Generational identity can influence many aspects of life, from family and work to political views to consumer and corporate behavior. In the United States today, there are four adult generations: Millennials (born 1982 – 2005), Generation X (born 1961 – 1981), Baby Boomers (born 1943 – 1960), and the Silent Generation (born 1925 – 1942). Of these four, only one – the Baby Boomers – have a dominating presence in U.S. corporate boardrooms. While the Millennial and Silent generations may be too young and too old, respectively, to have meaningful representation on corporate boards, Gen Xers (between the ages … Read more
A series of recent papers (here, here, and here, for example) have argued that maximizing shareholder value remains the proper goal of the modern corporation – and in some cases that stakeholderism is in fact harmful to stakeholders. Yet giving up on stakeholderism for the sake of stakeholders cannot be the right answer or strategy, even though there are significant challenges to steering away from the currently prevailing framework.
Although the papers differ in the details of their arguments, they share some common themes:
- Corporate managers do not and will not use discretion to benefit non-shareholder
… Read more
Fifty years ago this year, Milton Friedman, later to be a Nobel laureate in economics, famously argued that corporate governance should focus solely on shareholder value maximization, while conforming to applicable laws and regulations. That view was controversial then. After years of dominance as a governance idea, shareholder primacy is once again controversial. We argue that it is more or less still correct.
Recently, the Business Roundtable’s Statement on the Purpose of a Corporation commits the board to other stakeholders as well — including customers, employees, suppliers, and communities the company operates in. But importantly, if labor markets and product … Read more
The 2020 proxy season has been anything but routine, with the COVID-19 pandemic and the resulting state shelter-in-place orders requiring many companies to make the shift from physical to virtual annual meetings, and state corporate laws being amended to allow these virtual meetings to occur. Yet we had not seen a virtual annual meeting used in a proxy contest until April 30, 2020, when shareholders of TEGNA Inc. participated in the first election contest conducted at a virtual, rather than physical, annual meeting (all of the company’s twelve nominees were re-elected).
While the concept and technology have existed for several … Read more
Since Google (now Alphabet) issued dual-class stock at its IPO in 2004, the subject has been vigorously debated throughout the world. Unlike firms whose shares all have equal voting rights (“one-share, one-vote firms”), companies with dual-class stock allow a founder to attach enhanced voting rights to the shares that he or she holds, while issuing shares with inferior voting rights to public stockholders. All classes of such stock possess equal rights to share in the cash-flow of the corporation, thereby creating a divergence in voting and cash-flow rights in the capital structure of the company. Dual-class stock therefore enables a … Read more
For nearly 90 years, scholars have debated whether the sole purpose of the business corporation is to maximize profits. This debate has been reframed over the past 50 years and now seems to have settled on a middle ground: Corporate social responsibility (CSR) and profitability can coexist as corporate goals. The question, though, is what is the appropriate balance between the two?
In a new article, available here, I explore the role of state corporate law and federal securities law in answering that question. So far, the Securities and Exchange Commission and the courts have made only limited progress … Read more
The coronavirus (COVID-19) pandemic and the ensuing market uncertainty, as well as recently enacted legislation, have upended the compensation and benefit programs of many companies. This is the fifth memorandum in a series of client memoranda that we are preparing regarding how companies may wish to consider addressing their compensation programs in this context.
The recent market volatility has disrupted many companies’ day-to-day operations resulting in economic hardship that has caused companies to consider or implement various measures to reduce personnel costs, including pay cuts, furloughs and/or layoffs. When implementing such personnel cost-cutting measures, a number of companies have … Read more
Delaware’s success in attracting corporate formations is well known, but explanations for it vary. In a recent paper, I test these explanations as well as the reasons for Delaware’s success in attracting other types of business formation I find evidence consistent with Delaware’s making a credible commitment to creating quality corporate law, particularly through its judiciary, and this commitment extends to LLCs and other organizational forms. These results provide insight into why Delaware leads corporate formations, how that lead expands to related organizational forms, and how the future of state competition for organizational formations might unfold.
The Delaware saga of … Read more
As significant economic sectors grind to a halt around the world due to coronavirus-related lockdowns and travel restrictions, many portfolio companies will face liquidity crunches, raising concerns for private equity fund managers and their investors. Uncertainty around the duration and extent of coronavirus-related business interruptions presents a further challenge for sponsors trying to manage financing needs across their portfolio. In this hazardous environment, many sponsors are considering how to preserve financial flexibility for present and future needs, including:
- amending limitations on follow-on investments in the fund’s governing documents;
- amending recycling provisions in the fund’s governing documents to permit additional re-investment;
… Read more
Companies recognize the importance of environmental and social (E&S) factors and are giving consideration to a broader group of stakeholders to help mitigate risk. However, new regulations bring uncertainty to the future of environmental, social and governance (ESG) proposals.
