Revue Européenne du Droit
Corporate Activism, Economic Efficiency, and Democracy
Issue #4


Issue #4


Saura Masconale , Simone M. Sepe

Revue européenne du droit, Summer 2022, n°4

Public corporations are now brandishing their political identities. They are increasingly engaging in ‘corporate activism,’ taking stands and messaging on highly charged social issues: gun control, gender and race, immigration, abortion, reproductive rights, free speech—and the list will surely grow.

Critics of corporate activism typically worry that it might jeopardize firm value maximization and the efficiency of the corporation. This criticism, however, overlooks the growing investor demand for activist initiatives and correlated asset price effects. Similar to what happens in financial bubbles, increased investor demand for the shares of ‘activist corporations’ results in an increase in the share price of these companies. ‘Efficient corporate activism,’ however, raises a new, more troubling, concern. Because of the divisive and exclusionary nature of the new corporate social agenda (one cannot stand on both sides of a conflicting social issue) and in the attempt to capture positive asset price effects, value-maximizing corporations have incentives to choose activist initiatives that exclusively cater to the majoritarian investor demand. Under current patterns of equity reconcentration and the rules of corporate voting, this means that corporate activism is likely to reflect the social and moral preferences of only a few fund families and the handful of individuals that control them.

Hence, the deeper concern is that the rise of corporate activism may carry a democratic loss, both within and outside corporations. Internally, this loss arises because a board-size group of individuals (the funds’ agents) can exploit the plutocratic mechanism of corporate governance (ie the one-vote, one-share rule) to dictate a corporation’s moral agenda, potentially undermining the political freedom of ‘contrarian’ stakeholders who do not agree with that agenda. Externally, the risk is that exclusive access to the corporate megaphone may enable investors to disproportionately influence the public discourse around divisive social issues, undermining political equality and introducing distortions in the democratic adjudication of these issues 1


Corporate activism is the engagement by corporations into divisive moral and social issues, which are typically associated to one’s political or religious beliefs and on which reasonable and principled people may strongly disagree. This novel form of social engagement builds on the classic concept of corporate social responsibility (CSR) 2 , but is remarkably different in both substance and form. While a universal definition of CSR is notoriously lacking, commentators agree on one thing: that a corporation’s CSR initiatives are designed to deliver universally recognized benefits to all citizens/stakeholders 3 . Classic examples of CSR thus include fighting poverty, improving educational programs, or reducing pollution 4 . On the contrary, the defining feature of corporate activism is that it involves engagement on matters on which it is not reasonable to expect that there would be consensus 5

Most frequently this engagement is reactive: corporate activism tends to address issues of social or moral responsibility as a response to a catalytic event, often a crisis or, anyway, an event drawing large, national attention. The wave of corporate dissents from the contentious 2015 North Carolina’s ‘bathroom bill’ offers a vivid example of reactive corporate activism. In response to the bill, some 200 major US corporations engaged in boycotting and other forms of economic retaliation against the state 6 . Examples have multiplied since then. The 2018 Parkland high school shooting triggered corporate activism in support of restrictive gun regulation 7 . More recently, the introduction of new abortion restrictions in several Southern states as well as Georgia’s SB2 voting law prompted strongly worded rebukes of these legislations by most major US corporations and triggered, again, threats of economic retaliation against the states 8 .

The forms corporate activism is taking are also quite distinct from classic CSR programs (which tend to focus on charitable initiatives) and more closely resemble political activity. These forms typically include pronouncements, social-networking and media messaging, boycotting and other types of economic and public retaliation. The means of corporate activism pressure by investors also tend to have a similar political, antagonistic flavor. In particular, top index funds, who hold today what amounts to a controlling interest in most large publicly traded companies, have grown vocal, at times even confrontational, in demanding engagement in salient issues like gender and race equality policies 9 . The Fearless Girl campaign by State Street, for example, epitomizes the lengths to which index funds are now willing to go in defense of gender equality 10


Surprisingly, both supporters and critics of corporate activism assume away the possibility that individuals may disagree on whether a corporation’s stance on a conflicting social issue produces benefits or is, in fact, harmful. A possible explanation for this approach is that commentators might be reducing corporate activism to just an expansion of CSR, despite the remarkable differences between the two.

