Abstract
Despite persistence of the image of shareholders as narrow-minded profit maximizers who demand that managers ignore calls for a broader social responsibility of business, shareholders have become some of the most important allies of the corporate social responsibility (CSR) movement. This paper examines the intersection of shareholder engagement and CSR from a historical perspective. It provides background information about two central avenues through which shareholders engage the corporation – shareholder activism and socially responsible investing—and then traces how these avenues have shaped and been shaped by the CSR movement. Part one of this paper focuses on shareholder activism (SA). After a brief overview of the legal and procedural framework for SA, the paper turns to a discussion of the types of issues shareholder activists have pursued over the years and how corporate responses have developed in turn. By tracing these developments, it becomes evident that SA has played an important role in the development of the corporate social responsibility movement in several ways. First, an increase in SA supported the formation of organizations that allowed individuals to channel concerns and expectations about the responsible conduct of corporations. Second, SA around social issues challenged existing legal boundaries and initiated a shift in legislation as well as judicial interpretation of regulations. This shift allowed a broader array of CSR issues to be brought directly to the attention of corporations through the annual proxy process, which in turn increased the public’s awareness of the relevance of responsible corporate conduct. As a response to increased shareholder and public support for CSR, corporations started to embrace CSR as a strategic opportunity rather than as a threat.
Part two of this paper examines socially responsible investing (SRI), a more passive form of shareholder engagement. Because the efficacy of SRI as a driver of corporate change has been questioned in previous research, the paper examines in depth if and how SRI can be supportive of the CSR movement, and how recent developments in the financial marketplace can strengthen the connection between SRI and CSR.