Corporations are under pressure to use their outsized power to benefit society, but this advocacy is unlikely to result in meaningful change because corporate law’s incentive structure rewards fiduciaries who maximize shareholder wealth. Therefore, this Essay proposes a way forward that works within the wealth-maximization framework and yet could result in dramatic social change. The idea is simple: Use private debt markets to provide incentives for public-interested corporate action. Specifically, individuals who value prosocial corporate decisions could finance them by contributing to corporate social responsibility (CSR) bonds that would offset the corporation’s implementation costs. To provide an incentive to depart from wealth maximization, the bond would stipulate that the contribution would be forgiven when the decision is implemented by the corporation—a key difference from existing pro­social financial instruments.

More broadly, the insight that the individuals with the strongest interest in seeing corporations act responsibly are not always the company’s shareholders has consequences for corporate law and corporate governance. In particular, it cautions that we should recognize the limits of shareholder activism to achieve socially optimal levels of corporate responsibility. The more difficult questions are whether and how to reorient our corporate law system away from shareholders and toward other constituencies. As that project forges on, this Essay describes a tool that would enable stakeholders to influence corporate behavior without any delay.

The full text of this Essay can be found by clicking the PDF link to the left.


As the COVID-19 pandemic waged on, financial market participants saw an opportunity. Specifically, issuers began developing bonds that would generate funds for companies and governments with the specific aim of easing the effects of the pandemic. 1 See Karen Hube, Future Returns: COVID-19 Bonds Emerge as a Financing Tool, Barron’s: Penta, [] (last updated Apr. 14, 2020). For example, the pharmaceu­tical company Pfizer issued a COVID-19 bond that promised investors that the assets generated would be used to support access to vaccines for people in need. 2 Id.

These COVID-19 bonds are representative of a broader trend in the development of prosocial financial instruments that have exploded in the past five years. These instruments seek to meet the needs of investors who hope to make the world a better place in addition to securing a financial return. This Essay considers how this concept could, if expanded, promote dramatic changes in corporate decisionmaking in the service of social welfare. Specifically, it introduces the “corporate social responsibility bond,” (or “CSR bond”), an instrument that has its roots in these new financial instruments, but with a twist. Unlike COVID-19 bonds, the CSR bond investor would eschew any financial gain if the project is successful; instead, the expected return is the social benefit. 3 See Antony Bugg-Levine, Bruce Kogut & Nalin Kulatilaka, A New Approach to Funding Social Enterprises, Harv. Bus. Rev. (Jan.–Feb. 2012), (on file with the Columbia Law Review) (“[A] charitable donation [is] an investment [for which] the return . . . is not financial. The donor does not expect to get its money back; it expects its money to generate a social benefit. It considers the investment a failure only if that social benefit is not created.”). As a result, CSR bonds 4 This Essay uses the term “bond” because the instrument has characteristics that resemble traditional bonds—in particular, green bonds and impact bonds discussed in section II.B. Debt instruments also provide lenders with governance rights that would be useful in this context. See Douglas G. Baird & Robert K. Rasmussen, Private Debt and the Missing Lever of Corporate Governance, 154 U. Pa. L. Rev. 1209, 1211 (2006) (discussing the control rights that creditors exercise through the use of loan covenants); see also infra text accompanying note 24. But the same arrangement could also be accomplished by contract. would have the potential to dramatically impact corporate behavior by providing corporations with a financial incentive to take on public-interested but profit-sacrificing projects.