Under this explanation, the core policy issues associated with corporate activism remains the same that has long characterized the CSR debate: whether this kind of engagement can be reconciled with the goal of firm value maximization and the economic efficiency of the corporation. Supporters of corporate activism defend the view that corporations should be engines of positive social changes, hence taking up broader social obligations, even at the expenses of the maximization of firm value 11 . Critics of activism argue, instead, that the sole purpose of the corporation is to maximize firm and shareholder value and view activism as a costly deviation from this goal 12

Both these positions have grown outdated when examined in light of the growing demand for corporate social engagement. The numbers speak loudly. Two-thirds of global consumers declare they are willing to spend more for products and services that are sustainable 13 . Likewise, a majority of American consumers believe it is important for corporations to take a stand on pressing social issues 14 . And a large majority of employees of US companies believe companies should lead ‘with purpose.’ 15 But the most striking figures come from socially responsible investing, which has now reached a staggering $40 trillion worldwide 16 . And this figure is only projected to rise 17 . Meanwhile, as we saw above, sustainable investments increasingly revolve around activist initiatives on highly charged social issues. The combination of these factors suggests that today’s investors—and especially the largest among them—are choosing to hold ‘moral portfolios.’ The starting point to understand moral portfolios is portfolio theory, under which all investors can be expected to include some ‘activist shares’ in their diversified holdings 18 . However, ‘sympathetic investors’ with a taste for corporate activism will include more activist shares than other diversified investors (ie investors that look only at a firm’s fundamentals and are not sympathetic to activism) 19 . These distorted portfolio choices are what we call moral portfolios. 

Importantly, moral portfolios trigger asset price effects: similar to a financial bubble, the increased demand for activist assets results in an increase in the share price of activist corporations, helping to internalize (ie compensate for) the cost of activist initiatives 20 . Restated, as long as sympathetic investors are willing to pay a premium for holding the shares of activist corporations, corporate activism is compatible with share value maximization. As we shall see next, however, efficient activism comes at a high price: a democratic loss both inside and outside corporations. 


To fully grasp the implications of corporate activism, we need to take a step back and consider the divisive nature of activist initiatives. Indeed, the ‘production’ of activism is not like that of any other good. 

In general, the defining virtue of competitive markets is that they allow for the greatest diversity in goals and resources 21 . If you like red shoes and I like blue shoes, corporations will produce both. (In fact, the same corporation will likely produce both kinds of shoes.) But activist engagement in divisive moral issues is necessarily ‘exclusionary.’ This means that if a corporation engages in activist initiative x, reflecting, say, a progressive moral identity (eg supporting a pro-choice policy), that corporation will be prevented from engaging in the ‘contrarian’ activist initiative y, reflecting, say, a conservative identity (eg supporting a pro-life policy). This is because engaging in both initiatives would destroy the corporation’s ability to satisfy the moral demand of either individual and hence destroy the value to the corporation of either activist initiative. 

Now, this ‘production constraint’ would only have limited effects if different corporations would engage in different activist initiatives. Yet, this is not what we observe. In the present environment it is hard to think of any proactive, visible social stances by publicly-traded companies that could be called moderate or conservative (Hobby Lobby and Chick-fil-A are private companies). By contrast, hundreds of public companies have expressed corporate positions on political topics that are progressive. Yet on many of the underlying social issues—consider, paradigmatically, gun control and pro-choice positions—citizens are more evenly divided.  What explains this gap? And what are its normative implications?

The starting point in addressing these questions is the adjudication mechanism corporations employ to decide which divisive activist initiative to engage in. Indeed, corporations cannot capture the universal economic demand for activist initiatives as they do with other goods or service they produce, due to the exclusionary nature of these initiatives (recall, one cannot stand on both sides of a divisive issue). In pursuing efficient activism, then, corporations have incentives to capture the largest economic demand for engagement in highly-charged issues. But where is this demand likely to come from?

As we saw, to some extent, all stakeholders now share a ‘moral demand.’ However, when one considers the magnitude of the asset price effects arising from moral portfolios, the moral preferences of sympathetic investors are likely to ‘weigh more’ economically and hence have a disproportionate impact in determining a corporation’s activist choices. Only by conforming to those preferences will corporations be able to capture the positive asset price effects that are triggered by moral portfolios. Hence, ‘corporate conformity’—the tendency of corporation to exclusively cater to the investor demand for activism—is the price to pay for efficient activism 22

There is more: under current rules of corporate voting and the reconcentration of equity ownership due to indexation, corporate activism is likely to have an oligarchical characterization—that is, to exclusively reflect the preferences of the handful of top agents who run the largest fund families. 


