Engines of External Governance

Traditional accounts of corporate governance focus on internal actors and largely neglect external governance: the ways in which actors outside the firm seek to embed broader objectives into corporate decision-making. This Article argues that nonprofits are now among the most important engines of external governance and taking their role into account sheds critical light on corporate governance developments in the past, present, and future.

We make three primary contributions. First, we identify the range of nonprofits that engage in external governance, discuss their defining features, and explain why governance-related activism occurs through nonprofit vehicles. Second, we examine their strategic playbook, which includes legislative advocacy, litigation, shareholder proposals, and soft law and shaming campaigns. We analyze how these strategies have contributed to key corporate governance shifts, from global supply chain and benefit corporation legislation to the rise and backlash against CSR, ESG, DEI, and climate-related agendas. Third, we explore the broader implications of this phenomenon for reform proposals and the future of corporate governance.

Nonprofits have consistently operated to expand the scope of corporate governance beyond shareholder-manager dynamics, thus challenging traditional conceptions of corporate governance, incorporating competing ideologies, and fueling unpredictable chain reactions. Their global reach and varied strategies create a hydraulic effect—when one avenue of influence is constrained, nonprofits redirect efforts through alternative mechanisms. Nonprofits also help explain why twenty-first-century corporate governance developments have diverged from predictions of an “end of history,” instead reflecting a global trend toward broader and more contested models of governance. Finally, shining a light on nonprofits as engines of external governance reveals a range of normative perspectives on both their constructive and concerning dimensions.