And such a tool is likely necessary to induce corporations to make genuine moves in the interest of society. Indeed, decades of legal scholarship emphasizing that fiduciaries have the discretion to sacrifice profits for social good, 5 See Lynn Stout, The Shareholder Value Myth 104–05 (2012) (arguing that many problems arise from the “mistaken idea” that corporations “ought to be run to maximize shareholder value”); Einer Elhauge, Sacrificing Corporate Profits in the Public Interest, 80 N.Y.U. L. Rev. 733, 763–69 (2005) (arguing that corporate managers have the discretion to sacrifice corporate profits in favor of the public interest under Delaware law); Lyman Johnson, Unsettledness in Delaware Corporate Law: Business Judgment Rule, Corporate Purpose, 38 Del. J. Corp. L. 405, 432 (2013) (arguing that Delaware law is unsettled on the question of whether corporations are required to advance the long-term interests of stockholders); Lynn A. Stout, Why We Should Stop Teaching Dodge v. Ford, 3 Va. L. & Bus. Rev. 163, 172 (2008) (“In sum, whether gauged by corporate charters, state corporation codes, or corporate case law, the notion that corporate law as a positive matter ‘requires’ companies to maximize shareholder wealth turns out to be spurious.”). as well as urging from politicians, consumers, and even shareholders themselves, has not resulted in genuine change. As just one example of the progression of such advocacy, recall that in August 2019, the Business Roundtable announced that companies should be managed for the benefit of all stakeholders—including customers, employees, suppliers, communities, and shareholders. 6 Business Roundtable Redefines the Purpose of a Corporation to Promote ‘an Economy that Serves All Americans’, Bus. Roundtable (Aug. 19, 2019), https://‌‌business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans [] [hereinafter Business Roundtable Letter] (“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.” (emphasis added)). CEOs from 181 companies signed the statement. 7 Id. Just days after signing, Amazon CEO Jeff Bezos announced that Whole Foods, a subsidiary of Amazon, would end medical and health benefits for part-time workers. 8 See Bob Bryan, Amazon-Owned Whole Foods’ Decision to Drop Health Benefits for Hundreds of Part-Time Workers Reveals How Promises to Workers like CEO Jeff Bezos’ Recent Pledge Are Worthless, Bus. Insider (Sept. 13, 2019),‌whole-foods-healthcare-amazon-ceo-jeff-bezos-promises-business-roundtable-2019-9 [‌72R9-6Y2E] (noting that the changes will affect as many as 1,900 employees); see also Jesse Fried, Shareholders Always Come First and That’s a Good Thing, Fin. Times (Oct. 7, 2019), (on file with the Columbia Law Review) (“In reality, the Business Roundtable is merely paying lip service to broader social concerns. I predict that the pledge will not actually affect how they run their companies.”); Aneesh Raghunandan & Shiva Rajgopal, Opinion, Is There Real Virtue Behind the Business Roundtable’s Signaling?, Wall St. J. (Dec. 2, 2019), (on file with the Columbia Law Review) (collecting data showing that signatories of the Business Roundtable letter were sixteen percentage points more likely to commit at least one federal compliance violation, including labor and environmental violations, in any given year than peer nonsignatory firms and concluding that the letter’s goal was to preempt regulatory criticism).

