Shareholder Primacy as an Impediment to Corporate Social Responsibility

Abstract

This paper examines the Shareholder Primacy Norm (SPN) in light of its widely acknowledged role as an impediment to corporate social responsibility. We start by explaining the SPN and then look at its status under US and UK law and show that it is no longer likely to be legally enforceable. This is in contrast to the assertion that managers are legally constrained from addressing CSR issues if doing so would be inconsistent with the interests of shareholders. Nonetheless, while the SPN might be muted as a legal norm, we argue that it is very much evident as a social norm among managers perpetuated by shareholders’ sole voting rights for the board of directors. We conclude with descriptive research propositions regarding the efficacy and justification of the SPN among managers as well as its implication for prescriptive research directions of both a normative and instrumental nature. By shining light on the hindrance to CSR resulting from the SPN as a social norm, the paper contributes to the “basic debate” in business ethics, regarding whether managers should focus on shareholder interests or the interests of a wider constituency of stakeholders.