for decades and have become quite a small part of the private sector in the United States.[41]  But millions of employees still belong to unions, and labor law reform and revised unionization strategy could increase the rate of unionization.  Both legal reform and internal reform of unions could also encourage unions to focus on more than just pay and benefits, thus using unions to increase employee voice over a variety of decisions.[42]

Promote means to give employees voice within corporations.  There are many ways to give employees more voice within corporations.  At the highest level, employees could elect some directors.  A step below that, Germany provides the example of work councils at the plant level that give employees a voice on a variety of issues.[43]  Employees could have nonbinding votes on particular issues, or employee opinion on some matters could be surveyed.[44]  Employees could be given a voice on a variety of issues.  Thus, one can classify possible laws along three axes: the level within a corporation at which employees have a voice, the scope of decisions over which they have a voice, and the degree or kind of voice they have over a particular matter.

Laws can be more or less aggressive in how they encourage any of those measures.  A law might require all corporations to provide a particular measure.  Or, a law might make a measure the default rule but allow corporations to opt out—and the law may choose how difficult opting out will be.[45]  The state can subsidize a preferred measure with direct payments or tax preferences.[46]  Or the law can simply permit—without affirmatively encouraging—some forms of employee voice.  Assuming the law allows a given form of voice, proponents need not focus attention on legal reform—they can instead focus on attempting to persuade individual corporations to adopt the measure, or forming new corporations that do.

When one considers both the large variety of possible forms of employee voice within a corporation and the large number of ways to encourage any particular form, this fifth category of strategy covers a very large range of options.

Promote other legal forms of business association.  Despite the wide range of legal options just discussed, and the great flexibility of U.S. corporate law, legal support for employee involvement in corporate governance will always be a foreign graft within corporate law.  Corporate law is designed for shareholders to elect boards that are responsible for running the company; accordingly, employees are simply absent from the law’s core DNA.

Employee advocates, thus, may want to pursue other legal forms of business association.  The worker cooperative is the most obvious form.[47]  Flexible forms like the limited liability company might be more easily adaptable than corporations to the goals of employee advocates.  Additionally, social responsibility advocates are currently exploring a variety of new legal forms that reflect their interests.[48]

Promote changes in corporate culture and norms.[49]  One staple of a certain strand of organizational behavior and management improvement literature is that the corporate culture should promote employee engagement.[50]  This strategy does not require any sort of legal change.  Rather, it seeks to promote change company-by-company through affecting the norms of managerial behavior.[51]  The management literature frequently makes the point that a corporate culture in which employees feel engaged offers many benefits to a corporation.[52]  However, there is at least some reason to be skeptical that this literature is just a “fad for the millennium.”[53]

This list of seven categories of strategies addressing the interests of employees is not exhaustive, and each category is itself broad and contains a range of options.  Still, I hope it provides some useful organization in thinking through the best strategies.

III.  Criteria for Choosing Among Strategies

Before evaluating the attractiveness of these strategies, we must first consider what criteria to use in making those evaluations.  Considering a wide range of factors makes comparisons more ambiguous, as inevitably some strategies will appear superior according to some criteria but inferior according to others.  Nonetheless, all the criteria considered matter and it won’t do to simply ignore them for simplicity’s sake.

We must think about the strategy’s probability of success and also how much good it would accomplish if successful.  The latter can be divided into several factors—the triple bottom line.[54]  We care about the net economic surplus (somewhat narrowly conceived in money terms) generated within companies, and also about the well-being (more broadly conceived) of employees themselves.  Beyond this, we care about the externalities that companies generate, and in particular about their effects on the environment.  Aggregating these different predicted effects is, of course, hard—and there is no objective, neutral, and authoritative way to do so.

Probability of a strategy’s success can also be divided into uncertainty concerning the chances the strategy will actually succeed in creating the intended employee involvement, and uncertainty about the effect that involvement would have if it were achieved.  For instance, consider a law intended to increase unionization.  There is uncertainty about how much of an increase in unionization any given law would achieve.[55]  There is also uncertainty as to how increased unionization, if it were (somewhat miraculously) achieved, would affect company output, employee satisfaction, and the environment.