Although activist decisions are largely driven by asset price effects, these effects are not independent from corporate voting rules. The one-share, one-vote (OSOV) rule that distinguishes corporate governance from electoral governance enters into a corporation’s activist decisions through two channels. First, managers anticipate that the failure to satisfy investors’ moral demand would mean suffering negative asset price effects, as sympathetic investors would readjust their portfolios accordingly (while the economic magnitude of this loss is proportional to the investors’ equity participation). Second, managers also anticipate that the failure to satisfy investors’ moral demand increases the likelihood of retaliatory actions that shareholders can exercise through their voting powers, including removing managers.

It should now be easier to see why a corporation’s activist initiative will tend to have an almost oligarchic flavor and exclusively cater to the preferences of top index funds. BlackRock, State Street, and Vanguard (the ‘Big Three’) have come to own the largest stakes in 40% of all US listed companies 23 . That percentage goes up to almost 90% if one only considers the largest US companies that are included in the S&P 500 24 . This means that the economic interest of index funds is pivotal in determining the asset price effects triggered by a corporation’s activist decisions, and hence in influencing those decisions. The voting power of index funds is similarly pivotal in most corporate decisions that are subject to a shareholder vote, while the anticipation of this pivotality provides strong incentives to managers to respond to the desires of the funds’ agents.

This is what John Coates call the ‘Problem of Twelve,’ to stress that the control of most public companies will soon be concentrated in the hands of a few people 25 . Coates also highlights that index funds tend to form ‘policies’ regarding various kinds of decisions that the companies in their portfolios must make, while also informally sharing their policies with one another 26 . The funds can thus achieve significant coordination over many issues, while this coordination process is reinforced by the actual votes they cast 27 . Because these votes are public, each fund can obtain strong signals about the other funds’ views, without any explicit collusion.

Under this concentration of power and coordinated influence, can we imagine corporations taking a stance on a divisive matter that is not aligned with the preferences of their largest investors? 


The skew between voters’ moral preferences as expressed in the political sphere and the corporate sphere should now be less puzzling. Our electoral system uses a one-person, one-vote (OPOV) rule to operationalize the key democratic principle of political equality—the view that the interests of all citizens ought to be given equal consideration in case of disagreement over the rules of a society. Under this rule, we observe a distribution from liberal to conservative positions on divisive moral issues. Corporations, instead, are governed based on a one-share, one-vote (OSOV) rule.  So for companies, the majority rule lies in the hands of a few institutions (or individuals) which hold what amounts to a controlling interest and which currently appear to be assigning value only to progressive postures 28

Now, the idea of an efficient division of labor has provided the traditional argument to justify the different aggregation rules of electoral governance and corporate governance: socially responsible activities are better left to the political process, while economic activities are the realm of corporations. In this realm, shareholders-voters can be safely assumed to partake the same commitment to one end: profit maximization 29 . Under this consensus assumption, incentives reasons can prevail over egalitarian ones, thus justifying a deviation from egalitarian instances and the OPOV rule. On the one hand, the OSOV rule gives more voice to those with ‘more skin in the game’ and hence the best incentives to devote time and effort to corporate affairs. On the other hand, all shareholders, even if in the minority, still proportionally benefit from successful corporate outcomes 30 .  

With the rise of corporate activism, however, the division of labor between what belongs to the corporate sphere and the public sphere has gone lost. Two normative issues follow. The first concerns the effects of activist decisions within the corporate organization. The second concerns the external relationship between activist corporations and society at large. 

Within the corporation, the first-order question is whether the OSOV formal deviation from the principle of political equality is justified for corporate voting about moral, rather than economic, issues. The answer is negative. For shareholders will disagree, at times radically, on what a desirable moral end is, while no benefit ever accrues to minority shareholders—or any other individual—which does not partake in the moral preferences of the majority shareholders. 

Yet, if the activist decisions made by shareholders were representative of the decisions the median voter would make, there would be no substantive deviation from political equality. This additional consideration suggests that it is the combination of the expansion of the OSOV rule to the moral domain with indexation that creates a problem of internal legitimacy for activist decisions. If shareholders were dispersed, as they used to be before the rise of indexation, on the one hand, the aggregation mechanism implemented through the OSOV rule would tend to converge to that implemented through the OPOV rule. Shareholders could also form heterogenous coalitions in choosing activists initiatives, which would promote pluralism. Under indexation, instead, there is only one stable coalition of shareholders who hold the majority of votes—the index funds coalition 31 . The result is that the preferences of these investors always prevail and pluralism is lost. 

