{"id":11867,"date":"2026-01-23T16:49:56","date_gmt":"2026-01-23T15:49:56","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=11867"},"modified":"2026-01-23T16:49:56","modified_gmt":"2026-01-23T15:49:56","slug":"what-lies-behind-companies-ethical-choices","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2026\/01\/23\/what-lies-behind-companies-ethical-choices\/","title":{"rendered":"What Lies Behind Companies\u2019 Ethical Choices"},"content":{"rendered":"

Pollution, inequality, wars, epidemics: in recent years, companies have increasingly been asked to confront ethical choices as well as economic ones in response to global events. This has led to commendable initiatives, such as massive donations to hospitals and struggling communities during the pandemic or the withdrawal from the Russian market after the invasion of Ukraine. But who makes these decisions? And with what objectives? Often, behind them lies an invisible conflict among shareholders, with some gaining reputational benefits while others bear the costs. European rules on corporate sustainability increase transparency about outcomes, but not about the processes that produce them. Understanding who decides and why is therefore a necessary step toward designing policies that foster genuine sustainability based on shared responsibility.<\/em><\/p>\n

 <\/p>\n

Environmental issues, the protection of human rights, and geopolitical tensions: increasingly, companies are required to make decisions that go beyond the strictly economic sphere and enter what might be described as an \u201cethical\u201d domain.<\/p>\n

Examples abound and show how some firms react very quickly to external pressures, while others move more hesitantly. To cite two emblematic cases from recent major crises: during the pandemic, Louis Vuitton converted a perfume production line within days to produce hand sanitizer for hospitals; Renault, by contrast, hesitated for a long time before deciding to leave the Russian market.<\/p>\n

The point is that we still know little about how corporate ethical choices emerge, who influences them, and what costs they entail. This makes it difficult to design policies capable of genuinely steering companies toward credible sustainability.<\/p>\n

The Self-Interested Advice of a Few Shareholders<\/strong><\/h3>\n

Differences in corporate choices show how, behind seemingly ethical initiatives, hidden incentives may operate: these are not always collective decisions, but often individual pressures exerted by shareholders who are highly exposed on specific issues, for whom a public gesture may be worth more than the costs borne by other shareholders.<\/p>\n

In our study, we sought to understand what happens behind the scenes of shareholder meetings. In many cases, ethical initiatives do not arise from shared consensus, but from the will of particularly visible individuals or families, for whom taking a public stance can translate into immediate reputational returns. For other shareholders, by contrast, the same choice mainly represents a cost. An emblematic example is the media campaign promoted by the descendants of John D. Rockefeller to push Exxon Mobil to divest from oil, which ultimately strengthened the Rockefeller family\u2019s public reputation.<\/p>\n

To understand how widespread this mechanism is, we exploited a simple fact: in the United States, annual shareholder meetings are scheduled months in advance. During the pandemic, some companies happened to hold their meetings precisely when public opinion was demanding gestures of solidarity. In that spotlight, the likelihood that they would announce donations increased significantly compared with firms whose meetings were scheduled later.<\/p>\n

The link with ownership structure is clear: when prominent individuals or families are among major shareholders, donations increase; when large institutional funds dominate, greater caution prevails.<\/p>\n

The Price of Ethical Choices<\/strong><\/h3>\n

Ethical choices come at a cost. Companies that made large donations or withdrew from certain markets for reputational reasons recorded, over the following two years, average declines in investment, productivity, and profits ranging from 1% to 3%. In many cases, donations were extraordinarily large: considering only cash contributions\u2014excluding, for example, the costs of converting production to ventilators, soaps, or masks\u2014in the first three months of the pandemic, S&P 500 companies donated as much as they had in the entire previous year.<\/p>\n

These exceptional expenditures, driven by pressure from major shareholders, absorbed resources and slowed investment, to the point that the most exposed firms took up to three years to return to pre-Covid productivity levels.<\/p>\n

It is also unclear whether these sums were truly additional. Large institutional investors, who discourage donations by the companies they invest in in order to avoid the associated costs, nevertheless engage in philanthropy directly in the fund\u2019s name. The logic is simple: this strengthens their own reputation, which does not happen when donations come from an individual portfolio company, because the public does not associate the gesture with the fund\u2019s ownership stake. In other words, a portfolio company\u2019s donation generates only costs and no reputational benefits for the fund.<\/p>\n

This mechanism did not apply only to pandemic-related aid: it also reappeared when companies had to decide whether to leave Russia after the start of the war in Ukraine.<\/p>\n

But what figures are we actually talking about? Our research estimates that if the probability of a company making a donation\u2014driven by the presence of a highly visible major shareholder\u2014increases by one percentage point, earnings per share fall by about 2.6 cents. For a shareholder holding 5% of an S&P 500 company, this means about $160,000 less in dividends\u2014a sum they are willing to sacrifice in exchange for an increase of about 1% in their visibility, measured through an index of Google search activity. This value is comparable to that of a high-profile public relations campaign\u2014with the difference that, in this case, the cost is borne through the company and thus shared with all other shareholders.<\/p>\n