Political feasibility is a crucial consideration in evaluating the probability of success.  One aim is to find strategies that are self-perpetuating and generative—not only can one see a path for initial political success, but also such success can create support for future, more ambitious initiatives.  One should, however, be careful about using political infeasibility to weed out a strategy too quickly.  What seems hard to imagine now may become imaginable in the future; indeed, academic exercises can sometimes crucially shape future ideas about what is possible and attractive.  As Keynes said:

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.  Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.  I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.[56]

A final element to consider in evaluating strategies is short-run versus long-run effects and probabilities.  Some strategies (especially the first three in our list) are likely to pay off more quickly than others.  Other things being equal, these strategies are favored.  But presumably in a discussion of how to promote sustainability we should apply a low-discount rate and not overly handicap strategies likely to pay off only in the longer run, since creating businesses and an economy that are functional for the long haul is, after all, the defining focus of our task.

IV.  Choosing among Strategies

Finally, I apply the criteria of Part IV to choosing among the strategies listed in Part III.  My choices will be rough and utterly debatable.  But I hope that even those who disagree with the preferences expressed will find the framework helpful in thinking through the question of how to best go about increasing employee involvement in corporate governance as a way of creating more sustainable companies.  I consider each strategy in turn and conclude with an overall comparison.

Laws other than business association law.  Probability of success depends upon what types of legal change one contemplates.  Employers will fight changes that impose significant constraints on their ability to treat employees as they choose.  But modest changes in this area are probably one of the most politically viable among the strategies under consideration.  Employment law has seen a great deal of change in recent decades, in both legislation and in courts, which suggests that this is an area in which movement is possible.[57]

However, the potential gains from changes here may be quite limited.  There are presumably a variety of reforms available that could improve employee welfare.[58]  There are many fewer reforms that could do so while simultaneously improving net output as well (always a problem—after all, if such easy changes were out there, why wouldn’t companies already be acting accordingly?).  But for our purposes here the biggest problem with strategies that focus on changing judicially or administratively enforceable individual rights is that they don’t increase collective employee involvement in decision making.  Instead, they focus on employees as individuals with rights, not as a group that could help influence company behavior.[59]  Thus, these laws do not help us use employees to directly improve the way businesses affect the environment and other external constituencies.  The strategy nonetheless remains valuable insofar as it can improve the lot of employees without sacrificing (too much) in economic productivity, but it is of less interest for a conversation focused on sustainability.

Encourage officer or board power.  The next two strategies do not aim to increase employee involvement directly, but rather they help employees by promoting another group in corporate governance.  The big advantage of both of these strategies is that they have quite a good chance of political success.  The ongoing struggle between boards and shareholders is close and heavily fought—and both sides could win many battles.  Deciding to throw the weight of persons and organizations that favor employees to one side or the other could very well tip the balance of power.

Which side should employee advocates favor?  Shareholder power may lead to short-termism or cost-cutting measures that may hurt employees.[60]  Directors and officers that are not subject to excessive pressure from shareholders may better balance the interests of all corporate constituencies, including the employees, the environment, and the broader community.[61]  But note that directors and officers may often side with employees, but not with the environment or community.  After all, keeping employees happy and productive can more readily be reconciled with the interests of a company and its shareholders than protecting the environment above and beyond what the law requires.  If one believes that employees will tend to favor community interests,[62] then that is a real disadvantage of pursuing employee interests indirectly rather than by directly increasing employee involvement.  Moreover, siding with managers does little to increase the political power of employees, and hence does little to expand the long-run picture of what is feasible.

Encourage shareholder power.  Employee advocates could instead side with shareholders.  Doing so may both constrain self-dealing within particular corporations and reduce the power of the managerial class within society and politics as a whole.  Employees themselves are also increasingly important as shareholders, both through pension plans and through 401(k)s and similar holdings.  In choosing between this and the previous pro-management strategy, note that unions themselves (or at least the pension funds that they manage) have chosen shareholders over managers as their allies, with union funds playing a leading role in contemporary shareholder activism.[63]  Of course, from the perspective of those who put shareholder interests first, this union role in shareholder activism is problematic,[64] but it is a good thing from our perspective.

