Protecting long-term commitment: legal and organizational means

The idea that corporations exist solely for the benefit of their shareholders has been termed ‘one of the fundamental fault lines of our economic model’ (Purpose of the Corporation Project, 2015). The ‘fault’ with shareholder primacy thinking is registered in broad evidence that the dominant corporate governance framework encourages excessive short-term risk-taking, and so detracts from long-term investment strategies, including research and development. This has adverse effects on future profitability and resilience with regard to the mitigation of systemic risks. To address this situation, we firstly argue that there is a ‘business case’ for engagement with environmental, social and governmental (ESG) issues, and secondly, that there is, in principle, no legal obligation for directors to focus exclusively on the maximization of shareholder value.