Recent developments have placed antitrust law on a collision course with corporate purpose. In a new paper, I reveal the unforeseen negative impacts of this conflict and provide a roadmap for avoiding them.
Businesses and investors are increasingly embracing an expansive view of corporate purpose—one that looks beyond profit-maximization and addresses systemic risks, such as climate change and income inequality. This broad view of corporate purpose is championed not only by employees, lawmakers, NGOs, and society at large, but also by the world’s largest investors and asset managers, who are urging companies to serve a social purpose. Yet progressives and conservatives alike view these investors and asset managers as either insincere or irresponsible.
It is not surprising that public pronouncements in support of environmental, social, and governance (ESG) initiatives coming from the CEOs of Wall Street’s largest firms ring hollow to many. But economic logic supports these pronouncements. Due to the rise of index investing, these ‘universal owners’ manage portfolios that are highly diversified. Just three asset managers—BlackRock, State Street, and Vanguard—collectively hold more than 20 percent of S&P 500 stocks and roughly 80 percent of all index funds. While universal owners’ ability to diversify away idiosyncratic risks, they remain exposed to systemic risks, which affect the entire economy. As a result, they are using public statements, private engagement, shareholder proposals, and their voting power to persuade companies to manage portfolio-wide impacts.
Corporate boards and executives are responding to these mounting pressures by orienting their business strategies towards prosocial causes. Recognizing that their long-term sustainability and so-called social license to operate depends upon whether they can meet these demands, companies are adopting corporate purpose statements that acknowledge an obligation, in the words of Professor Colin Mayer, ‘to solve the problems of people and planet profitably, and not profit from causing problems’. These purpose statements are not just empty words. Today’s prosocial corporation not only addresses its own negative environmental and social externalities but increasingly goes much further to advocate for social causes that have little to no connection with its core business.
While each company acting alone can make a difference up to a point, companies are finding that unilateral action has its limits. Addressing large-scale problems requires collaboration, often among competitors. This new business reality is fundamentally at odds with the current articulation of the consumer welfare standard in antitrust law, which bemoans competitor collaboration.
The stakes are high. The case studies I introduce in my article demonstrate that the fear of prompting antitrust enforcement is preventing companies from addressing environmental and social crises at a time when we need the private sector’s help. For example, while jurisdictions and companies have made bold commitments to address the plastic waste crisis, antitrust law is preventing the food industry from adopting industry-wide standards that would mandate the use of food-grade recycled plastics. And while apparel companies have attempted to rid their supply chains of forced labor and inhumane working conditions, their efforts to create binding and industry-wide labor standards are scuttled by antitrust scrutiny. While it is true that companies can and do avoid antitrust scrutiny by entering into unilateral and voluntary initiatives, decades of such efforts have produced marginal impacts.
Antitrust experts in the US are currently engaged in an entirely different debate, with familiar fault lines. The consumer welfare standard—a product of Robert Bork and the Chicago School—has for decades sought to promote better products and services at lower prices through competition. By contrast, the ‘progressive’ or Neo-Brandeis movement seeks to return antitrust law to its roots of curbing concentrations of corporate power, arguing that this will increase competition, expand liberty, and bolster democracy. Traditionalists warn that Neo-Brandesians would chill competition by diverting antitrust law’s focus from economic principles towards ‘social problems’. However, both sides in this robust and important debate disregard the economic benefits of prosocial collaboration among competitors.
Another story is playing out in Europe, where the competition authorities have welcomed a debate on whether competition policy is consistent with the goals of the European Union’s Green Deal. As industry leaders in Europe have pointed out, they cannot meaningfully address systemic risks unless they collaborate with competitors. There are a variety of reasons for this. First, only through collaboration can companies create sufficient demand for sustainable products. Second, companies need to collaborate to produce sufficient quantities of sustainable goods at scale, such as by jointly financing recycling infrastructure and facilities for food-contact recycled plastic, which today suffers from a global shortage. Third, companies need to enter into binding agreements to phase out unsustainable products. Fourth, companies must share commercially-sensitive pricing information to address sustainability and human rights challenges in their supply chains.
The Biden administration has embraced the idea of the prosocial corporation by rebuking shareholder primacy and emphasizing that the US must ‘build back better’. Yet, reforming competition policy to allow companies to mitigate environmental and social risks remains unexplored in this agenda. While competition policy cannot replace regulation, it can and ought to give companies incentives to mitigate environmental and social risks. My paper offers a policy agenda for modernizing antitrust law to make it consistent with the demands upon the prosocial corporation.
Amelia Miazad is a founding director of the Business in Society Institute and a member of the business law faculty at the University of California, Berkeley School of Law.