Harvard Law School Professor Lucian Bebchuk is an eminent scholar of corporate governance with whom I often disagree. He, for example, favors SEC rules requiring public companies to disclose their political spending. See Lucian Bebchuk & Robert Jackson, Shining the Light On Corporate Political Spending, 101 Georgetown L. J. 923-967 (2013). I do not. Id. (citing my opposition to SEC rulemaking). I was therefore pleased to see that I agree with many of his conclusions about stakeholder capitalism.
Stakeholder capitalism is the idea that the shareholder primacy paradigm for corporate governance should be supplanted by a commitment to serving other constituencies, such as customers, employees, and society in general. This notion is not new, several states have had so-called "other constituencies" statutes on the books for many years, but Delaware (the home of most publicly traded corporations) does not. (Interestingly, the original purpose of these statutes was to insulate management from hostile takeovers.) More recently, states, including California and Delaware, have enacted laws allowing for the incorporation of businesses with explicit social or public benefit purposes.
In a forthcoming article, Professor Bebchuk and Roberto Tallarita examine the current enthusiasm for so-called stakeholder capitalism. After taking a hard look at stakeholderism and its proponents' claims, the authors conclude that stakeholderism "would impose substantial costs on stakeholders and society, as well as on shareholders". Some may be surprised that they believe that corporate leaders and their advisors support stakeholderism at least in part because they seek to obtain "insulation from hedge fund activists and institutional investors". Based on their analysis, they counsel "If stakeholder interests are to be taken seriously, stakeholderism should be rejected." The entire article is available here.
The Business Law Section of the California Lawyers Association recently approved formation of a working group to study stakeholder capitalism. Bebchuk & Tallarita's article should be required reading for every member of the working group.
