In 2019, 181 CEOs signed a statement pledging a commitment to “deliver value to all stakeholders.” According to an opinion column in the Wall Street Journal, investors have generally believed “that executives [are] the ‘agents’ of . . . shareholders . . . [and] their single aim should be to make as much money as possible within the bounds of the law.”

a. Identify a corporation’s stakeholders. How are a corporation’s stakeholders different from its shareholders?

b. Some investors believe that, instead of maximizing profits, corporations should pursue policies that promote environmental, social, and governance (ESG) issues. But the compensation of most CEOs is tied to profitability of their firm rather than to their success in promoting ESG issues. Why would it be more difficult to tie a CEO’s compensation to a corporation’s performance on ESG issues rather than to the corporation’s profitability?