Leo Strine, Eric Talley, Mark Roe, Jill Fisch & Bruce Kogut, Session IV: The Law, Corporate Governance, and Economic Justice, 31 J. Applied Corp. Fin. 44 (2019) (Columbia Law School Symposium on Corporate Governance “Counter‐Narratives”: On Corporate Purpose and Shareholder Value(s)).
Abstract: The Chief Justice of the Delaware Supreme Court begins by invoking the New Deal, and expressing admiration for the way its goals and some of its social programs have been put into practice by Northern European social democracies. Most important are their protections for workers and the unemployed—protections the Judge finds deplorably absent in U.S. law and corporate labor practices. Nevertheless, when contemplating how corporate boards in the U.S. might respond to the growing demand for U.S. public companies to address social problems like the environment and economic inequality, the Delaware judge falls back on the prescription of Adolph Berle, who, though one of the framers of the New Deal, insisted that companies “stick to their knitting” by putting shareholders first as the only way of ensuring the accountability of corporate managements and boards. Harvard Law's Mark Roe responds with a defense of corporate America against the charge of corporate short‐termism by noting that, although U.S. capital expenditures have declined in the past 15–20 years, corporate investment in R&D and other intangible assets have both grown sharply. Corporate distributions in the form of dividends and stock buybacks are rising, but so have the net borrowings of the companies making the distributions, leaving the cash balances of U.S. companies also near record levels. And the remarkably high valuations of successful high tech companies are themselves forceful rebuttals of the idea that pressure from the stock market for current earnings is a serious deterrent to investment and innovation. The University of Pennsylvania's Jill Fisch follows Roe's dismissal of the short‐termism argument with even more forceful questioning of whether corporate America in fact has a major governance problem. U.S. companies have been taking voluntary measures to address environmental problems—in some cases even in the face of federal deregulatory initiatives—and many have raised their workers’ wages, without any challenges (and often with encouragement) from their shareholders. And echoing Justice Strine's concerns, Fisch also ends up questioning the premise that companies can be asked to define a single social purpose (other than maximizing shareholder value) that would be appropriate for, and end up satisfying, all their different stakeholders. Columbia Business School's Bruce Kogut closes with the suggestion that our greatest problems today may be coming not from the shortsightedness and other failings of corporations and corporate law, but from “deep distrust of the competence of the state.” Kogut's main prescription is that to take advantage of the enormous potential gains from effective arm's‐length collaboration between business and the public sector, governments at all levels should find ways to strike “Coasian bargains” with the private sector that makes the best possible uses of the core competencies and resources of each.