But again, as with the previous strategy, it may be that the persons put in power by shareholder activism, with the help of unions, may tend to favor employee interests but not environmental or other community interests.  This strategy does not give employees themselves more power, but only more power to another group (shareholders) that may side with employees on some issues but not others.  Again too, this strategy does little to directly empower employees politically, and hence does little to expand the long-run set of possibilities available.

Support unions.  This strategy has the great advantage of having achieved real success in the past.  Unions were instrumental in helping to improve wages and working conditions and giving employees some degree of voice within many companies[65] (although the matters subject to collective bargaining have been more limited than a sustainable corporation advocate would probably want to see).  It is disputed to what extent, if any, this came at the expense of economic productivity.[66]  Just as importantly, when unions were powerful, they had great political power, and that power made many other kinds of progressive reforms and policies more achievable.[67]  Unions are not always natural advocates of the kind of policies that those concerned with sustainability prefer—strong environmental laws, for instance, may create concerns about lost jobs.  Still, increased unionization would generally help put more progressive politicians in power, which on the whole would increase the range of politically feasible options for improving sustainability.  And unions may even sometimes support environmental regulation itself.[68]

The greatest defect of this strategy is also political.  Unionization levels have decreased for so long that it does not seem likely that the United States will ever return even close to the levels seen in the first few decades after World War II.  The weakness of unions is self-reinforcing, as companies successfully fight legal changes to make union organizing easier.[69]  Moreover, unionization is harder than it once was because of the changing nature of employment, including both the move from factories to service industries and the increasingly weak ties between employees and their companies.[70]

Promote means to give employees voice within corporations.  This strategy includes many variations, and thus it is hard to apply our criteria.  But this strategy is unlikely to have large payoffs in the short run.  The versions of this strategy that involve large legal changes that would strongly encourage or mandate significant employee involvement are politically quite unlikely to succeed,[71] while versions that involve smaller legal changes or a focus on organizing within particular existing or new firms may face less resistance, but will also bring about less widespread change in the short run.

On the other hand, the longer-run prospects for this strategy are more promising.  More modest legal changes in the short run may set the stage for bigger changes in the long run.  Experiments at individual companies may highlight successful approaches that eventually spread widely.[72]  A series of small-scale successes over time may help build political support for bigger and bolder experiments.

Promote other legal forms of business association.  This strategy also appears more promising for the long run.  States are unlikely to adopt drastically new statutes en masse, and even if they did, there are enough obstacles to highly innovative organizational forms that such a form will not be quickly adopted.  One might point to LLCs as a contrary example.[73]  But LLCs drew heavily upon existing experience with corporations and forms of partnerships and were not as radical as, say, worker co-ops.[74]  The LLC suggests that organizational change through new forms of business association is a promising strategy, but it is most likely to succeed if it is evolutionary rather than revolutionary.  Rather than leaping immediately to widespread adoption of a form that gives employees strong elements of control, we are more likely to succeed with a procession of innovations that gradually and incrementally extend employee involvement.

Promote changes in corporate culture and norms.  Changes in corporate cultures and norms can be accomplished without legal change.  Changes can occur incrementally and can build upon themselves.  Norm entrepreneurs can champion new norms, and if they are lucky they can create bandwagon effects leading to cascading change.[75]  The business school and management literature on empowering employees may represent such a norm cascade.[76]  But I wouldn’t hold my breath just yet as that literature is notoriously subject to fads, and employees should often be rightly skeptical of managers who come bearing gifts of alleged empowerment.

Choosing among the strategies.  Having briefly applied our criteria to each of the seven strategies, which looks most promising?  The answer depends on whether one focuses on short run or long run prospects.

