Codetermination and ESG: Viable Alternatives to Shareholder Primacy?

“In 2018, in response to growing concerns over corporate wealth, wage stagnation, and income inequality, Senator Elizabeth Warren proposed a bill that would require U.S. companies with more than one billion dollars in annual revenue to obtain federal corporate charters. Perhaps the most dramatic requirement of this proposed federal law is that it would mandate that at least forty percent of the board members of a corporation subject to the law be elected by employees. As this note will show, the proposal would depart significantly from the recent history of U.S. corporate law. Over the past few years, however, U.S. corporations have been adopting their own internal changes to ensure greater representation of stakeholder interests—those of employees, customers, and neighbors, as well as other constituencies—in corporate decision making within a framework commonly referred to as ESG (Environmental, Social, and Governance). This note provides a comparative analysis of the advantages and disadvantages of board codetermination, largely through discussion of its historical existence under German law, and ESG in order to determine whether government-enforced stakeholder representation or private ordering provides a better solution to the socioeconomic problems Senator Warren, as well as others, currently seeks to address.”


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