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First Page

305

Last Page

362

Document Type

Article

Abstract

The modern Environmental, Social, and Governance (ESG) movement promotes diversion of corporate assets from shareholders to “stakeholders.” This is done in the name of a corporate duty to society. But “successful” ESG efforts threaten the success of the corporate form by inviting rent-seeking. This conflict between ESG principles and established theories and norms of corporate law is difficult to resolve because corporate law lacks the tools needed to understand the type of collective decision-making that occurs in the corporate setting. This Article is the first to apply public choice economics—the economic study of collective decision-making—to corporate decision-making to identify the special interests that seek to divert resources through the rent-seeking process. The resource to be diverted—the corporate residuum—is owned by the corporate shareholders. This fact is axiomatic in the bankruptcy context, where shareholders must wait at the end of the line to make their residual claim on remaining corporate assets. But shareholders own the residuum from the moment they form their corporate enterprise. Additionally, because shareholders are unable effectively to block attempts to steal their assets, the corporate residuum is subject to a commons problem. That problem raises the potential for the commons to be depleted, which would lead to investors fleeing public corporations, to the detriment of the financial system as a whole. This Article is the first to draw on the work of Elinor Ostrom, the first female Nobel Prize winner in economics, to show that institutions fiduciary duties, shareholder wealth maximization, and the business judgment rule— have arisen to forestall depletion of the commons, but that these institutions have been under attack for decades. Without care, they will fall, the corporate residual commons will be depleted, and the corporate form may fail.

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