Combined, these factors may produce a loss in the political freedom of corporate employees (and other stakeholders that are economically dependent on the corporation, eg small suppliers), by interfering with the exercise of basic liberties. Employees’ lack of voice in corporations’ moral decisions intrinsically reduces their political freedom by depriving them of the ability of making these choices for themselves. And because of corporate conformity (ie the tendency of corporations to converge toward the same activist initiatives), employees cannot resort to exit (ie vote with their feet by joining a competitor) to avoid this interference. Also note that no active coercion on the part of the corporation is required to produce this result, as minority stakeholders are likely to anticipate the dire consequences of manifesting contrarian opinions and hence engage in self-censorship. The repercussions in the case of James Damore—the Google engineer who was fired for circulating a memo on the differences between men and women—are telling 32 .  And a few years ago, Twitter CEO Jack Dorsey openly acknowledged that Twitter conservative employees were afraid to express their opinions 33 . Yet for all the publicity these and a few others cases received, who knows how many employees these days would feel at ease to ‘look others in the eye without reason for the fear or deference that a power of interference might inspire’?  34


The plutocratic adjudication of activist decisions by corporations also matters for society at large as it risks undermining political equality in electoral governance—that is, the equal consideration of the political preferences and needs of all citizens qua citizens. 

This risk is both direct and indirect. The direct risk is that activist corporations may attempt to interfere with the democratic adjudication of political and moral outcomes, for example trying to halt the implementation of those outcomes or to otherwise alter them. As we saw above, recent corporate threats of economic retaliation and actual economic retaliation against the adoption or implementation of state laws suggest this is now a tangible risk, which could well increase if corporate activism continues to grow at the rapid pace we have observed in recent times. 

The indirect risk is more subtle. This is the risk that corporate activism may give the wealthiest few exclusive access to the corporate megaphone to influence the public discourse around divisive moral issues, thus undermining equal political activity. Indeed, the equal consideration of the preferences and needs of all citizens requires not only equal voting access, but equality in other forms of political voice 35 . To this extent, the risk is that corporate activism might introduce distortions in the deliberation of divisive moral issue and, hence, indirectly, in their democratic adjudication.  

This last concern closely echoes the warning of Justice Stevens in Citizens United that corporations’ disproportionate means and resources may lead to the marginalization of the voices of ordinary citizens 36 .  Several factors, however, make the democratic risks arising from corporate activism much more severe today. 

First, the problem is not corporate intervention in political activity per se, as Steven’s argument seemed to suggest. Instead, it is the exclusive ‘appropriation’ of that intervention by a board-size group of individuals (the funds’ agents). If different corporations engaged in different activist initiatives—that is, if the market for morality offered some level of pluralism—that some corporations might serve as a megaphone for some individuals would only have limited impact on political equality. For other corporations would offer a counterweight, by serving as a megaphone for individuals holding different views. It is only when there is no pluralism in the marketplace for morality but rather corporate conformity, that citizens ‘will lose faith in their capacity, as citizens to influence public policy.’ 37

Second, in the past decade, large corporations have grown into ‘large economies,’ endowed with means and resources that are comparable to those of some among the wealthiest Western states. The market capitalization of companies like Apple (ie $2.2 trillion) or Amazon ($1.73 trillion) is comparable to the gross domestic products of countries like Italy (ie about $2 trillion) or France (ie $2.7 trillion). And these companies are global in their reach, flush with cash and ready to expand their services in realms far afield from the digital one. 

Third, some companies do not just engage in the political discourse by providing content. Companies like Facebook and Twitter also provide the platform where the political debate takes place and relevant political information is aggregated, while retaining exclusive control over the platform’s engagement rules. This further exacerbates the democratic risk raised by corporate activism along the dimensions of political deliberation. For equality in political deliberation requires that both deliberative procedures (ie the setting in which deliberation takes place) and deliberative behavior (ie the actual way in which people deliberate) share democratic features 38 . But how can these requirements be satisfied when a few individuals have exclusive control over the deliberative procedures of critical political platforms as well as over the behaviors allowed on those platforms? 


