Study participants are less likely to accept lower returns in support of social goals when acting as investors versus consumers or donors with a third accepting no reduction in returns. Additionally, those with higher income, women and Democrats were willing to accept lower return in support of social goals than those with lower income, men, Republicans and Independents.
Perhaps the most important corporate law debate over the last several years concerns whether directors and executives should manage corporations to maximize value for investors, or to also take into account the interests of other stakeholders or society (see, e.g., Hart and Zingales, 2017; Bebchuk and Tallarita, 2020; Rock, 2021). But, what amount of money, if any, are investors willing to forgo for specific social objectives? Does the amount that individuals are willing to forgo for particular social objectives differ depending on whether they are acting through a “corporate channel,” as investors or consumers, rather than directly, as donors? And how are individuals’ preferences for the promotion of social goals related to their individual characteristics (such as political affiliation, age, gender and income), and to particular social objectives in each of these scenarios?
Our article, How Much Do Investors Care about Social Responsibility?, attempts to answer these important questions. We gather new empirical evidence from an experiment conducted on 279 Americans with investing experience that involved real monetary gains for participants. The experiment investigated the tradeoffs that individuals make between their own financial interests, and four different social interests—gender diversity, income equality, environmental protection, and faith-based values.
We present these tradeoffs in three different scenarios, whereby individuals are assigned to make either investment decisions, consumption decisions, or donation decisions. We design each set of tradeoffs to replicate how individuals make real-world decisions regarding investment, consumption, and donations—for example, choosing whether to invest in a socially responsible portfolio, or a general portfolio. We also structure participants’ incentives to reflect the outcomes of their decisions: If they choose greater investment returns in our scenario, their real-world payment increases, and they increase their probability of winning a larger payment. If they choose greater social responsibility, we donate an increased amount to registered charities that further the social causes in the scenario.
Our empirical analysis provides the following main results. First, we find that when making investment decisions, individuals are indeed willing to forgo some returns in order to promote social interests: The average willingness to pay in our experiment varies (depending on the particular social cause) between $176 and $253 out of returns of $1,000 on a $10,000 investment (corresponding to returns of between 1.76% and 2.53%, out of a potential total return of 10%). More importantly, whereas most investors are willing to forgo gains to promote social interests, a substantial proportion of investors (about 32%) are unwilling to forgo even a trivial amount ($10 out of $1,000, or a 0.1% return out of the 10% potential return) to advance any of the four social goals we presented to them through their investment decisions. These individuals have a strong preference to maximize profits over social goals, even where the cost to them of furthering social goals is extremely small.
Second, unlike Hart, Thesmar and Zingales (2023), we find that the amount of money individuals are willing to forgo to promote social interests depends on the channels through which they make their decisions. In particular, the amount individuals are willing to forgo in investment decisions is significantly less than the amount they are willing to forgo in donation decisions. One possible interpretation is that a substantial number of investors would prefer that corporations distribute returns to their investors, who can then use those returns to advance social goals directly. We also find that the amount of money that individuals are willing to forgo in investment decisions is significantly lower than in consumption decisions. This counsels caution in drawing inferences for investment preferences from consumption preferences.
Third, we find significant heterogeneity in preferences among individuals, which is associated with their political affiliation, their gender, and their age. This heterogeneity is expressed both in the amount that individuals are willing to forgo to promote social causes, and in the proportion of individuals that are unwilling to forgo even trivial amounts to promote social causes. These factors also influence the channel through which individuals prefer to promote social causes (or not to). Altogether, we find that individuals identifying as Democrats and women, and those with greater income, are more willing to forgo amounts to promote social causes, and are willing to forgo greater amounts (compared to those identifying as Republicans or independents and men, and those with lower incomes). We also find that individuals are more willing to forgo amounts to promote social causes considered to be conservative when donating, compared to when they are investing or consuming.
Together these finding suggest that there is no clear consensus among investors that corporations should, or should not, promote social causes at the expense of their financial gains. More than anything, the split in investors’ social preferences that we observe is a reflection of a political divide between individuals who support relatively progressive causes and those who support more conservative causes.
The heterogeneity of investor preferences we observe suggests a series of complex questions that corporate leaders and investment managers must consider. How should they ascertain investors’ preferences? And when these preferences differ, as our results suggest is likely, which set of investors’ preferences regarding social responsibility should they favor, and which should they disregard? If they do translate these preferences into socially responsible actions, how far should they go, and where should they draw the line? And how should these leaders and investment managers be monitored to ensure that they respond appropriately on these questions?
We do not claim to have comprehensive answers. But our results suggest that corporate leaders, and investment managers, cannot continue to avoid these questions.
The complete paper is available for download here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
