It is time to stop quivering in our boots in pointless fear of the future and just roll up our sleeves and build it.
- Ray Pierrehumbert

Tuesday, August 21, 2007

Shareholder Actions and Sustainable Prosperity

Via The Panelist, an interesting article on on shareholder resolutions about corporate greenhouse gas policies.

Update: I'm interested in how little interest y'all are showing in this.

What's your take? Is this approach at all feasible?

Can investor democracy work?

Is it even legally possible for a publicly traded company to behave ethically if its financial interests pull it toward unethical behavior? Isn't it considered the responsibility of the company to maximize shareholder return to the exclusion of all else?

Admittedly consumer pressure can influence consumer oriented companies, the more so if their market is educated and otherwise has good taste (e.g. Apple). The question is whether stockholder pressure can alter business behavior to the point where the business is actually negatively impacted.

Admittedly, BP and Exxon approach environmental matters differently. Corporate culture definitely matters. The question is whether stockholder culture matters, and whether it might matter sufficiently.


Heiko said...

Is there really a "legal" requirement to maximise returns?

This is not something I have much expertise in, but I would have thought that a company should do whatever its shareholders wish it to do (with some protections built in for minority shareholders, you don't want a 51% majority to effectively agree that the other 49% of the company be redistributed to them).

Personally I think it's in the financial interest of both BP and Exxon to push climate change, and particularly cap and trade with the right grandfathering. They'd be bound to profit both from selling permits and from selling more higher priced natural gas (which is exactly what's happening in Europe).

Michael Tobis said...

My understanding was that in the US the corporation exists for the sole purpose of maximizing shareholder value, and that consequently any behavior by the corporation contrary to that goal would be a violation of fiduciary responsibility.

My information is from informal sources. I'd appreciate correction if I'm wrong. If I'm right, this entire approach is guaranteed to be insufficient from the start. I think in practice, whether my undertstanding of the formal constraints on corporations is correct or not, action at this level is inevitably going to be compromised by the special interests of the corporation in question.

This is not to say that I oppose such actions, any more than I oppose individuals changing lightbulbs.

Regardless, I believe such actions are woefully insufficient. Only competent regulation can have sufficient influence to avoid disaster.

Unsuccessful regulation, of course, is easier than successful regulation. So we need to think and work carefully about regulation, to maximize the desired impact and minimize the undesireable side effects.

Anything else is just Titanic deck-fiddling. No matter how lovely the tune, the boat is still sinking.

James Annan said...

"Maximising returns" is always a bit of a movable feast anyway, in that it depends on the context and culture - eg something that apparently maximises the short-term return but is perceived as unethical may backfire in the longer term.

It also seems clear that Steve Bloom, Stern, and I would all argue for different actions to maximise global GNP...these things are always judgements rather than facts (although my judgements are clearly more credible than theirs :-) ).