In the short run, the first three strategies and perhaps the last look most promising.  Reforming laws (other than business association law) and encouraging board or shareholder power each offer some realistic chance of producing relatively immediate successes.  Unfortunately, the payoffs to increased sustainability from these three strategies look suspect.  Some improved employee rights through changes in employment law may increase employee well-being while not hurting productivity.  However, while employee well-being and productivity are indeed a component of sustainability broadly understood, insofar as we seek ways to directly improve the impact companies have on communities and the environment, stronger employee rights are unlikely to have much effect.  While such rights protect employees individually, they do little to increase employee involvement in core decision making.[77]

The second and third strategies have a somewhat similar problem.  In the ongoing battle between shareholders and boards, the fight is close enough that either side has a realistic chance at success, so whichever side employee advocates take, they have a real shot at short-run victory.  It is unclear which side is better for employees—I ultimately incline towards shareholders, largely because that is the side unions have taken.[78]  A caution on that argument, though, is that unions acting as fiduciaries in investing to meet pension obligations may have different interests than unions acting to pursue the interests of their members within the workplace.[79]  And even if that is the better side for employees, it is not necessarily the better side for communities and the environment.  Because these two strategies do not directly give decision making power to employees, these strategies do not bring employees’ perspective to bear in pushing companies in a more sustainable direction.  Indeed, I rather suspect that, on the whole, community and environmental interests are less endangered in companies that feature board primacy instead of shareholder primacy.[80]  For employees, the increased accountability that comes with shareholder primacy is on balance probably a gain, but for the community and environment, internal accountability is less important than the costs associated with the short-term bottom line focus that also follows from shareholder primacy.

Our final strategy, promoting norm changes, also has some chance at short run success, although only modestly so.  This strategy works manager-by-manager, corporation-by-corporation, and so modest gains are possible without major changes in the law.  There is even the possibility of a rapid large-scale norm cascade.[81]  I confess to skepticism that management literature happy talk is likely to lead to real widespread substantive change.  However, if that skepticism is misplaced, this strategy could be the only one with serious promise in both the short and the long run.

For bigger payoffs in sustainability, we must turn to the next three or four strategies, most of which will only succeed, if ever, in the longer run.  Among these, I would like to believe that large increases in unionization are possible, but I strongly suspect that the time for unions has come and gone.  That leaves us with a variety of experiments, legal and nonlegal, exploring greater employee involvement within both the corporate form and other forms of business association.  Some of these experiments will involve legal changes, most on a state-by-state basis.  Other experiments will work within existing laws and explore greater employee involvement company by company.  This local, case-by-case experimentalism is both a blessing and a curse.  It will take a long time and may never result in massive change that affects all or most businesses.  But, the experimentalism will help us figure out what works, and what doesn’t work, at relatively low cost, and the localism and gradualism give a way to start small and build strength over time rather than having to immediately fight powerful entrenched interests that are opposed to large scale change.

Truth be told, none of the strategies look all that rosy.  The ones that have the greatest hope of tangible results in the short run do not directly strengthen employee involvement in corporate governance, their effects on employee well-being are uncertain, and their effect on sustainability beyond employee well-being look small and sometimes negative.  The strategies that have potential for a bigger payoff in both employee well-being and sustainability as to community and environmental effects are quite unlikely to yield much gain in the short run, and even their long run prospects are highly uncertain.  Clearly, sustainability advocates should be looking at other options besides employee involvement.  And yet, increased sustainability is a goal for the long run, and one that ultimately must involve many struggles along many different fronts.  Some of the strategies for increasing employee involvement in corporate governance may prove to be among the struggles worth pursuing.

* Professor, University of Minnesota Law School.  I thank participants at the Wake Forest Law Review’s Symposium, “The Sustainable Corporation,” for useful comments.

[1]. See generally Jennifer G. Hill, Corporate Governance and the Role of the Employee, Partnership at Work: The Challenge of Employee Democracy: Labor Law Essays 110 (2003), available at

[2]. See Milton Friedman, The Social Responsibility of Business Is to Increase Its Profits, N.Y. Times, Sept. 13, 1970 (Magazine), at 33.

[3]. See Beate Sjafjella, Internalizing Externalities in E.U. Law: Why Neither Corporate Governance Nor Corporate Social Responsibility Provides the Answers, 40 Geo. Wash. Int’l L. Rev. 977, 981 (2009).

[4]. See id.

[5]. See id. at 993.

[6]. See id.

