Marshalling reputation to minimize problematic business conduct

Research output: Contribution to journalArticle

Abstract

Problematic business behavior continues. The law tries to address it, but without sufficient success. If the law could readily do a better job preventing or punishing the behavior, it would. But the law is limited in what it can address. In some cases, legal solutions are impossible or infeasible. Specifying the behavior at issue may be impossible; specification may yield a roadmap for other egregious behavior, and/or enforcers may be hopelessly outmaneuvered or out-resourced. In other cases, legal solutions are undesirable. Mandating the “golden rule” in all business relationships is not a good idea, nor is deeply encroaching on people’s autonomy to prevent them from making decisions that the government thinks are not good for them. This Article argues that reputation can help fill the gap, and play more of a role in discouraging problematic corporate conduct. The first step, albeit a huge one, is to develop a principled concept of what reputation should require—more precisely for purposes of this Article, what a good reputation should not permit. A good reputation should not permit a company to have business models and practices predicated on taking advantage of one party’s duress or incapacity or on access to a third party’s funds where the third party has no say in the matter. This Article argues that such models and practices impose negative externalities. At this juncture, with increasing attention paid to corporate social responsibility (“CSR”); sustainability; environmental, social, and governance (“ESG”) initiatives; broader themes of corporate good citizenship; and regular revelations of problematic corporate behavior, such a concept could get real traction with important and influential constituencies, notably including institutional investors. With CSR and ESG, investor activism has been proactive rather than reactive. Companies’ practices as to the environment, diverse boards, and other such matters are investigated and those with practices deemed problematic are pressured to do better. Why is that not the case for companies’ business models and practices? Institutional investors, who are increasingly focusing on sustainability, CSR, and ESG concerns, have an important role to play. Institutional investors are well-situated to ask, and get answers to, searching questions, and pressure companies to institute needed reforms. My hope is that they will use their considerable influence to “enforce” reputational sanctions, both positive and negative, and participate in a broader conversation as to what reputation should require.

Original languageEnglish (US)
Pages (from-to)1193-1228
Number of pages36
JournalBoston University Law Review
Volume99
Issue number3
StatePublished - Jan 1 2019

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