Should we be surprised? Of course not: It is naïve to expect corpora­tions to do something other than maximize profits when corporate law’s incentive structure rewards corporate fiduciaries who prioritize shareholder wealth. 9 See D. Gordon Smith, The Shareholder Primacy Norm, 23 J. Corp. L. 277, 277 (1998) (“The structure of corporate law ensures that corporations generally operate in the interests of shareholders. Shareholders exercise control over corporations by electing directors . . . .”); Leo E. Strine, Jr., Corporate Power Is Corporate Purpose II: An Encouragement for Future Consideration from Professors Johnson and Millon, 74 Wash. & Lee L. Rev. 1165, 1173–74, 1177 (2017) (discussing the need for a “clear-eyed” appraisal of the power dynamics that incentivize shareholder wealth maximization); Leo E. Strine, Jr., The Dangers of Denial: The Need for a Clear-Eyed Understanding of the Power and Accountability Structure Established by the Delaware General Corporation Law, 50 Wake Forest L. Rev. 761, 768 (2015) [hereinafter Strine, Dangers of Denial] (“[A] clear-eyed look at the law of corporations in Delaware reveals that, within the limits of their discretion, directors must make stockholder welfare their sole end, and that other interests may be taken into consideration only as a means of promoting stockholder welfare.”). Put somewhat differently, this wave of stakeholder advocacy does little to change the practical operation of corporate deci­sionmaking. Corporate fiduciaries already have incentives to engage in prosocial activities when they also maximize profit—and a large and growing literature documents the many ways that corporate social responsibility is wealth maximizing. 10 Corporate social responsibility may reduce a company’s cost of capital; may have a positive impact on a company’s revenue by reducing litigation, sanctions, and risk of boycott while increasing government support; and may lower a company’s cost of debt. See Eugene W. Anderson & Mary W. Sullivan, The Antecedents and Consequences of Customer Satisfaction for Firms, 12 Mktg. Sci. 125, 140–41 (1993); Sudheer Chava, Environmental Externalities and Cost of Capital, 60 Mgmt. Sci. 2223, 2240–41 (2014); George Kassinis & Nikos Vafeas, Corporate Boards and Outside Stakeholders as Determinants of Environmental Litigation, 23 Strat. Mgmt. J. 399, 413–14 (2002); Paul Thompson & Christopher J. Cowton, Bringing the Environment into Bank Lending: Implications for Environmental Reporting, 36 Brit. Acct. Rev. 197, 214–16 (2004); Rob Bauer & Daniel Hann, Corporate Environmental Management and Credit Risk 15 (Dec. 23, 2010) (unpublished manuscript), (on file with the Columbia Law Review); see also Robert G. Eccles, Ioannis Ioannou & George Serafeim, The Impact of Corporate Sustainability on Organizational Processes and Performance, 60 Mgmt. Sci. 2835, 2836 (2014) (finding that companies that voluntarily adopted sustainability policies by 1993 outperformed their counterparts over the long term); Michael E. Porter & Mark R. Kramer, The Competitive Advantage of Corporate Philanthropy, Harv. Bus. Rev. (Dec. 2002), [] (arguing that “social and economic goals are not inherently conflicting but integrally connected”); Michael E. Porter, George Serafeim & Mark Kramer, Where ESG Fails, Institutional Inv. (Oct. 16, 2019), https://www.‌institutional‌‌article/b1hm5ghqtxj9s7/Where-ESG-Fails [‌YB89-VHDE] (arguing that companies that pursue social-impact goals “can outperform their peers, delivering superior returns both to society and to their shareholders”). Fiduciaries, however, lack incentives to make public-interested choices that are bad for business or that might not pay off for many years. And no amount of legal discretion will change this reality.

CSR bonds could therefore induce corporations to take profit-sacrificing actions that have large welfare benefits. Unlike COVID-19 bonds and other prosocial financial instruments, which make money available for profit-maximizing projects that align with investors’ prosocial goals, CSR bonds would encourage corporations to make profit-sacrificing prosocial decisions. 11 This Essay explores these instruments in detail in section II.A. Essentially, the bond would support a Coasian bargain between companies and the individuals who desire public-interested corporate action. 12 See generally R.H. Coase, The Problem of Social Cost, 3 J.L. & Econ. 1 (1960) (arguing that, when information and transaction costs are low, the market will produce an efficient solution to the problem of nuisances regardless of where the law places liability for the nuisance). Any individual who values the decision more than its cost could contribute to the bond. To provide an incentive to depart from wealth maximization, the individuals would stipulate that their contribution would be forgiven if the decision was implemented, therefore allowing the company to internalize the Coasian bargain. If the company fails to act, however, the investor would get their money back plus penalty interest, which serves as a commitment mechanism for the issuer. 13 See Michael Abramowicz & Ian Ayres, Commitment Bonds, 100 Geo. L.J. 605, 606–10 (2012) (exploring how bonds can be used as a commitment mechanism for issuers).

