Lucian Bebchuk

An enigma baffling American economists for years has been solved, with a little help from outside. In a study published in January, professors Efraim Benmelech, Nittai Bergman and Hyunseob Kim explain why over the 68 years from 1948 to 2016 the productivity of the average American employee increased 242% while wages rose only 115%...One of the most important researchers in this respect is Lucian Arye Bebchuk, a professor at Harvard Law School. Fifteen years ago he published a book with Harvard Law colleague Jesse Fried, “Pay without Performance: The Unfulfilled Promise of Executive Compensation,” explaining why the correlation between executive pay on Wall Street and performance is so weak. It’s mainly because directors are captives of management, and the market for managers isn’t really a market, it’s more like a rigged game.

Steve Wynn resigned yesterday as the C.E.O. of Wynn Resorts after allegations of sexual misconduct. Those accusations have created an important test for corporate America. In recent months, many powerful men have had to step down from senior positions as they have faced accusations of sexual harassment, but none were the head of a public company like Mr. Wynn. How would the board, shareholders, regulators, customers and unions react?...In an email exchange with me, Lucian Bebchuk, a Harvard law professor and an expert in corporate governance, asked why the board did not suspend Mr. Wynn from his position pending the investigation, or demand that he not interact with Wynn Resorts employees, a step that would have limited his ability to influence the board investigation. In fact, the board, in its statement, sounded somewhat saddened by Mr. Wynn’s departure, saying it had “reluctantly” accepted his resignation.

Twelve of the top 100 most-cited law professors of all time teach at Harvard Law School, according to the Social Science Research Network—and professors Lucian A. Bebchuk and Steven Shavell took the first two spots. An electronic service that aims to make research papers and scholarly articles easily accessible, the SSRN contains over 650,000 documents by more than 360,000 authors...“The rankings reflect the significant impact that the Harvard Law School faculty has on policy research and the legal academy,” Bebchuk wrote in an email. Law Professor Cass R. Sunstein ’75, who ranks in fourth place with 1,484 citations, said he thinks there is a significant benefit to publishing work on SSRN. “I think it’s a good thing if you have a paper that’s published and that could benefit from the comments and criticisms of others,” Sunstein said...The list also includes Law professors Louis Kaplow, Reinier H. Kraakman ’71, Mark J. Roe, Jesse M. Fried ’86, Alma Cohen, Allen Ferrell, John Coates IV, Oren Bar-Gill, and J. Mark Ramseyer.

On January 6, 2017, JANA Partners, a New York–based activist hedge fund, and the California State Teachers’ Retirement System (CalSTRS) sent a letter to Apple’s board of directors that may change the future of activist investing. Citing a substantial body of expert research, the letter stated, “We believe there is a clear need for Apple to offer parents more choices and tools to help them ensure that young consumers are using your products in an optimal manner.”...But it’s also true that many activists are not as short-term as many assume them to be. Despite their reputation as slash-and-burn financial engineers, activists are actually no strangers to seeking returns from genuine, long-term value creation. Empirical research, such as the article “The Long-Term Effects of Hedge Fund Activism,” by Lucian A. Bebchuk, Alon Brav, and Wei Jiang, shows that in contrast to prevailing beliefs, the long-term effects of activist hedge funds are positive rather than negative.

The largest proxy battle in U.S. history ended last week in a near tie, leaving Procter & Gamble without the clear support of its shareholders and activist shareholder Nelson Peltz without a board seat...The canard that activist shareholders promote short-term gains at the expense of long-term value has been utterly demolished by academic research. Harvard’s Lucian Bebchuk examined more than 2,000 activist events spanning 13 years and found that these interventions resulted in a 6% rise in stock prices on average and that targeted companies managed to hold on to these gains, above their benchmarks, over a five-year period.

Lucian Bebchuk, a professor at Harvard Law, has been at the heart of scholarly arguments over corporate governance for a long time, perhaps since 1990, the year he edited a textbook on Corporate Law and Economic Analysis. That was also the year Bebchuk, along with Marcel Kahan, authored a seminal article on “legal policy toward proxy contests.”...His more recent work includes a paper with Alon Brav, of Duke University, and Wei Jiang, of Columbia Business School, on the long-term effects of hedge fund activism. The argument of this paper is in line with Bebchuk’s long held convictions on the subject. He and his colleagues take issue with the common contention that hedge fund activism in particular represents a short time horizon, that hedge funds push for immediate pay-outs at the expense of long term strategic thinking.

President Trump has nominated Robert Jackson to be a member of the Securities and Exchange Commission for the remainder of a five-year term expiring June 5, 2019. Jackson is a professor at Columbia Law School and director of its program on corporate law and policy...In a recent research paper, “Shining Light on Corporate Political Spending,” Harvard Professor Lucian Bebchuk and Jackson outlined some of what they expect the SEC will have to address as it proceeds with rulemaking. First, it will need to determine the types of political spending covered by a rule and which public companies will be subject to it. Should smaller companies be exempted from the rules, for example, or is a scaled disclosure requirement warranted?