[7]. See Michael C. Jensen & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure, 3 J. Fin. Econ. 305 (1976), available at

[8]. See Alissa Mickels, Note, Beyond Corporate Social Responsibility: Reconciling the Ideals of a For-Benefit Corporation with Director Fiduciary Duties in the U.S. and Europe, 32 Hastings Int’l & Comp. L. Rev. 271, 297–99 (2009).

[9]. See generally Harvey Leibenstein, Allocative Efficiency vs. ‘X-Efficiency’, 56 Am. Econ. Rev. 392 (1966) (explaining the theory of “X-Efficiency”); Robert S. Frantz, X-Efficiency: Theory, Evidence and Applications (2d ed. 1990).

[10]. Steve Ferrey, The New Climate Metric: Sustainable Corporations and Energy, 46 Wake Forest L. Rev. 383, 388–90 (2011).

[11]. See, e.g., Marilyn Averill, Symposium, Introduction: Resilience, Law, and Natural Resource Management, 87 Neb. L. Rev. 821, 826 (2009) (stating that “sustainability” is a notoriously slippery term).

[12]. Report of the World Commission on Environment and Development: Our Common Future, ch. 1, para. 49 (1987), available at (“Sustainable development seeks to meet the needs and aspirations of the present without compromising the ability to meet those of the future.”).

[13]. See United Nations Education, Scientific, and Cultural Organization, Universal Declaration of Cultural Diversity, art. 3 (2002), available (“Cultural diversity . . . also means to achieve a more satisfactory intellectual, emotional, moral, and spiritual existence.”).

[14]. See John Elkington, Cannibals with Forks: The Triple Bottom Line of 21st Century Business 69 (1997).

[15]. See Brett H. McDonnell, Employee Primacy, or Economics Meets Civic Republicanism at Work, 13 Stan. J.L. Bus. & Fin. 334 (2008).

[16]. Id. at 335.

[17]. Id. at 355; see also Tom R. Tyler, Promoting Employee Policy Adherence and Rule Following in Work Settings, 70 Brook. L. Rev. 1287, 1300 (2005); Tom R. Tyler & Steven L. Blader, Cooperation in Groups: Procedural Justice, Social Identity, and Behavioral Engagement (2000).

[18]. See McDonnell, supra note 15, at 355; Joseph E. Stiglitz, Credit Markets and the Control of Capital, 17 J. Money, Credit & Banking 133, 143 (1985); Margit Osterloh & Bruno S. Frey, Shareholders Should Welcome Knowledge Workers as Directors 6 (Institute for Empirical Research on Economics, University of Zurich, Working Paper No. 283, 2005).

[19]. McDonnell, supra note 15, at 350-53; see also Kent Greenfield, The Place of Workers in Corporate Law, 39 B.C. L. Rev. 283, 326 (1998).

[20]. Greenfield, supra note 19, at 286-87.

[21]. See supra note 9 and accompanying text.

[22]. Peter Warr, Well-Being and the Workplace, in Well-Being: The Foundations of Hedonic Psychology 392 (Daniel Kahneman et al. eds., 1999); B.D. Cawley, L.J. Keeping & P.E. Levy, Participation in the Performance Appraisal Process and Employee Reactions: A Meta-Analytic Review of Field Investigations, 83 J. App. Psych. 615, 628 (1998); McDonnell, supra note 15, at 354; Tyler & Blader, supra note 17, at 54-55.

[23]. McDonnell, supra note 15, at 354.

[24]. Melvin L. Kohn & Carmi Schooler, Stratification, Occupation, and Orientation, in Work and Personality: An Inquiry Into the Impact of Social Stratification 5, 33 (1983); Melvin L. Kohn, Unresolved Issues in the Relationship Between Work and Personality, in The Nature of Work: Sociological Perspectives 36, 54 (Kai Erikson & Steven Peter Vallas eds., 1990); Stephen C. Smith, Political Behavior as an Economic Externality, in Advances in the Economic Analysis of Participatory and Labor-Managed Firms: A Research Manual 123 (Derek C. Jones & Jan Svejnar eds., 1985); McDonnell, supra note 15, at 369-70.

[25]. Elkington, supra note 14, at 73.

