I recently participated in a festschrift for retired justice (and noted stakeholderist) Leo E. Strine, Jr., hosted by the University of Pennsylvania Journal of Law and Business. Justice Strine’s interventions in the debate over shareholder primacy have added heft, pragmatism, and public mindedness to the stakeholderist side. In my contribution to the symposium, I try to surface a hidden aspect of the debate.
I argue that shareholder primacy creates a competition with a single endpoint, the very best kind of game. The exhilarating tournament that results, separate and apart from any ethical or instrumental justification, is an underappreciated aspect of shareholder primacy’s appeal. In contrast, stakeholderism – to which I am personally more sympathetic – creates a mess.
To illustrate the point, I undertake a thought experiment: What would happen to basketball if we started deciding games based on baskets, rebounds, steals, and fouls rather than baskets alone? We have all seen games where the better team lost, suggesting that we judge the game by more than its single endpoint. And yet for many people, the endless debates over which other metrics to use and how to weight, compare, and value them would kill what they love about the game. The unappealing, perhaps indecisive result of multi-metric basketball is analogous to how many people would feel about Wall Street, markets, and the corporate world if stakeholderism triumphed. It even explains how some already feel about (E)ESG’s potential distortions of the game. If we don’t agree on a single endpoint, it’s hard to tell who won.
At bottom, I am making an argument about taste and aesthetics, and I recognize it risks sounding trivializing. That’s not my intention. Though I do think shareholder primacy is a doctrine whose day has passed, or should pass, ill-suited to contemporary business and political challenges, I recognize it is a doctrine rooted in legitimate philosophical foundations, in libertarian ideas about freedom and private property, in notions of the common good being best advanced by each person pursuing his or her own lawful self-interest, in empirical claims about what best stimulates economic growth, and in pragmatic claims that stakeholder interests are best addressed by governments, not corporations. I disagree with some of these claims but accept the good faith nature of the arguments made in their favor. Still, the aesthetic preference is there, and I think helps explain some of shareholder primacy’s enduring appeal.
The single endpoint game is also a godsend for empiricists who like to run regressions. As I say in the piece, “The most under-examined relationship in corporate law academia is the strong correlation between professors who love shareholder primacy and professors who love regression analysis.” With a single endpoint, a shared and universally agreed upon goal, we can drop the wishy-washy why questions and get into the how, much like debating the science of which players to draft in Michael Lewis’ aptly named Moneyball. Regressions help much less when we disagree about what the dependent variable should be. Thus, there is an aspect to the debate between shareholder primacy and stakeholderism that is analogous to the debate between STEM and the humanities.
This piece comes to us from Professor David H. Webber at Boston University School of Law. It is based on his recent article, “The Humanities Strike Back: (E)ESG and Justice Strine Challenge Gamer Shareholder Primacy,” available here.