Changing these dynamics will be challenging. In theory, restoring the losses engendered by corporate activism would demand a reversion to the division of labor assumption. But it seems unrealistic that corporations will spontaneously go back to a model of moral neutrality when their largest investors do not want it. (In Coates’ terms, we cannot rely on ‘The Twelve’ to solve ‘The Problem of Twelve’). On the other hand, a mandatory model of moral neutrality seems normatively undesirable, as it is unclear how regulators could draw the line between a corporation’s economic and moral decisions, while avoiding inefficient one-size-fit-all solutions. 

Nonetheless, the moral neutrality model provides a useful benchmark to evaluate the soundness of alternative policy options. Take, for example, the proposal, advanced by several scholars, to restrict or otherwise dilute the voting power of index funds 39 . These proposals are concerned with the effects of index funds’ concentrated power on corporate governance rather than corporate activism. In theory, however, they could also serve to advance a more morally neutral corporate model, by drastically reducing the influence of index funds on corporate voting. Yet, unless these voting restrictions were accompanied by ownership caps (which have also been proposed but present their own problems) 40 , they would have no effect on the asset pricing channel of investors’ influence over a corporation’s moral decision. And even assuming that a package of measures could be introduced to curb the control of index funds on corporations, it is unclear what consequences this would produce. These measures would effectively boost the ability of other investors such as hedge funds to gain that control 41 . Then, the only effect of similar measures would be to transfer oligarchic control over activist initiatives from one class of investors to another 42 .  

Another possibility would be to make the corporate decision-making process regarding social engagement more democratic. Indeed, if reverting to a moral neutrality model is unfeasible, promoting pluralism in the marketplace for morality might be our best alternative 43 . If different corporations would engage in different activist initiatives, this would help both enhance the political freedom of corporate employees within corporations and mitigate the loss in political equality outside corporations. Employees would have a viable exit option if they disagreed with the specific moral position endorsed by a corporation. And different corporations would provide a megaphone to individuals with different moral-political preferences.          

This process of democratization could be implemented through an enabling model under which corporations could opt to extend corporate voting rights on activist decisions to constituencies other than shareholders including employees and consumers. This model would avoid the difficulties of one-size-fits-all mandatory solutions, leaving the details of the process to firm insiders as the parties with the best information on firm-specific situations. The question, however, is how to overcome the lack of incentives of large shareholders to move toward more democratic activism. In theory, one could imagine that to begin a robust process of public discourse around the democratic implications of corporate activism could suffice to create enough of a reputational risk for activist corporations and investors to prompt a self-correction process. After all, if activism gained democratic legitimacy this would help advance the cause that the idea of corporate activism is motivated by—that corporations can be engines of positive social change. 

While this is a possible equilibrium, it might be too optimistic. A more realistic solution might then be to rely on an experimental model of soft-regulation, under which the relevant stock exchange authority (eg the US SEC) could issue guidelines on the features that more democratic corporate activism should possess (the ‘Guidelines’). For example, one could imagine a system under which managers would retain discretion on deciding whether a corporate decision falls within the moral domain and, in this case, be held to call for ‘constituency voting’ rather than just shareholder voting. Each class of constituencies would have one vote, where the Guidelines could provide either for a rule of unanimous approval by each class or majority approval by two classes over three. Under a unanimity rule (by classes), a lack of agreement among the corporate constituencies on activist decisions would return the corporation to a model of moral neutrality, which would be normatively desirable but likely politically unfeasible. Conversely, a majority rule (by classes) might be easier to implement 44 .

Regardless of the form the Guidelines would take—our proposal above is just meant to be exemplificatory—they would not be mandatory. Corporations, instead, could decide whether and how to reflect the Guidelines. In principle, this system should suffice to create strong reputational incentives. At the equilibrium, the expectation is that few corporations and shareholders will want to acknowledge that thy fall short of the Guidelines standards and prefer plutocratic activism. However, an off-the-equilibrium-path outcome, under which corporations and shareholders remain indifferent to non-mandatory Guidelines on corporate activism, cannot be excluded. This is why we talk of experimental soft-regulation. In such a case, the only alternative, especially if activism and indexation continue to rise, would likely be costly mandatory regulation. 

Finally, there is no easy cure when it comes to addressing the democratic costs of the new corporate activism. But this should not discourage us from asking the right questions for pursuing that end. 


