Beyond
“Unprecedented”: The Post-Pandemic Economy
***
The belief that a corporation’s highest purpose is to
maximize profits for its shareholders, first articulated by economist
Milton Friedman, has guided corporate behavior for half a century.
Now, the COVID-19 pandemic, the racial equity movement, and the
climate crisis are amplifying calls for corporations to focus on
employee welfare, social responsibility, and environmental
sustainability. Can corporations please both shareholders and
stakeholders?
In the
fifth episode of
“Beyond
Unprecedented”: The Post-Pandemic Economy, Eric Talley
hosts a conversation with corporate governance experts Ira M.
Millstein and Leo E. Strine Jr. to discuss the history of “shareholder
primacy,” the source of the pressure on public companies to boost
stock prices, and the role government should play in redirecting
corporate priorities.
Meet
the Experts
Ira
M. Millstein ’49 is the founding
chair of the Millstein Center for Global Markets and Corporate
Ownership at Columbia Law School and author of The Activist
Director: Lessons From the Boardroom and the Future of the Corporation.
He is also a senior partner at the international law firm Weil,
Gotshal & Manges LLP, where he practices in the areas of government
regulation and antitrust law and counsels boards on issues of
corporate governance.
"What
did the corporate community do with the handouts it got? They bought
back stock. They did not invest in the future.”
—Ira M. Millstein ’49
Leo
E. Strine Jr. is of counsel in the
Corporate Department at Wachtell, Lipton, Rosen & Katz. Prior to
joining the firm, he was the chief justice of the Delaware Supreme
Court from 2014 to 2019, where he wrote hundreds of opinions in the
areas of corporate law, contract law, trusts and estates, criminal
law, administrative law, and constitutional law. He serves as the Ira
M. Millstein Distinguished Senior Fellow at the Millstein Center.
“If
you don’t pay everybody a living wage, you’re not doing what you
should for racial inequality.”
—Leo E. Strine Jr.
Eric Talley, Isidor and Seville
Sulzbacher Professor of Law, writes and researches at the intersection
of corporate law, governance, and finance. As a co-director of the Ira
M. Millstein Center for Global Markets and Corporate Ownership,
Talley shapes research and programs focused on the future of corporate
governance and performance. Talley is a frequent commentator in the
national media, and he speaks regularly to corporate boards and
regulators on issues pertaining to fiduciary duties, governance, and
finance. He is a graduate of the University of California, San Diego,
and earned his J.D. and Ph.D. in economics from Stanford University
“We’re going to need to come up with a way to measure various
attributes of performance under a stakeholder model. . . . It’s not
that hard to do it under a shareholder primacy approach. Look at the
stock returns and you’re going to have at least a proxy for how things
are going. Once we start folding in all these other constituencies,
we’ve got, at the very least, a measurement problem.”
—Professor Eric Talley
Rethinking Stewardship Conference - October 23, 2020, 9:30am - 3:45pm
ET | Webinar
The Millstein Center, ECGI, and Columbia Law School's Center for Law
and Economic Studies hosted a virtual conference on October 23rd
focused on "Rethinking Stewardship."
The reconcentration of share ownership into the hands of a small
number of institutional investors holding broadly diversified
portfolios has led to calls for adoption of a particular corporate
governance stance by these investors, “stewardship.” Indeed, many
jurisdictions, following the lead of the UK, have adopted stewardship
codes into their regulatory framework. “Stewardship” has generally
been taken to mean engagement with portfolio companies in view of long
term shareholder interests, though some have argued for a broader
conception of stewardship obligations. Since companies are likely to
be responsive to the convictions of their largest shareholders, one
especially important question is how particular models of
stewardship will affect the way that public companies frame and
address the ESG issues now urged upon them.
The goal of the conference
is to examine this conception of stewardship for its “fit” with
current practices of institutional investors, the “products” that
asset managers offer to beneficial owners, and the diverse patterns of
ownership and economic development throughout the world. In
short, the goal is to “Re-Think Stewardship.”
ECGI website summary:
The reconcentration of share ownership into the hands of a small
number of institutional investors holding broadly diversified
portfolios has led to calls for adoption of a particular corporate
governance stance by these investors, “stewardship.” Indeed, many
jurisdictions, following the lead of the UK, have adopted stewardship
codes into their regulatory framework. “Stewardship” has generally
been taken to mean engagement with portfolio companies in view of long
term shareholder interests, though some have argued for a broader
conception of stewardship obligations. Since companies are likely to
be responsive to the convictions of their largest shareholders, one
especially important question is
how particular models of stewardship will affect the way that public
companies frame and address the ESG issues now urged upon them.
The goal of the conference was to examine this conception of
stewardship for its “fit” with current practices of institutional
investors, the “products” that asset managers offer to beneficial
owners, and the diverse patterns of ownership and economic development
throughout the world. In short, the goal was to “Re-Think
Stewardship.”
Prof.
Lucian Bebchuk
(Harvard Law School and ECGI) argued
that a particularly important class of institutional investors, index
funds, significantly underinvest in stewardship, and are excessively
deferential to corporate managers, relative to what would best serve
the interests of the funds’ beneficial investors.
Prof.
Jeffrey Gordon (Columbia Law School and ECGI)
presented an alternative conception of stewardship, “systematic
stewardship,” appropriate for maximally diversified
investors, based on the distinction in Modern Portfolio Theory between
idiosyncratic and systematic risk. Thus institutional investors can
take up issues like climate change, which affect the level of
systematic risk, consistent with a finance rationale of trying to
achieve the best risk-adjusted return for their investors.
Prof. Dionysia
Katelouzou (King’s College London) presented the
findings from her empirical analysis of the rhetoric of stewardship by
activist hedge funds in the UK, which uses the novel method of
automated content analysis, and she contended that we can learn a lot
from the UK stewardship model especially when institutional investors
dominate the public equity market. Prof.
Dan Puchniak, (National University of
Singapore) then contended that the relative weakness of institutional
investors and dominance of controlling shareholders in
non-Anglo-American jurisdictions makes the widespread transplant of
UK-style stewardship codes a “global legal misfit” – resulting in
stewardship functioning in diverse and unanticipated ways around the
world.
Chief Justice (ret)
Leo Strine (Delaware Supreme Court) delivered a
keynote address that addressed stewardship both from the doctrinal
perspective of a judge and a view of the role of institutional
investors in promoting fair and sustainable capitalism.
The papers were discussed by panelists from globally significant asset
managers, legal scholars and other researchers, and corporate
governance practitioners.
Organisers
Ira M. Millstein Center for Global Markets and Corporate Ownership,
Columbia Law School
European Corporate Governance Institute (ECGI)
Center for Law and Economic Studies, Columbia Law School
Programme
You can download the event programme
here
Reading material can be downloaded
here
Contact
Programme queries should be directed to Jeff Gordon (jgordon@law.columbia.edu) |
