Corporate Technocracy: ESG Governance Beyond Shareholder Democracy or Managerialism

Abstract

This Article advances a novel paradigm for governing corporate ESG that accounts for the principal-agent challenges undermining prevailing proposals. ESG (Environmental Social Governance) advocates typically advance one of two corporate governance paradigms for delivering on their objectives—shareholder democracy or managerialism. Shareholder democracy seeks to expand shareholder involvement in defining and monitoring corporate ESG agendas. Managerialism claims broader discretion for executives to govern in the interest of a corporation’s stakeholders. Both paradigms fail to account for novel agency challenges generated by prosocial corporate purpose, leaving unresolved core concerns about ESG accountability and efficacy.

This Article offers an alternative to the two prevailing ESG governance paradigms and argues that “corporate technocracy” can account for the novel agency challenges generated by ESG, while addressing the structural and legal shortcomings of both shareholder democracy and managerialism. Technocracy refers to rule by technical experts. It emphasizes institutional accountability, promotes legibility and measurability of corporate purpose, and characterizes shareholders and stakeholders as an information source for defining ESG materiality, particularly for emerging or controversial issues. Technocracy depoliticizes both managers’ and shareholders’ role in defining ESG, relegating managers to the role of administrators rather than statesmen, and shareholders to the role of informational satellites rather than political subjects. Technocracy offers a framework for ESG governance that is consistent with controlling Delaware corporate law doctrine and federal securities law. This Article offers a way beyond the political dogma that plagues contemporary ESG debates and advances a normatively defensible and practically administrable paradigm for ESG governance.