  1.  This analysis described in this essay, as well as additional research relating to the new political engagement of corporations, are set out in greater detail in Saura Masconale & Simone M. Sepe, Citizen Corp., 100 Wash. U. L. Rev. (forthcoming 2022).
  2. The issue of corporate social responsibility has loomed in the back of the corporate governance discourse since the Berle and Dodd debate on the purpose of the corporation in the 1930s. See A. A. Berle, Jr., Corporate Powers as Powers in Trust, 44 Harv. L. Rev. 1049, 1067-68 (1931); E. Merrick Dodd, Jr., For Whom Are Corporate Managers Trustees?, 45 Harv. L. Rev. 1145 (1932).
  3. CSR critics simply assumes that it is not up to the corporation to delivers these broad benefits, but rather to the government (or maybe charitable organizations). Progressive approaches assume, instead, that precisely because CSR benefits are universal, the corporation has a duty to deliver them and thereby increase social welfare. More recent demand-driven approaches also assume no conflict in moral preferences among stakeholders; at best they concede that some individuals might be ‘neutral’ toward the moral or social utility produced by CSR.
  4. See eg, Roland Benabou & Jean Tirole, Individual & Corporate Social Responsibility, 77 Economica 1, 2 (2009) (providing a non-exhaustive list of classic CSR initiatives).
  5. These matters coincide with what legal theorist Jeremy Waldron calls watershed issues of rights’: ‘[t]hey are major issues of political philosophy with significant ramifications for the lives of many people. … They define major choices … that are focal points of moral and political disagreement in many societies.’ Jeremy Waldron, The Core of the Case against Judicial Review, 115 Yale L.J. 1346, 1367 (2006).
  6. See eg, Jason Zengerle, Can the Black Rifle Company Become the Starbucks of the Right?, N.Y. Times (Jul. 14. 2021),
  7.  See eg, Joseph Pisani, US Companies Take a Stand, Raise Age to Purchase Guns, AP News (Mar. 2, 2018),
  8. See eg, Sinead Baker, 187 Companies, Including Bloomberg, Tinder, and Ben & Jerry’s, Teamed up to Slam Abortion Restrictions Sweeping Southern States, Bus. Insider (Jun. 11, 2019),; Chip Cutter et al., With Georgia Voting Laws the Business of Business Becomes Politics, Wall St. J. (Apr. 21, 2021), available at At times, corporate activism can also be ‘proactive’ and initiate groundbreaking changes. For example, Target’s move to gender-neutral store signage back in 2015 was a huge deal, which prompted new nation-wide awareness about gender issues. See Target, A Bullseye View, What’s in Store: Moving Away from Gender-Based (Aug. 7, 2015),
  9. See Michal Barzuza, Quinn Curtis and David H. Webber, Shareholder Value(s): Index Funds, ESG Activism and the New Millennial Corporate Governance, 93 South Cal. L. Rev. 101, 105, 121-24 (2020).
  10. On March 7, 2017 (the day before International Women’s day) State Street placed a commissioned statue of a defiant young girl opposite the Charging Bull statue on Bowling Green in the Manhattan Financial District and announced that it would start voting against directors of firms with no female directors. Id. at 122. 
  11.  Professor Einer Elhauge is perhaps the most famous advocate of this view. See Einer Elhauge, Sacrificing Corporate Profits in the Public Interest, 80 N.Y.U. L. REV. 733 (2005). 
  12. As famously put by Milton Friedman, under this view, the exclusive ‘social responsibility of business is to increase its profits.’ See Milton Friedman, The Social Responsibility of Business is to Increase its Profits, N.Y. Times (Magazine), Sept. 13, 1970.
  13. Nielsen Research, The Sustainability Imperative – New Insights on Consumer Expectations, 
  14. See Tim Stobierky, 15 Eye-Opening Corporate Social Responsibility Statistics, Harv. Bus. School Online J. (Jun. 15, 2021).
  15. Id.
  16. Opimas, ESG Data Integration by Asset Managers: Targeting Alpha, Fiduciary Duty & Portfolio Risk Analysis (June 17, 2020),
  17. See Alastair Marsh, Almost 60% of Mutual Funds Will Be ESG by 2025, PwC Says (Oct. 19, 2020), (reporting that ESG-mandated assets are projected to soon take up half of all managed assets in the US). The increase in sustainable investmentshas been so transformational to prompt a ‘rebranding’ of CSR. Today, the focus has shifted to ‘ESG’ (environmental, social and governance) criteria in the conduct of business 
  18. See generally Stephen F. LeRoy & Jan Werner, Principles of Financial Economics 214 (2001).
  19. Our characterization of moral portfolios draws on Christian Gollier & Sebastian Pouget, The Washing Machine: Investment Strategies and Corporate Behavior with Socially Responsible Investors, No. 14-157 TSE Working paper (2014). 
