Eugene F. Fama is the Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business. This post is based on his article, originally published in ProMarket. 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); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr (discussed on the Forum here).
Stakeholders versus Shareholders
There is currently much discussion of stakeholder capitalism, the proposition that firms should be run in the interests of all their stakeholders, including workers, and various types of securityholders, and not just shareholders.
My theme is that contract structures—the contracts negotiated among a firm’s stakeholders—address stakeholder interests. Contract structures are an important ingredient in the survival of firms. In a competitive environment, firms have incentives to negotiate contracts that allow them to deliver the products demanded by customers at the lowest cost. This survival competition benefits consumers, and with freely negotiated contracts, it benefits stakeholders.
I focus on internal stakeholders. A firm’s suppliers might be included among its stakeholders, but supplier interests are covered by suppliers. A firm’s customers might be included among its stakeholders, but in a competitive environment, satisfying customers is a first-order survival consideration for firms. If the firm is a monopsonist or a monopolist, however, these conclusions might change.
Proposed Rules Relating to the Reporting Threshold for Institutional Investment Managers
More from: Andrew Brownstein, David Katz, David Silk, Oluwatomi Williams, Sabastian Niles, Theodore N. Mirvis, Wachtell Lipton
Andrew R. Brownstein and David A. Katz are partners and Oluwatomi O. Williams is an associate at Wachtell, Lipton, Rosen & Katz. This post is based on a comment letter of Wachtell, Lipton to the U.S. Securities and Exchange Commission. Additional contributors to the law firm’s comment letter included Theodore N. Mirvis, David M. Silk, and Sabastian V. Niles. Related research from the Program on Corporate Governance includes The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here).
On July 10, 2020, the U.S. Securities and Exchange Commission (the “Commission”) proposed an amendment to Form 13F that would increase the reporting threshold from $100 million to $3.5 billion (the “Proposed Amendment”). We respectfully submit this letter in response to the solicitation by the Commission for comments on the Proposed Amendment.
As discussed in more detail below, we believe that the Proposed Amendment would decrease market transparency, increase the potential for covert activist behavior and market manipulation, reduce the ability of U.S. public companies to engage with investors in a meaningful and efficient manner, and deprive investors, companies and the Commission itself of valuable, decision-useful information. The justification advanced by the Commission for the Proposed Amendment—purported savings of $15,000—$30,000 annually by the “smaller” institutions that would no longer be subject to filing requirements under Section 13(f) of the Securities Exchange Act of 1934, as amended (“Section 13(f)”)—underestimates the market influence of such institutions, likely overestimates the potential savings to those institutions, ignores other costs of the Proposed Amendment and in any event is insufficient to justify the adverse effects of the Proposed Amendment. The Proposed Amendment cuts the information currently available from Form 13Fs by 90%, rendering investors, regulators and the American public blind to important developments affecting the future of major American companies on whom our nation depends for job creation and overall prosperity.
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