The rapid spread of the coronavirus is roiling global markets and testing companies’ abilities to handle such a significant crisis. While many aspects of the current outbreak are certainly beyond issuer control, strong company ESG management plays an important role in mitigating downside risk and preserving long-term value. Conversely, poor ESG management could lead to greater negative impacts and a longer … Read more
In the last two decades, the proxy advice market has consolidated into two companies that some believe control as much as 97 percent of that market, leaving little diversity in available advice. The companies, ISS and Glass Lewis, are opaque about the bases for their recommendations, and critics accuse them of offering simplistic one-size-fits-all solutions that do not increase shareholder value.  Complicating matters, investors don’t always agree on what sort of advice they want, especially when it comes to social issues: Traditional funds and socially responsible investors (SRI) disagree about whether firms should sacrifice profit for social goals. … Read more
One of the most significant corporate governance implications of the pandemic may be its impact on the role and function of a board’s enterprise risk committee. From one perspective, the pandemic may increase that committee’s significance, potentially putting it on a par with the audit committee. From a related perspective, it may prompt the board to contemplate how much oversight it expects from that committee.
The catalyst for such change is grounded in six interconnected factors: (i) the broad-based creation of board committees focused on enterprise risk management (ERM); (ii) the nature and scope of the pandemic; (iii) second guessing … Read more
Purpose is currently one of the hottest topics in corporate governance. Commentators are demanding not only that corporations formally articulate a purpose, but that the corporate purpose embrace the interests of non-shareholder stakeholders or society more generally. In August 2019, the Business Roundtable issued a new statement on the purpose of the corporation, which replaced its former support for shareholder primacy with the proposition that corporations be run “for the benefit of all stakeholders – customers, employees, suppliers, communities, and shareholders.” Shareholders have followed up, and several introduced shareholder proposals during the 2020 proxy season asking signatories of the … Read more
Columbia Law School and Columbia Business School’s Program in the Law and Economics of Capital Markets is seeking a full-time Capital Markets Research Fellow. The appointment is anticipated to run from July 1, 2020, to June 30, 2022.
This position is for a person who expects to begin a law school teaching career at the start of the 2022-23 academic year and who desires an interim position that would help the person prepare for such a career by offering the time and facilities needed to do serious research and to develop further expertise. A candidate should have an exceptional academic … Read more
In a recent paper, we argue that outside investors are cautious about financing start-ups because such companies often lack a track record and tend to be managed in a less-than professional manner, with founders sometimes putting their own interests above the company’s. We posit that investors can alleviate their fears by identifying early stage firms that have effective corporate governance already in place.
We propose that debtholders can provide a valuable signal that a company has good governance by demanding that the company be accountable to external constituents. Debt has a magnified impact on governance at entrepreneurial firms. It … Read more
[Editor’s Note: This and the following piece offer a point/counterpoint on shareholder voting.] The SEC’s recently proposed rules on proxy advisers and shareholder proposals have made shareholder voting one of the most prominently debated corporate governance issues ever. In a new article, “The Risks and Rewards of Shareholder Voting,” I seek to shed more light on the role of shareholder voting in the governance of public companies.
Shareholders Are Notoriously Uninformed
Shareholder voting allows shareholders to participate in corporate decisions, but very few public company decisions are based on it. This is understandable, because shareholder voting suffers from a collective … Read more
Recent debates have sometimes obscured the value of shareholder voting, which the Council of Institutional Investors (CII) regards as a key element in the legitimacy and functioning of the corporate governance system in the United States and elsewhere.
A factor in confusion on this may be overstatement of supposed claims made by institutional investors generally for “shareholder democracy.” In a current paper, for example, Bernard Sharfman writes that “Shareholder voting provides a means by which shareholders can participate in corporate decision making.” However, he goes on to say, “very few public company decisions involve this decision-making mechanism.” Well, one … Read more
Using environmental, social, and governance (ESG) factors to evaluate investments in companies has in recent years become increasingly popular and controversial. One of the most notable and influential initiatives for ESG investing is the United Nations Principles for Responsible Investment (PRI), created in 2006. Asset managers signing on to PRI commit to incorporating ESG into their portfolio decision-making and also to actively monitoring their investment. By 2019, the total assets under management (AUM) of signatories worldwide have grown from just a few hundred-billion dollars to more than $90 trillion – almost three times the market capitalization of companies in the … Read more
Amid the ongoing push for standardized, comparable and decision-useful ESG disclosures, regulators in the United Kingdom and the European Union have proposed additional disclosures and benchmarks to promote sustainable economic activity. The United Kingdom’s Financial Conduct Authority (FCA) has published a consultation paper proposing that certain U.K. issuers make climate change disclosures consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) or explain why they have not. The European Commission’s Technical Expert Group on Sustainable Finance has published its final Taxonomy report for screening environmentally sustainable activities.
FCA Climate Change Disclosure Proposal
Under the FCA proposal, … Read more