  20. See id. One could argue that this result only holds as long as the asset price effects arising from the portfolio readjustments of sympathetic investors dominate any corresponding effect that may arise from the portfolio readjustments of non-sympathetic investors. This is a valid objection—but two reasons rebut it. The first is the fast growth of activists investments. Second, even if one were skeptical about the prevalence of these investments, the same asset price effects would hold under a Keynesian view of markets where prices are influenced by herd behavior. For a treatment of this view tailored to a legal audience, see K.J Martijn Cremers & Simone M. Sepe, The Empowered Value of Staggered Boards, 68 Stan. L. Rev. 67, 113-14 (2016). Herd behavior may induce investors to react to aggregate market demand rather than their own information. As a result, asset price effects may reflect not just market actors’ average expectations about fundamental values, but these actors’ beliefs about other market actors’ beliefs (that is, higher-order beliefs). See eg, Bruno Biais & Peter Bossaerts, Asset Prices and Trading Volume in a Beauty Contest, 65 Rev. Econ. Stud. 307, 307-09 (1998). In our applied context, this means that if non-sympathetic investors believe that the portfolio readjustment by sympathetic investors will have positive asset price effects, they could decide not to readjust their portfolios or even readjust them in the same way as the sympathetic investors.
  21. See John Geanakoplos, Arrow-Debreu Model of General Equilibrium, in 1 The New Palgrave Dictionary Of Economics 119 (John Eatwell et al. eds., 1987).
  22. This does not exclude that the investor demand for activism may, to some extent, overlap with that of other constituencies, including consumers and employees. But corporate conformity simultaneously, pro-actively, excludes all those who do not agree with the side chosen by the majority of corporate investors.
  23. See Jan Fichtner et al., Hidden Power of the Big Three? Passive Index Funds, Re- Concentration of Corporate Ownership, and New Financial Risk, 19 Bus. & Pol. 298, 313 (2017).
  24.  Id.
  25. See Joan Coates, The Future of Corporate Governance Part I: The Problem of Twelve, (unpublished manuscript),
  26.  Id.
  27.  Id.
  28. It is not clear why index funds’ agents prefer progressive positions. Some scholars think is just a manifestation of opportunism or a form of elitism, others that the funds are trying to capture the trust first and the wealth later of Millennials. For a discussion of possible causes, see Masconale & Sepe, supra note 1 (manuscript at 53-55).
  29. This conclusion does not go without qualifiers. See William W. Bratton & Simone M. Sepe, Corporate Law and the Myth of Efficient Market Control, 105 Cornell L. Rev.675, 707-11 (2020) (discussing conditions under which shareholders may not share the same objective function). But in the economic domain, the one share, one vote rule provides a correction to those qualifiers. See Peter M. DeMarzo, Majority Voting and Corporate Control: The Rule of the Dominant Shareholder, 60 Rev. Econ. Stud. 713, 719 (1993) (showing that a dominant blockholder with a financial incentive to move the firm to a production plan that maximizes value can build a majority coalition and solve shareholder disagreement on the firm’s objective function).
  30. Cf. Jill E. Fisch & Simone M. Sepe, Shareholder Collaboration, 98 Tex. L. Rev. 863, 903 (2018) (‘the equity contract provides a premium to all shareholders … (proportionally to their equity stake), leveling the bargaining power of all interested parties in the distribution of the gains arising from deliberation.’).
  31. To some extent, Elon Musk’s recent attempt to buy Twitter can be seen as an attempt to inject some pluralism in the new morality market. Indeed, Mr. Musk has declared that the reason he wants to acquire control of the company is not (just) to increase its profitability – and meanwhile make money – but rather to turn it into ‘an inclusive arena for free speech.’ Given that Mr. Musk is a self-declared free-speech absolutist, this likely means that he intends to relax the company’s current content moderation policy in favor of a more libertarian—and hence more conservative—approach. Remarkably, however, Mr. Musk thinks that in order to achieve his free speech ambitions, he will have to take Twitter private.
  32. See eg, Paul Lewis, I See Things Differently: James Damore on His Autism and the Google Memo, The Guardian (17 Nov. 2017),
  33.  See Kristine Philips, Twitter CEO Jack Dorsey Admits ‘Left-leaning’ Bias But Says It Does Not Influence Company Policy, Wash. Post. (Aug. 19, 2018),