[26]. See supra note 3 and accompanying text.

[27]. See McDonnell, supra note 15, at 362-63 (discussing a few snippets of evidence).

[28]. Though certainly not all—global warming is a key exception.

[29]. Shareholding in public corporations does have a local bias.  See sources cited in McDonnell, supra note 15, at 363 n.117 for examples. But even so, public shareholders are quite unlikely to be as heavily locally concentrated as their employees.

[30]. See infra Part II.

[31]. See McDonnell, supra note 15, at 361-62; Lawrence E. Mitchell, Corporate Irresponsibility: America’s Newest Export 3 (2001).

[32]. McDonnell, supra note 15, at 361-62.

[33]. Labor law is of course another critical area of the law, but I deal with unions as a separate strategy.

[34]. Employee Retirement Income Security Act, 29 U.S.C. § 1003 (2006).

[35]. The situation is different in some other countries.  In Germany, for instance, employees play a major role through the law of codetermination.  Rebecca Page, Co-Determination in Germany—A Beginner’s Guide, 33 Arbeitspapier 11 (March 2006), available at

[36]. See Lucian A. Bebchuk, The Myth of the Shareholder Franchise, 93 Va. L. Rev. 675, 676 (2007); Stephen M. Bainbridge, The Case for Limited Shareholder Voting Rights, 53 UCLA L. Rev. 601, 601 (2006).

[37]. See Mitchell, supra note 31, at 3; Margaret M. Blair & Lynn A. Stout, A Team Production Theory of Corporate Law, 85 Va. L. Rev. 247, 249 (1999).  Going back to the original debate within corporate law scholarship over managers versus shareholders, this was the position of Dodd.  Merrick Dodd, Jr., For Whom Are Corporate Managers Trustees?, 45 Harv. L. Rev. 1145, 1145 (1932).

[38]. See Bebchuk, supra note 36, at 731.  In the ur-debate, this was the position of Berle.  Adolf A. Berle, Jr., Corporate Powers as Powers in Trust, 44 Harv. L. Rev. 1049, 1049 (1931).

[39]. William H. Simon, The Prospects of Pension Fund Socialism, 14 Berkeley J. Emp. & Lab. L. 251, 251 (1993).

[40]. Id.

[41]. U.S. unionization rates peaked at 28.3% in 1958, and had declined to 11.5% by 2003.  Gerald Mayer, Cong. Research Serv., RL 32553, Union Membership Trends in The United States 1 (2004).

[42]. One existing law that discourages employee participation is found in the National Labor Relations Act.  29 U.S.C. § 158(a)(2) (2006).  See McDonnell, supra note 15, at 375 n.173 and accompanying text and sources cited there.

[43]. See Page, supra note 35, at 5.

[44]. Matthew T. Bodie, The Case for Employee Referenda on Transformative Transactions as Shareholder Proposals, 87 Wash. U. L. Rev. 897, 897 (2010); Thuy-Nga T. Vo,Lifting the Curse of the Sox Through Employee Assessments of the Internal Control Environment, 56 U. Kan. L. Rev. 1, 2 (2007).

[45]. Brett H. McDonnell, Sticky Defaults and Altering Rules in Corporate Law, 60 SMU L. Rev. 383, 384 (2007).

[46]. Id. at 385.

[47]. David Ellerman & Peter Pitegoff, The Democratic Corporation: The New Worker Cooperative Statute in Massachusetts, 11 N.Y.U. Rev. L. & Soc. Change 441, 441 (1983); John Pencavel, Worker Participation: Lessons from the Worker Co-Ops of the Pacific Northwest (2001); William Whyte & Kathleen Whyte, Making Mondragon: The Growth and Dynamics of the Worker Cooperative Complex (2d ed. 1988).

[48]. Dana Brakman Reiser, Benefit Corporations—A Sustainable Form of Organtization?, 46 Wake Forest L. Rev. 591, 593–606 (2011); Linda O. Smiddy, Symposium,Corporate Creativity: The Vermont L3C and Other Developments in Social Entrepreneurship, 35 Vt. L. Rev. 3, 3 (2010).

