Lucian Bebchuk is the James Barr Ames Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance and Roberto Tallarita is Associate Director of the Program on Corporate Governance, as well as Terrence C. Considine Fellow in Law and Economics, both at Harvard Law School. This post is based on their new paper.
Corporate purpose is now the focus of a fundamental and heated debate, with rapidly growing support for the proposition that corporations should move from shareholder value maximization to “stakeholder governance” and “stakeholder capitalism.” In a new study, The Illusory Promise of Stakeholder Governance, we critically examine the increasingly influential “stakeholderism” view, according to which corporate leaders should give weight not only to the interests of shareholders but also to those of all other corporate constituencies. We conduct a conceptual, economic, and empirical analysis of stakeholderism and its expected consequences. We conclude that this view should be rejected, including by those who care deeply about the welfare of stakeholders.
Stakeholderism, we demonstrate, would not benefit stakeholders as its supporters claim. To examine the expected consequences of stakeholderism, we analyze the incentives of corporate leaders, empirically investigate whether they have in the past used their discretion to protect stakeholders, and examine whether recent commitments to adopt stakeholderism can be expected to bring about a meaningful change. Our analysis concludes that acceptance of stakeholderism should not be expected to make stakeholders better off.
Furthermore, we show that embracing stakeholderism could well impose substantial costs on shareholders, stakeholders, and society at large. Stakeholderism would increase the insulation of corporate leaders from shareholders, reduce their accountability, and hurt economic performance. In addition, by raising illusory hopes that corporate leaders would on their own provide substantial protection to stakeholders, stakeholderism would impede or delay reforms that could bring meaningful protection to stakeholders. Stakeholderism would therefore be contrary to the interests of the stakeholders it purports to serve and should be opposed by those who take stakeholder interests seriously.
Below is a more detailed overview of the analysis of our paper:
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CII Comment Letter on Proposed Proxy Rules for Proxy Voting Advice
More from: Jeffrey Mahoney, Ken Bertsch, Council of Institutional Investors
Kenneth A. Bertsch is Executive Director and Jeffrey P. Mahoney is General Counsel at the Council of Institutional Investors. This post is based on a CII letter to the SEC in response to request for comments on the proposed rule regarding proxy advisors (discussed in posts here and here).
The Council of Institutional Investors (CII), appreciates the opportunity to provide comments to the United States (U.S.) Securities and Exchange Commission (SEC or Commission) in response to proposed amendments to the federal proxy rules published on December 4, 2019, in SEC Release No. 34–87457, Amendments to Exemptions From the Proxy Rules for Proxy Voting Advice (Release).
CII is a nonprofit, nonpartisan association of U.S. public, corporate and union employee benefit funds, other employee benefit plans, state and local entities charged with investing public assets, and foundations and endowments with combined assets under management of approximately $4 trillion. Our member funds include major long-term shareowners with a duty to protect the retirement savings of millions of workers and their families, including public pension funds with more than 15 million participants—true “Main Street” investors through their pension funds. Our associate members include non-U.S. asset owners with about $4 trillion in assets, and a range of asset managers with more than $35 trillion in assets under management.
CII strongly opposes the Release in its entirety. We present a general summary of key issues in the Release, and then responses to the specific questions the SEC poses in the Release (page 6 of the complete letter).
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