  34. This is political philosopher Philip Pettit’s ‘eyeball test,’ under which citizens are free when by local social and cultural standards, and having only ordinary courage, they ‘can look others in the eye without reason for the fear or deference that a power of interference might inspire; they can walk tall and assume the public status . . . of being equal in this regard with the best.’ Philip Pettit, On The People’s Terms: A Republican Theory and Model of Democracy 84 (2012).
  35. In other words, political equality requires not only equality in the aggregation of citizens’ preferences but in the deliberation that precedes or accompanies that aggregation, because deliberation might lead to changes in preferences. See eg, Christian List et al., Deliberation, Single-Peakedness, and the Possibility of Meaningful Democracy: Evidence from Deliberative Polls, 75 J. Pol. 80 (2013).
  36. Citizens United, 130 S. Ct. at 977 (Stevens, J., dissenting).
  37. Id.
  38. On the special features of corporate conformity in Big Tech companies, see Saura Masconale & Simone Sepe, Big Tech and Political Equality, in Technology Ethics: A Philosophical Introduction and Readings (Gregory J. Robson & Jonathan Y. Tsou ed.) (2022).
  39. See eg, Sean J. Griffith, Opt-in Stewardship: Toward an Optimal Delegation of Mutual Fund Voting Authority,  98 Tex. L. Rev. 983 (2020)(proposing that mutual funds should not vote the shares they hold for their beneficiary owners on environmental and social issues because ‘meaningful information is not produced nor can mutual funds assume a common investor purpose’ on these issues); Dorothy Lund, The Case Against Passive Shareholder Voting,  43 J. Corp. L. 493, 516 (2018) (suggesting to restrict voting by index funds on the ground that their weak incentives to invest in monitoring will ‘distort’ the market for corporate influence). 
  40. Ownership caps have been proposed to curb the power of index funds but present their own problems. See Coates, supra note 25, (manuscript at 21-22) (noting that ownership cap could further reduce the weak incentives of index funds to monitor companies in their portfolios).
  41. Id.
  42. At the same time, under the hypothesis that the progressive posture adopted by index funds aims at monetizing on Millennials’ interests in activism, it seems unlikely that other investors may demand more pluralistic activism. 
  43. It should be noted, however, that a pluralistic morality market may provide just a partial solution to the overall problems raised by corporate activism. Added pluralism would enable market actors to choose from a wider range of options, but it would not fully restore the benefits of moral neutrality. As we explained elsewhere, these benefits include the provision of a platform that habituated individuals to a benign indifference toward divisive moral or political issues, helping to facilitate cooperation and social cohesion. See Saura Masconale & Simone Sepe, Moral Capitalism and Social Order, Social Phil. & Pol. (forthcoming 2022). Under moral neutrality, market interactions train individuals to ignore disagreement on political or moral issues, or at least to treat disagreement as an incidental concern that cannot impede more important and productive activities. But when these issues take center stage in business activities, market participants are forced to take a position about them, which may induce disagreement even when individuals would not otherwise had an immediate reason to disagree. Put differently, under a more pluralistic morality offer, individuals could still have a second-order reason to disagree. Id.
  44. Concerning the voting rules that would apply to each class, one could imagine that employees and consumers would vote based on the OPOV principle, while shareholders could either continue to vote under the OSOV rule but with a supermajority requirement or also vote based on the OPOV rule. In particular, non-shareholder constituencies could either be issued voting rights under the form of special rights or vote in specially held surveys through which managers could gather their preferences (something which in a wired world, corporations already ordinarily do with consumer surveys). In the case of shareholders, instead, requiring a OPOV vote would be the most consequentialist choice, but would likely encounter strong opposition by index funds. This proposal, however, is not too dissimilar from—and, in fact, could be combined with—recent reform proposal to implement pass-through voting or survey voting for index funds, under which fund managers would vote in accordance with the preferences expressed by the beneficiary investors. 
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Saura Masconale, Simone M. Sepe, Corporate Activism, Economic Efficiency, and Democracy, Aug 2022,

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