Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on an American Enterprise Institute roundtable conversation between Mr. Lipton; R. Glenn Hubbard, Dean Emeritus and Russell L. Carson Professor of Economics and Finance at Columbia Business School and visiting scholar at the American Enterprise Institute; and Clifford Asness, founder and chief investment officer of AQR Capital Management. 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); Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here); and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here).
Michael Strain: Good afternoon, I’m Michael Strain, Director of Economic Policy Studies at the American Enterprise Institute, and I want to start by thanking you all for joining this discussion of shareholder capitalism. Fifty years ago last month, economist and Nobel laureate Milton Friedman published his famous essay in The New York Times Magazine arguing that the social responsibility of businesses is to increase their own profits. This view has been controversial ever since. While campaigning back in July, Joe Biden said that the idea that a corporation’s sole or primary responsibility is to its shareholders is not only wrong, but “an absolute farce.”
Adding fuel to the debate, the U.S. Business Roundtable appears to have retreated from its earlier shareholder capitalism stance by issuing a statement about a year ago that embraced the idea that corporations and their managements have a responsibility to a broader group of stakeholders, including customers, suppliers, and workers. And that’s the question that we want our distinguished panel to take up in the next 45 minutes or so: Should executives manage their companies for the benefit of all stakeholders or should they simply focus on maximizing shareholder value? But before jumping into our subject, let me tell you a little about each of our three panelists:
Cliff Asness is the founder and chief investment officer of AQR Capital Management. Besides running a highly successful investment company, Cliff has long been an active researcher who’s published peer-reviewed articles on a variety of financial topics in many publications. He is also a trustee of the American Enterprise Institute.
Marty Lipton is a founding partner of the law firm Wachtell, Lipton, Rosen & Katz, which specializes in advising major corporations on mergers and acquisitions and matters affecting corporate policy and strategy. Widely credited with having invented the poison pill as a way of protecting corporations from market shortsightedness, Marty has been a major public intellectual on the social role of corporations in serving not only their shareholders, but other corporate constituencies.
Glenn Hubbard is Dean Emeritus and Russell L. Carson Professor of Economics and Finance at Columbia Business School. Glenn was chairman of the Council of Economic Advisers under President George W. Bush and is at present a visiting scholar at AEI.