Authors: Bagley, Constance E.; Page, Karen L.
Source: San Diego Law Review, Volume 36, No. 4, Fall, 1999.
Copyright 1999 San Diego Law Review. Reprinted with the permission of the San Diego Law Review Association.
This paper analyzes the fundamental corporate question: to whom are the directors of a corporation responsible? Using applicable theory from law, economics, ethics, and sociology, and analyzing the historical reasons why corporations were initially chartered, we conclude that consideration of all affected constituencies is both legally permissible and economically efficient. In the spirit of stewardship, transparency, and self-regulation, we propose that the Securities and Exchange Commission adopt a new item in Regulation S-K to require publicly traded companies to disclose in their annual reports the effect of major corporate decisions on all corporate constituencies, including stockholders, employees, customers, suppliers, creditors, management, and the community and the environment. We argue that the resultant transparency would make it harder for boards to impose the cost of externalities on others; it would also promote ethical conduct and forestall costly government regulation.
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