Hajin Kim Writes About Her Empirical Study on Corporate Prosociality
Expecting Corporate Prosociality
The long-running corporate purpose debate often assumes stakeholder preferences for corporate prosociality are exogenous: Investors, employees, and consumers want corporations to be prosocial or they don’t. My paper, Expecting Corporate Prosociality, on SSRN and forthcoming in the Journal of Legal Studies, develops and empirically tests the idea that rhetoric from the debate itself can influence these preferences and stakeholder demands. I find that expectations of exclusive profit maximization (that firms can and should maximize only profits) can reduce stakeholder demands for corporate prosociality. Such a loss in tangible incentives for corporate prosociality would reduce “win-wins”—what is both profitable and good for society.
Consider two worlds—caricatures to illustrate the point: In Profit Maximization World, people expect that businesses can and should maximize only profits. Paula, an employee for ABC Corp., learns that ABC Corp. will cut down old growth forest for a parking lot. She’s upset but doesn’t object. ABC Corp. must do what is most profitable, so what’s the point in complaining?
In contrast, in Social Responsibility World, people expect that businesses can and should also care about the impact they have on society. Sally, an employee for XYZ Corp., learns that XYZ Corp. will cut down old growth forest for a parking lot. She’s upset and so organizes an employee protest. When XYZ Corp. razes the forest anyway, Sally leaves to work for a competitor.
Read more at Harvard Law School Forum on Corporate Governance