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1 Univ. Chi. Bus. L. Rev. 1 (2022)

handle is hein.journals/usitcobs1 and id is 1 raw text is: ESG and Private Ordering Michal Barzuza,* Quinn Curtist & David H. Webber$ Easterbrook and Fischel's seminal book The Economic Struc- ture of Corporate Law has taught us the crucial role of markets in shaping the corporate contract. With the rise of ESG, the nature of that contract is changing, but the importance of markets (and of their limitations) is not. In this piece, building on our previous work that traces the remarkable growth of ESG to a shift in de- mand, primarily, but not solely, among millennials, we discuss the role of markets in shaping ESG, as well as their limitations. The rise of social values, and the increasing willingness of millennials to act on them as market participants and corporate stakeholders, has forced managers to respond in ways that multiply the effect of those values. Critically, these preferences ultimately act as a con- straint on firms' behavior, and the emergence of ESG is best un- derstood as a product of strong, though sometimes excessive, in- centives to respond to social demand. Thus, conducting a context specific incentives' analysis, rather than assuming that markets are always efficient or inefficient, should be preserved in the ESG era. I. IN TR O D U C TIO N ...................................................................................... . . 2 II. MARKETS, CORPORATE GOVERNANCE, AND ESG ........................................6 A. Easterbrook & Fischel's Seminal Contribution-Markets and Corporate Governance ..............................................................6 III. EXPLAINING THE RISE OF ESG..................................................................8 A. ESG Takes Center Stage..............................................................8 B. Explanations for the Rise of ESG ................................................9 C. Challenges to Existing Accounts................................................11 IV. MILLENNIAL MARKETS-THE DEMAND FOR ESG ..................................14 A. Millennial Preferences and Markets .........................................15 B. Millennial Preferences and Indirect Channels .........................17 Professor of Law, University of Virginia School of Law. For useful comments and sugges- tions we are grateful to Elizabeth Pollman and participants at the University of Chicago Business Law review, inaugural symposium. t Albert Clark Tate, Jr., Professor of Law, University of Virginia School of Law. t Professor of Law and Paul M. Siskind Research Scholar, Boston University School of Law 1