The Bishops and the Corporate Stakeholder Debate

Abstract

Prepared for a conference on faith-based investing practices, this essay critiques Catholic social teaching on corporate social responsibility. Specifically, the essay focuses on one of the policy recommendations made by the U.S. Bishops in their pastoral letter on economic justice, Economic Justice for All: Pastoral Letter on Catholic Social Teaching and the U.S. Economy. In that letter, the Bishops addressed the so-called stakeholder debate; i.e., whether decisionmaking by directors of public corporations should take into account the interests of corporate constituencies other than shareholders. This essay focuses on the Bishops' position as matter of public policy rather than as a matter of theology. The essay evaluates three ways in which the Bishops' position might be translated into public policy: (1) directors could be given nonreviewable discretion to make trade-offs between shareholder and stakeholder interests; (2) directors could be given reviewable discretion to make such trade-offs; or (3) directors could be required to make such trade-offs subject to judicial (or regulatory) oversight. None of these approaches is an improvement on current law; to the contrary, all are worse. The first approach would be toothless, the second would increase agency costs, and the third would either prove unworkable or pose an unwarranted threat to economic liberty (or both).