Professor Bainbridge...on law, politics, religion, culture & food

CSR By Contract

Imagine an entrepreneur whose business model is structured around appealing to wealthy elites with a disdain for capitalism. They entrepreneur contemplates going public at some point (and accordingly, with all due deference to Larry Ribstein, the corporation is the desired form of business organization). The entrepreneur asks his lawyer to draft articles of incorporation and bylaws that allow the corporation to be run in ways that depart from profit maximization. Should such organic documents be enforceable? Of course. The corporation is simply a nexus of contracts; hence, its organic documents are simply contracts. To the extent that the parties wish to modify the default rules of corporate law by including provisions in the articles or bylaws departing from the standard rules, courts therefore should enforce those provisions. There simply is nothing special about the shareholder wealth maximization norm in this regard.

Should some rating agency or NGO be allowed to certify that such a corporation’s organic documents meet from specified standard? Sure. Free speech and all that 1776 stuff (or should it be 1787? or 1789?).

Gordon Smith has details on just such a venture.