[49]. I thank Matt Bodie for suggesting this as an additional possible strategy.

[50]. Ricky W. Griffin & Gregory Moorhead, Organizational Behavior: Managing People and Organizations ch. 5 (9th ed. 2010); Steven H. Applebaum, Danielle Hebert & Sylvie Leroux, Empowerment: Power, Culture, and Leadership—A Strategy or Fad for the Millennium?, 11 J. Workplace Learning 233 (1999); Darrol J. Stanley, The Impact of Empowered Employees on Corporate Value, 8 Graziadio Bus. Rev. (2005), available at

[51]. See Stanley, supra note 49.

[52]. Id.

[53]. Applebaum, Hebert & Leroux, supra note 50.

[54]. See supra note 14 and accompanying text.

[55]. Perhaps, alas, there is less uncertainty than one would like—the chances of greatly increasing the degree of unionization in the United States seems quite bleak.

[56]. John Maynard Keynes, The General Theory of Employment, Interest, and Money 383 (1936).

[57]. For an overview, see Stephen F. Befort & John W. Budd, Invisible Hands, Invisible Objectives: Bringing Workplace Law and Public Policy Into Focus (2009).

[58]. Id. at 3.

[59]. Cynthia Estlund, Regoverning the Workplace: From Self-Regulation to Co-Regulation (2010).

[60]. Leo E. Strine, Jr., Toward Common Sense and Common Ground? Reflections on the Shared Interests of Labor and Management in a More Rational System of Corporate Governance, 33 J. Corp. L. 1, 16 (2007).

[61]. See Blair & Stout, supra note 37, at 315 (discussing the board as a mediating hierarch).

  [62]. See supra note 27 and accompanying text.

[63]. See Simon, supra note 39; Stewart J. Schwab & Randall S. Thomas, Realigning Corporate Governance: Shareholder Activism By Labor Unions, 96 Mich. L. Rev. 1018, 1019 (1998).

[64]. See Bainbridge, supra note 36, at 610.

[65]. Richard B. Freeman, What Do Unions Do? 3–4 (1984).

[66]. Id. at 162-63.

[67]. Id. at 191-92.  Interestingly, unions seem to have been more effective at helping pass general social legislation than legislation narrowly aimed at promoting their own power.

[68]. Bruce Yandle, Unions and Environmental Regulation, 6 J. Lab. Res. 429, 435 (1985).

[69]. John Logan, The Union Avoidance Industry in the United States, 44:4 Brit. J. of Indus. Rel. 651, 651 (2006).

[70]. See generally Daniel H. Pink, Free Agent Nation (2002) (discussing the changing nature of the American workforce).

[71]. Mandatory codetermination at the federal level, anyone?

[72]. See supra note 47 and accompanying text.

[73]. See generally Larry E. Ribstein, The Rise of the Uncorporation 1 (2010) (discussing the rise of LLCs).

  [74]. See Rory Ridley-Duff, Cooperative Social Enterprises: Company Rules, Access to Finance and Management Practice, 5 Soc. Enter. J. 50 (2009).

[75]. Cass R. Sunstein, Social Norms and Social Roles, 96 Colum. L. Rev. 903, 909 (1996); see also Eric A. Posner, Law and Social Norms 30 (2000); Robert C. Ellickson, The Market for Social Norms, 3 Am. L. & Econ. Rev. 1, 1 (2001).  For some welcome skepticism, see David E. Pozen, We Are All Entrepreneurs Now, 43 Wake Forest L. Rev. 283, 284 (2008).

[76]. See supra notes 49–52 and accompanying text.

[77]. See supra note 58 and accompanying text.

[78]. Brett H. McDonnell, Shareholder Bylaws, Shareholder Nominations, and Poison Pills, 3 Berkeley Bus. L. J. 205, 250 (2006); Brett H. McDonnell, Setting Optimal Rules for Shareholder Proxy Access (Minnesota Legal Studies Research Paper No. 10-03) [hereinafter “Shareholder Bylaws”], available at

[79]. Shareholder Bylaws, supra note 77.

[80]. Mitchell, supra note 31, at 3.

[81]. See Sunstein, supra note 74, at 912.