Consider the following stylized example of how a CSR bond could be used, which illustrates some of the benefits (as well as the drawbacks, which will be discussed in a moment). Suppose a coal-fired power company is facing pressure from environmental advocacy groups to install scrubbers that would reduce air pollution and increase the life  expectancy  of  employees,  as  well  as  people  who  live  near  the  company’s factories. 14 Although the Clean Air Act of 1977 essentially mandated that new coal-fired power plants install scrubbers, old companies were grandfathered in. See How Economics Solved Acid Rain, Env’t Def. Fund, [‌2UF7-F852] (last updated Sept. 2018). As a result, about 30% of U.S. power plants lack scrubbers. See Eric Lipton, E.P.A. Rule Change Could Let Dirtiest Coal Plants Keep Running (and Stay Dirty), N.Y. Times (Aug. 24, 2018),‌2018/08/24/climate/epa-coal-power-scrubbers.html (on file with the Columbia Law Review). But installing scrubbers would cause the company to incur $150 million in costs, and that amount would only be partially offset (let’s say by $70 million) by increased revenue as a result of reputational benefits and employee productivity. 15 See George W. Sharp, EUCG Inc., What’s That Scrubber Going to Cost?, POWER (July 15, 2007),‌?pagenum=4 []. As a result, the company is unlikely to install the scrubbers without regulation, which, as a result of industry lobbying, is not expected to arise. Of course, pressure from environmental advocates, consumers, employees, or even shareholders might lead to negative reper­cussions for the company that fails to install scrubbers, but unless those harms exceed the costs from implementation, the choice will not be made. And this reality holds regardless of the company’s legal objective and regardless of the extent of fiduciary discretion: Even if management is permitted to consider the environment or other groups, that leeway will not result in a voluntary decision to sacrifice $80 million, which will subject them to negative reputational and financial repercussions, as well as a threat of ouster.

The calculus for the company changes, however, if it has the opportunity to work with a CSR bond issuer 16 A third-party issuer would help reduce coordination costs, and a nonprofit issuer would increase the likelihood that the contribution would be tax-deductible for contributors. Although a 501(c)(3) wouldn’t enable the contributor to claim a charitable contribution if they get the money back, the contributor might be able to preserve charitable contribution deductibility by having the money roll over to a charity if the bond fails. In the alternative, the investor could claim a capital loss if the company takes the action in question. See, e.g., Stefan Gottschalk & Sharif Ford, IRS Addresses Timing of a Worthless Stock Deduction, RSM (Dec. 15, 2016),‌services/‌tax/‌federal-tax/corporate-tax-services/irs-addresses-timing-of-a-worthless-stock-deduction.html []. and receive funds to offset the costs from implementation. Potential contributors include individuals for whom the choice would be welfare-maximizing; 17 Scholars have increasingly highlighted that shareholders are individuals with values that may be inconsistent with wealth maximization. See, e.g., Ann M. Lipton, What We Talk About When We Talk About Shareholder Primacy, 69 Case W. Res. L. Rev. 863, 866–67 (2019) (discussing how shareholder primacy has been described in terms of welfare or values that shareholders privately determine). If an individual values a prosocial corporate action more highly than the alternative that would maximize profits, they might be willing to pay to encourage that prosocial action. Indeed, research suggests that ESG investors select funds based on nonfinancial considerations and may be willing to sacrifice returns in order to improve the sustainability composition of the portfolio, supporting the conclusion that individuals might also support CSR bonds under certain circumstances. See Jędrzej Białkowski & Laura T. Starks, SRI Funds: Investor Demand, Exogenous Shocks and ESG Profiles 9–13 (Mar. 2016) (unpublished manuscript),‌bitstream/‌handle/10092/12492/12660765_SRI%20Funds_March2016.pdf [‌7UAV-3SEU]; Maartin van Wijk, Members Are ‘Willing to Sacrifice Some Returns’ for ESG Investment, IPE (Apr. 4, 2019), [‌NJ73-RLY4]. the most likely source of assets, however, would be a foundation, family office, or endowment seeking an opportunity to make a tangible and measurable impact on social welfare. 18 See Unlocking Endowments: Foundations Are Stepping Up Impact Investing, Knowledge@Wharton (Nov. 28, 2018),‌article/from-backstreet-to-wall-st-ep-09 [] (“Today, foundations across the U.S. and globally are increasingly looking to use their endowments to achieve social or environmental goals.”). To provide a sense of this pool of funds, consider that U.S. donors give away an amount roughly equivalent to 2% of GDP—or approximately $300 billion—each year. 19 James Andreoni & A. Abigail Payne, Charitable Giving, in 5 Handbook of Pub. Econ. 1, 6 (Alan J. Auerbach, Raj Chetty, Martin Feldstein & Emmanuel Saez eds., 2019). This figure excludes the $50 billion donated by U.S. charitable organizations each year. See Bugg-Levine et al., supra note 3, at 12. Note, however, that donations made to religious organizations, which “should be analyzed separately from other types of giving,” account for 35% of total contributions made by individuals in the U.S. Andreoni & Payne, supra, at 10. Investors in socially responsible mutual funds might also contribute—indeed, a Socially Responsible Investing (SRI) index fund might promise that, instead of buying and selling shares of companies based on investor ideology (which is unlikely to change corporate behavior and possibly sacrifices investor returns), 20 Paul Brest, Ronald J. Gilson & Mark A. Wolfson, How Investors Can (and Can’t) Create Social Value, 44 J. Corp. L. 205, 210 (2018) (“It is virtually impossible for investors to affect the outputs or behavior of firms whose securities trade in public markets through buying and selling securities in the secondary market.”); Christopher C. Geczy, Robert F. Stambaugh & David Levin, Investing in Socially Responsible Mutual Funds 18 (Univ. of Pa., Scholarly Commons Working Paper No. 10-2005, 2005),‌cgi/‌viewcontent.cgi?article=1444&context=fnce_papers [] (discussing the comparatively higher costs of SRI funds relative to non-SRI funds). the fund would identify worthy CSR bonds and suggest that investors contribute a portion of their returns each year. 21 As of the beginning of 2018, $11.6 trillion of all professionally managed assets in the United States were in ESG investment strategies. See Adam Connaker & Saadia Madsbjerg, The State of Socially Responsible Investing, Harv. Bus. Rev. (Jan. 17, 2019),‌2019/01/the-state-of-socially-responsible-investing [‌YAJ9-C76A]. Assuming investors were willing to pay an additional fee of ten basis points each year, that would amount to over a billion dollars available to incentivize good corporate behavior.

