A new paper by Mark Roe and Roy Shapira makes some very valuable contributions to the debate over short-termism and, more important, to the way we understand corporate and securities law debates:
This Article explores the role of narrative power. Some ideas are better at being popular than others. The concept of pernicious stock market short-termism has three strong qualities that make its narrative power formidable: (1) connotation — the words themselves tell us what is good (reliable long-term commitment) and what is not (unreliable short-termism); (2) category confusion — disparate types of corporate misbehavior, such as environmental degradation and employee mistreatment, are mislabeled as being truly and primarily short-termism phenomena emanating from truncated corporate time horizons (when they in fact emanate from other misalignments), thereby making us view short-termism as even more rampant and pernicious than it is; and (3) confirmation — the idea is regularly repeated, because it is easy to communicate, and often boosted by powerful agenda-setters who benefit from its repetition.
The Article then highlights the real-world implications of narrative power — powerful narratives can be more certain than the underlying evidence, thereby leading policymakers astray.
Roe, Mark J. and Shapira, Roy, The Power of the Narrative in Corporate Lawmaking (August 24, 2020). Available at SSRN: https://ssrn.com/abstract=3703882 or http://dx.doi.org/10.2139/ssrn.3703882
