Symbolic or substantive? How shareholder heterogeneity shapes the purpose of the corporation

Abstract

This study investigates how the heterogeneity of shareholders’ financial and social interests creates tension around competing interpretations of the purpose of the corporation, particularly regarding their incompatibility and relative prevalence of initiatives that extend beyond profit maximization. These tensions are especially salient when shareholder activists—who possess both legal rights and economic influence—exert divergent pressures to achieve both financial and social goals, which then shapes how firms respond to such pressures. Based on a sample of 5302 shareholder-initiated proposals submitted to S&P 1500 firms, we find that when the variety of shareholders targeting a firm blends conflicting perspectives about pursuing profit and social goals to a greater extent, firms are more likely to respond with symbolic actions, for a consequential misalignment between advocated CSR policies and implemented practices. We also provide evidence that this association is weaker in the presence of activism and ownership by shareholders who publicly self-identify as socially oriented investors, suggesting that these investors influence both the credibility and the centrality of the social logic in managerial decision-making. Our results advance understanding of how firms navigate the complexities of achieving a purpose of the corporation beyond profit maximization, amid the evolving landscape of divergent shareholder interests and activism.