Returning to the scrubber example, let’s again assume that the total cost to the company of installing scrubbers is estimated to be $80 million. If a bond was issued and funded in that amount, the company would have a difficult time resisting. And if the company installed the scrubbers, it could keep the money; if not, investors would get their money back plus interest.

In this example, the CSR bond would likely be the only way to encourage the corporation to install the scrubbers. Externality regulation that would push the company to implement scrubbers or otherwise reduce emissions is unlikely; even if regulation did arise, it would likely be the product of compromise or distorted by interest group dynamics. 22 See infra notes 66–69 and accompanying text. Moreover, most consumers, many of whom live far away from the com­pany’s factories, might not mind that the coal plant is polluting if it leads to cheaper energy prices. Even socially motivated consumers might not feel compelled to boycott the company if most competing coal companies have not installed scrubbers. 23 To Boycott or Not to Boycott: The Consequences of a Protest, Knowledge@Wharton (June 9, 2010),‌article/to-boycott-or-not-the-consequences-of-a-protest [] (“[F]or a boycott to gain traction, there must be a low financial and psychological cost for consumers to get on board.”). What about shareholders? Although some prosocial shareholders may be willing to bear a hit to the stock price in service of the public good, it is unlikely that the majority will encourage profit-sacrificing decisions even when the welfare benefits are very great.

A CSR bond, therefore, would be the only way for stakeholders to bring about the desired change. Not only that, by converting corporate outsiders into creditors, the bond could alter other facets of corporate decisionmaking. Perhaps, for example, the bondholders could secure information rights or the right to monitor operations until the scrubbers are installed. 24 See Baird & Rasmussen, supra note 4, at 1216–17 (noting that lenders wield considerable power through their “ability to insert any conditions or covenants into their loan agreements”). By giving prosocial investors (or their nonprofit representative) a voice in the room, the bond could ensure that these views are taken into consideration for many months or years.

The bond could also have beneficial secondary effects on the market. Indeed, by advertising that it has installed scrubbers, the power company’s choice could cause consumers to focus on rival companies that have not followed suit, increasing the costs of noncompliance with the developing norm. The social responsibility bond could also alter industry-wide standards in another way: By forcing a company to reduce pollution, the bond removes an incentive for the company to lobby against regulation that would impose the same requirement on rivals. Indeed, the power company might now lobby in favor of regulation. 25 Consider Amazon’s changed lobbying position on laws requiring online retailers to pay sales tax. Amazon initially opposed such laws, but once the Supreme Court ruled that state and local governments could require online merchants to levy sales tax—even when that retailer had no physical presence in the state—Amazon began lobbying in favor of laws that would require sales taxes on all internet purchases. See Kyung M. Song, Amazon Lobbies Heavily for Internet Sales Tax, Seattle Times (Sept. 7, 2013), https://www.‌‌seattle-news/amazon-lobbies-heavily-for-internet-sales-tax [‌LB88-JYSN].

