Steven Davidoff Solomon is Professor of Law at the UC Berkeley School of Law. This post is based on a recent paper by Professor Davidoff Solomon; Byung Hyun Ahn, a doctoral student at the Haas School of Business at UC Berkeley; Jill Fisch, the Saul A. Fox Distinguished Professor of Business Law at the University of Pennsylvania Law School; and Panos N. Patatoukas, associate professor at the Haas School of Business at UC Berkeley. Related research from the Program on Corporate Governance includes The Untenable Case for Perpetual Dual-Class Stock (discussed on the Forum here) and The Perils of Small-Minority Controllers by Lucian Bebchuk and Kobi Kastiel (discussed on the Forum here).
Scholars, practitioners and policymakers continue to debate what constitutes “good” corporate governance. Investors threaten to vote against directors of issuers with defective governance practices while, at the same time, call for regulators to ban particularly controversial practices such as fee-shifting bylaws and dual class voting structures. Although empirical studies have failed to develop conclusive evidence linking specific governance provisions to firm value, the debate has become increasingly heated and political.
In Synthetic Governance, we provide a possible solution to the debate. As we explain, the rise of index investing offers a low-cost market-based tool by which asset managers can give investors the opportunity to vote with their feet by selecting a rules-based investment strategy that screens portfolio companies according to specified governance criteria. Investors with particular corporate governance preferences could, by selecting a bespoke governance index, and mechanism, invest according to those preferences. At the same time, governance-based indexes can provide valuable data on the relationship between corporate governance and firm value.
Comment Letter on DOL Proposed Rule on ESG Investments
More from: Nell Minow, Robert Monks, ValueEdge Advisors
Robert A.G. Monks is Chairman and Nell Minow is Vice Chair of ValueEdge Advisors. This post is based on their recent comment letter to the Department of Labor. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); and Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee by Robert H. Sitkoff and Max M. Schanzenbach (discussed on the Forum here).
We have the strongest possible objections to the proposed rule on the appropriate consideration of ESG or any other non-traditional factors for plan investments, which fails as a matter of process, substance, cost-benefit analysis, regulatory policy, economics, consistency with other Administration policy, and clarity. It addresses a “problem” that is never documented based on claims and assertions of costs and benefits that are recklessly unsubstantiated. Most dangerously, it departs from every previous precedent in the history of EBSA and its predecessor, PWBA, which one of this comment’s signatories headed in the Reagan administration. We have already submitted a comment with Jon Lukomnik and a distinguished group of co-signatories. This comment is a supplement to the earlier filing, and we may file further if other comments require a response or other relevant information becomes available.
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