Photo © Boris Bialek 2024
As a young, bright-eyed law student, I could never have admitted this to myself: the realization that what is legal is not always ethical or moral. Sadder still is the reality that doing the ethical or moral thing can sometimes conflict with legal duties.
Why is this the case? Often, it’s because laws were drafted for a simpler time. We no longer live in that world, and the speed at which laws evolve struggles to keep pace with our complexities. It’s reminiscent of the Red Queen Effect—running just to stay in place.
For 2025, one of the themes I want to explore deeply is the evolving role of for-profit companies. How does their purpose align – or clash – with the interests of other stakeholders and society at large? How can we better manage the externalized costs of doing business? And how can ESG serve as a critical framework for achieving more sustainable, mutually beneficial outcomes for businesses and stakeholders alike?
This is an ambitious and somewhat nebulous goal, so I welcome resources, advice, contradictory viewpoints, and corrections.
Here’s the first piece in what I hope will become a broader series:
When I first started my career in corporate law, ESG wasn’t part of the conversation. Back then, we operated within the framework of Corporate Social Responsibility (CSR). CSR was largely about companies giving back – a portion of profits redirected to community benefit. However, corporate priorities remained firmly anchored in Milton Friedman’s doctrine of shareholder primacy: the belief that a company’s sole purpose was to maximize shareholder value. CSR often felt like an afterthought, a side project to do “some good” while business continued as usual.
This was also an era when environmental degradation, like the unchecked dumping of industrial waste, was disturbingly commonplace.
Over time, the conversation began to shift. Around a decade ago, the idea of stakeholder capitalism gained traction. Its premise was simple but revolutionary: businesses are accountable not just to shareholders but also to stakeholders—including employees, customers, communities, and the environment.
While promising in theory, stakeholder capitalism raised practical concerns. As an in-house counsel, I often wondered: How do directors navigate inevitable conflicts between stakeholders? Who decides which stakeholder’s interests take precedence? And what mechanisms ensure fair outcomes? The complexities were, and remain, daunting.
Fast forward to today, and the question of corporate responsibility feels more urgent than ever, particularly amidst the growing culture wars around ESG. Critics on one side argue that ESG doesn’t go far enough; on the other, detractors claim it undermines shareholder value. Both perspectives miss the nuances of the debate.
The Responsibility of Modern Corporations
What does it mean for a corporation to be responsible? How can companies fulfill fiduciary duties while safeguarding broader stakeholder interests? And how do we address the inherent conflicts—be it pollution, harmful products, or human rights abuses in supply chains?
At its core, this challenge boils down to one question: How do we prevent a system where profits are privatized, but costs are socialized?
Both stakeholder capitalism and ESG aim to create sustainable, long-term value for all stakeholders. While these frameworks hold potential, they are not panaceas.
Corporations, after all, are not quasi-state actors. While they can and should mitigate their worst externalities, we cannot expect businesses to shoulder society’s broader responsibilities alone. Similarly, governments cannot rely on corporate goodwill to fill regulatory gaps.
Historically, three mechanisms have curtailed corporate externalization of costs: litigation, regulation, and reputation (Shapira and Zingales, “Is Pollution Value-Maximizing?”). Of these, regulation remains the most effective. Contrary to popular belief, well-crafted regulations are not inherently bad for business. Take, for instance, the global plastic treaty endorsed by leading CEOs – it demonstrates how regulations can align corporate incentives with societal goals.
The Limits of Stakeholder Capitalism
In an ideal world, companies could comprehensively map and address stakeholder impacts. But we do not live in an ideal world. Where legal obligations exist, companies are more likely to act. Some go beyond this, and their efforts deserve recognition – for example, paying living wages instead of merely adhering to minimum wage laws. These initiatives demonstrate that shareholder profits need not stem from exploiting weaker stakeholders.
However, the real test lies in the gray areas—situations where there is no legal mandate, only ethical or moral considerations. While reputational risks may drive some companies to act, many will face conflicts between stakeholder interests and fiduciary duties enshrined in corporate charters.
This is where disclosure norms and ESG regulations can bridge the gap. By mandating transparency and guiding corporate behavior, they can help create a more sustainable future that balances profitability with broader societal responsibilities.
This is just the beginning of what I hope will be an ongoing exploration of these issues. As always, I welcome your thoughts, critiques, and ideas.
Stay informed,
Samarpita
All opinions are personal
ESG for Lawyers 
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