In sum, the CSR bond resembles a private Pigouvian subsidy that could be used to alter corporate decisionmaking by changing the set of decisions that are wealth maximizing. 26 Pigouvian subsidies are direct payments from the government to firms to encourage beneficial activities so that corporate decisions coincide with socially optimal allocations. See Garth Heutel, Subsidies, in Environmental and Natural Resources Economics: An Encyclopedia (Timothy C. Haab & John C. Whitehead eds., 2014). Note, however, that CSR bonds are not calibrated to maximize public welfare, but rather private welfare. And because individuals might also fail to internalize all of the costs of corporate harm, it is likely that relying on bonds alone will not result in an optimal level of corporate social responsibility from a public welfare perspective. This is why this instrument is intended to be a complement to regulation, rather than a substitute. At its best use, a CSR bond could transform industries, ease the prospect of regulation, help prosocial individuals overcome coordination costs, and reverse harmful corporate practices. It would do this without any change in the law or corporate gov­ernance. Indeed, one of the advantages of the bond is that it works within the wealth-maximization framework and, therefore, does not risk eroding managerial accountability or incurring other inefficiencies associated with a stakeholder model. 27 See Lucian A. Bebchuk & Roberto Tallarita, The Illusory Promise of Stakeholder Governance, 106 Cornell L. Rev. 91, 164 (2020) (arguing that “[s]takeholderism would increase the insulation of corporate leaders from shareholders and make them less accountable to them”); Mark J. Roe, The Shareholder Wealth Maximization Norm and Industrial Organization, 149 U. Pa. L. Rev. 2063, 2065 (2001) (“[A] stakeholder measure of managerial accountability could leave managers so much discretion that managers could easily pursue their own agenda, one that might maximize neither shareholder, employee, consumer, nor national wealth, but only their own.”); Strine, Dangers of Denial, supra note 9, at 768 (noting that a stakeholder model runs the risk of “shift[ing] power to the directors to couch their own actions in whatever guise they find convenient, without making them more accountable to any interest”); Jean Tirole, Corporate Governance, 69 Econometrica 1, 2 (2001) (discussing the view that shareholder primacy best solves agency problems). In addition, by targeting problematic corporate decisions and offering incentives for corporations to improve them, CSR bonds avoid the collateral consequences that flow from consumer boycotts and employee strikes.

But the devil is in the details. Indeed, CSR bonds are fraught with complications that could render them not useful or even harmful under certain circumstances. For example, CSR bonds could be impossible to price because of information asymmetries, could lead to moral hazard for companies, and could result in harmful distributive consequences. In addition, companies might not be receptive to accepting funds when doing so will focus attention on their harmful practices. 28 This Essay discusses these and other possible pitfalls in Part II. Therefore, CSR bonds should not be seen as a cure for every instance of corporate irresponsibility, but as a promising tool that can offer substantial social welfare benefits under the right conditions. And the market for these bonds does not need to be large to make a substantial difference—even just one successful bond could offer huge welfare benefits, as section II.A explores. But ultimately, because of the many limitations in their use, these bonds should be viewed as a complement, rather than a substitute, to action taken on other grounds: by shareholders, consumers, employees, and regulators.

This Essay proceeds as follows: Part I explains why corporations are unlikely to make public-interested decisions, even if they have the legal discretion to do so (as many contend they do). Part II introduces the concept of CSR bonds and describes several examples of where these instruments could be used to alter corporate decisionmaking for the better. It also discusses analogous concepts in law and finance, including green bonds, carbon offsets, impact bonds, and tax breaks for companies that act in the public interest. Finally, it describes limitations, as well as broader implications for corporate law and corporate governance that stem from this analysis.