Activist investors who aggressively force change at companies are good for shareholders, according to fund experts, after claims from Hermes' chief executive Saker Nusseibeh that they can ruin longer term shareholder value in pursuit of short term gain...Adrian Lowcock, investment director at Architas, also welcomed investor activism. He pointed to data from the US showing that activist investors can improve longterm value. "Harvard’s Lucian Bebchuk and two colleagues did analyse 2,000 incidents of activist investing. "In the five years that followed there was marked improvement of share price performance, compared to the three years beforehand, even taking into account any rally after news broke of the activists involvement," he said.

...Among the proponents of a sunset provision for dual-class share structures are Lucian Bebchuk, a professor at Harvard Law School and director of the program on corporate governance who, with Kobi Kastiel, a research director of the program, published a detailed paper in April providing a framework for designing such structures. “The debate should focus on the permissibility of finite term dual-class structures—that is, structures that sunset after a fixed period of time (such as 10 or 15 years) unless their extension is approved by shareholders unaffiliated with the controller,” they wrote in the research paper.

This month the Dutch government debated a proposal to suspend all shareholder rights for a year in the event of an unsolicited takeover bid. This move, which we view as a “backwards step”, is the latest in a salvo of proposals to curb engaged investors. But it is also part of a broader debate about the perceived short-termism in markets, the weaknesses in corporate governance and the role of activists which policymakers, boardrooms and investors wrestle with...So who is going to solve this? Rather than passing new laws, we should welcome activist and engaged investors which can be an important catalyst for change. The best academic study on activism suggests activists are not myopic. Harvard’s Lucian Bebchuk and colleagues looked at 2000 interventions by activists which showed that five years after activist intervention, their operating performance was materially improved.

Lousy incentives for corporate stewardship is a flaw at the heart of our system of delegated asset management. What’s more, index funds, which are rapidly becoming the dominant force in investment management, have the lowest incentive to spend money to chivy the companies whose shares they hold to perform better...“Investment managers of mutual funds - both index funds and actively managed funds - have incentives to under-spend on stewardship and to side excessively with managers of corporations,” Lucian Bebchuk and Scott Hirst, both of Harvard Law School, and Alma Cohen of Tel Aviv University write in a newly revised study.

In a new study, Dr. Anderson examines why so many companies land in what he dubs “the Delaware Trap.”...Dr. Anderson’s research doesn’t take into account various factors that prior research has shown to influence incorporation decisions, such as the antitakeover statutes of a business’s state of headquarters, says Lucian Bebchuk, the James Barr professor of law, economics and finance at Harvard Law School and the director of its program on corporate governance. A study by Dr. Bebchuk and Alma Cohen, a professor of empirical practice at Harvard Law School, found that companies are more likely to incorporate in Delaware rather than their state of headquarters when they have more employees or sales, when they’re based in the Northeast or South or when their state of headquarters has fewer antitakeover statutes.

Corporate America prides itself on rewarding success and punishing failure. Yahoo CEO Marissa Mayer does not fit comfortably into that narrative...But when Yahoo’s sale to Verizon becomes official in June, with the restructured company renamed Oath, Mayer will walk away with $186 million, according to a regulatory filing released this week. That includes shares of Yahoo stock Mayer owned, stock options, and a $23 million “golden parachute” of cash, restricted stock units, and medical benefits. Mayer did relinquish $14 million while taking responsibility for the Yahoo Mail data breach, but she’ll get 13 times that amount just to no longer remain part of the company...The new compensation standards naturally served to weaken resistance to hostile takeovers, as bundles of cash took the sting out of the loss of employment and prestige. Indeed, a 2012 study from Alma Cohen, Charles Wang, and Lucian Bebchuk confirms that companies offering golden parachutes are more likely to be acquired in a merger.

The repeated censures BHP Billiton copped from aggressive New York hedge fund Elliott Management last week signalled the wave of shareholder activism that has engulfed the United States has descended to Australia with brute force....Yet the most comprehensive academic research led by Harvard University law professor and corporate governance expert Lucian Bebchuk debunks claims that activist hedge funds cause long-term underperformance and losses to other shareholders. Bebchuk and two academic colleagues reviewed all of about 2000 interventions by activist hedge funds from 1994 through 2007, finding no evidence that target companies' performance or share prices suffered in the five years after an activist fund announced a campaign. "During the third, fourth, and fifth year following the start of an activist intervention, operating performance tends to be better, not worse, than during the pre-intervention period," the academics conclude. The study found no evidence of "pump-and-dump" patterns where stock prices collapsed after activists sold out.

...DuPont is one of dozens of American companies that have abandoned a long-term approach to doing business after being the target of so-called activist investors...Activist investors have some supporters. Lucian Bebchuck, a Harvard professor who is known as one of the most devout defenders of activist shareholder campaigns, says that activist interventions target underperforming companies, and that they improve the company’s performance in the long-run. “Policymakers and institutional investors should not accept the validity of the frequent assertions that activist interventions are costly to firms and their shareholders in the long term,” he writes, in a 2015 paper, “The Long-Term Effects of Hedge Fund Activism.”