Collective Goals or Personal Strategies?<\/strong><\/h3>\n

Do donations and pressures benefit only shareholders interested in enhancing their reputation? No. In many cases, they generate real social benefits: supplies for hospitals, support for struggling communities, capital withdrawn from authoritarian regimes. But precisely because the effects can be positive, it is essential to understand how these choices arise and who finances them.<\/p>\n

The distinction is not between \u201cgood\u201d and \u201cbad\u201d actions, but between decisions motivated by collective objectives and those driven by personal motives that remain in the shadows. Recognizing this difference is crucial for designing policies and incentives capable of producing social goods in a systematic and predictable way, integrating private contributions into public redistribution mechanisms.<\/p>\n

In other words, private and public sustainability should interact. The state must be able to rely on a corporate system that produces social goods in a consistent and verifiable manner\u2014from reducing pollution to paying adequate wages\u2014rather than in an episodic way or driven by individual reputational interests.<\/p>\n

All this also highlights a new, almost invisible, governance problem. It is no longer the classic conflict between managers and shareholders, but a conflict among shareholders themselves: some receive a \u201creputational dividend,\u201d while others pay the bill. And existing oversight tools\u2014from shareholder voting to financial disclosure\u2014are not designed to address this dynamic.<\/p>\n

European Transparency Is Not Enough to Ensure Corporate Sustainability<\/strong><\/h3>\n

The limitation is particularly evident in European policies: they focus on outcomes, not processes. Yet it is precisely in processes that hidden conflicts arise. The \u201cgreen\u201d taxonomy, the sustainability reporting directive, and more broadly the ESG agenda\u2014adopting environmentally, socially, and governance-oriented practices\u2014push companies to disclose information about how their activities affect the environment and society. This is a significant step forward, improving transparency and facilitating comparisons. But it remains a \u201cpassive\u201d intervention.<\/p>\n

Current rules allow us to better observe the effects of corporate choices, but they do not help us understand how those choices are made. The taxonomy classifies activities as sustainable or not, but says nothing about the internal incentives that generate them, nor about conflicts among shareholders and stakeholders that often shape them. In other words, it does not address the central issue: sustainability depends not only on what companies do, but on how they decide to do it and on who within the organization truly guides those decisions.<\/p>\n

If the goal is to genuinely steer companies toward sustainability, policies must go beyond reporting. They must intervene in decision-making processes, not only in final outcomes. This means making the dynamics among shareholders, management, and stakeholders more transparent.<\/p>\n

Our study shows, for example, that dispersed shareholders remain largely passive because they lack the tools to influence managers informally. Yet today these small shareholders hold about 80% of the shares in major indices such as the Nasdaq. Not knowing others\u2019 preferences severely limits their activism: many hesitate to submit proposals or support others because they perceive themselves as marginal.<\/p>\n

Engaging and coordinating them around sustainability issues could be a first step toward moving beyond mere reporting and building mechanisms capable of promoting lasting corporate sustainability.<\/p>\n

The Confusion Between Reputation and Virtue<\/strong><\/h3>\n

Truly effective regulation should look inside governance, not only at balance sheets. It should examine how incentives are distributed among corporate actors and how they change in times of crisis or under media pressure. Today, ESG policies do not prevent conflicts: they merely record them\u2014often only partially\u2014after they have emerged, leaving observers to reconstruct their origins and scope. This task is further complicated by the volume of ESG data, collected in non-uniform ways across companies, which makes comparative analysis difficult.<\/p>\n

In the future, sustainability policies should instead help prevent conflicts, fostering mechanisms of consensus and shared responsibility between shareholders and management.<\/p>\n

Companies will continue to be called upon to \u201cdo the right thing\u201d in the face of climate change, geopolitical conflicts, and social tensions. But if we want them to act effectively and sustainably, we must understand who decides, for what reasons, and at whose expense. As long as these internal conflicts remain invisible, we will continue to confuse reputation with virtue. And in a form of capitalism increasingly based on image, distinguishing between the two is an essential form of sustainability.<\/p>\n

 <\/p>\n

Michele Fioretti is Professor of Economics at Bocconi University. His research focuses on industrial economics, corporate governance, and sustainability. He holds an ERC Starting Grant on the social role of corporations.<\/em><\/p>\n

Victor Saint-Jean is Professor of Economics at ESSEC Business School. His research concerns corporate finance, social responsibility, and investor behavior.<\/em><\/p>\n

Simon Smith is an economist at the Board of Governors of the Federal Reserve. He works on financial markets and macroeconomic stability, developing new econometric methods for the analysis of economic policy.<\/em><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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