Sustainable Organizations

We develop a theory of stakeholder governance to study how pro-social stakeholders shape organizations. Conflicts of interest arising from diverging pro-social preferences can lead to shifts in control rights, which significantly affect organizational sustainability. We provide conditions under which more pro-social stakeholders benefit or harm an organization's sustainability, showing that they do not necessarily make it more sustainable. The key insight of our analysis is that a top-down approach to addressing sustainability concerns consistently improves organizational sustainability, while a bottom-up approach can harm it. Our results apply to CEO authority and retention, board composition, and shareholder proposals and engagement.