Stakeholderism Silo Busting

Aneil Kovvali is an Associate Professor of Law at the Indiana University Maurer School of Law, Bloomington. This post is based on his recent paper, forthcoming in the University of Chicago Law Review. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) and Will Corporations Deliver Value to All Stakeholders? (discussed on the Forum here) both by Lucian A. Bebchuk and Roberto Tallarita; Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr; and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita.

Separate fields of business law are undergoing tumultuous debates. The orthodox view that antitrust law should focus exclusively on consumer welfare is threatened by increasingly influential figures like Lina Khan and Tim Wu, who urge a focus on preserving smaller companies and the threat of political domination by large firms. The orthodox view that bankruptcy law should focus on creditor interests has drawn public outrage as parties and judges pursue it to its logical conclusion in cases of mass injury like Purdue Pharma and Johnson & Johnson, pursuing maneuvers that protect financial creditors and investors and curtail litigation by victims of misconduct. The orthodox view that corporate law should focus exclusively on shareholders’ financial interests has been challenged by a growing group of business leaders, politicians, and academics. And the orthodox view that securities regulation should focus on disclosures material only to investors may be nearing collapse, as the Securities and Exchange Commission (SEC) pushes forward on rules compelling companies to disclose information about climate change. In each of these areas, there is a high profile and consequential conversation underway about whether the field should focus on a single constituency or a broader range of stakeholders.

With a few notable exceptions, participants in these conversations have treated them as separate conversations, drawing on the logic and literature of each individual field. But there is value in conceiving of them as one broader conversation. The fields share a common history and have been shaped by common economic and political forces. The arguments in each space share important similarities. And considering the issues together can yield fresh insights and actionable proposals.

To begin, the fields have a common history. Each field began as a muddle of competing policy objectives. During different periods of crisis, the each field was treated as part of a common toolkit for addressing problems. More recently, each field was reformed to focus on a single constituency by visionary leaders. And recent changes in the broader economic and regulatory environment have fed robust challenges to each orthodoxy.

The current debates also share common structures and themes. In each debate, one side argues that a field should focus on the interests of a single constituency—consumers, creditors, shareholders, or investors-—often as reflected in a single metric—short term prices, returns, or share prices. The other side supports “stakeholderism,” arguing that the field should broaden its focus to consider the interests of other stakeholders, such as workers, the environment, or nearby communities. Advocates for stakeholderism note the potential of businesses to address important social problems or to create them if left unchecked, the apparent inability of the political system to generate better solutions, and the flexibility of business law to address problems. Advocates for single-constituency approaches suggest that improving outside areas of the law like labor or environmental regulation would be more effective in meeting stakeholder needs than distorting business law, that stakeholderism would sacrifice business law’s analytical and prescriptive clarity, that no one empowered by business law can be trusted to manage trade-offs across different groups of stakeholders, that any effort to help stakeholders would lead to perverse outcomes and evasion, and that single-constituency approaches will ultimately benefit stakeholders. Though these arguments are made across the different areas of business law, they often land with different force in different fields. For example, while corporate CEOs may not be trusted to manage tradeoffs within corporate law between shareholders, workers, customers, and communities of operation, the judges and public servants who referee much of antitrust and bankruptcy law might have better incentives.

There is also real value on considering the fields together, both in developing practical proposals and new lines of academic research. The key insight is this: major problems require systemic solutions. Inequality and climate change are fundamental crises, and society is unlikely to solve them if each area of business law empowers, encourages, or requires corporations to fight solutions on behalf of some narrow special interest. While those who challenge the orthodoxy in each domain are closer to the right track, their siloed approach also represents a failure of imagination. A blinkered view denies reformers the benefit of insights and mechanisms developed in parallel areas, and it can result in proposals in one area that would have unfortunate consequences in another. The current reform strategy of launching separate attacks on each area of doctrine is unlikely to lead to an effective overall system.

The complete paper is available for download here.

Trackbacks are closed, but you can post a comment.

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>