I gave a talk today to the American Bar Association's Business Law Section's Mergers and Acquisitions Committee. The talk was mostly about my new book, but I promised to post links to all of my recent work in this area:
My forthcoming book (February 9 but available for preorder now): The Profit Motive: Defending Shareholder Value Maximization.
What responsibility, if any, does a corporation have to society? How should corporations balance environmental, social, and governance factors? The Profit Motive addresses these questions of corporate purpose using historical, legal, and economic perspectives. Stephen M. Bainbridge enters the debate around corporate social responsibility to mount an unabashed defense of shareholder capitalism and maximizing shareholder value. The book offers context for the current questions about corporate purpose, and provides a reference going forward. Direct and corrective, The Profit Motive argues that shareholder value maximization is not only required by law, but what the law ought to require.
Why We Should Keep Teaching Dodge v. Ford Motor Co., 48 Journal of Corporation Law 77 (2022)
What is the purpose of the public business corporation? Is it to maximize shareholder value? Or is it to simultaneously enhance the welfare of shareholders, stakeholders, and the larger society? These are perennial questions, of course, but they also have been much in the news in recent years. Whether tagged as stakeholder capitalism, stakeholder theory, corporate social responsibility, or ESG (i.e., environmental, social, and governance), much attention is being paid.
The time has thus seemed propitious to many legal scholars to revisit the law of corporate purpose. Many of these scholars have been influenced by the late Lynn Stout’s work on the topic. Ten years ago, Stout published her book, The Shareholder Value Myth, which built on her earlier article, Why We Should Stop Teaching Dodge v. Ford. As the latter title suggests, Stout’s principal foil was the Dodge case.
Stout’s focus on Dodge was well chosen, as the case is included in almost all law school corporation law and business association casebooks and has been widely discussed in the academic literature. The influence of Stout’s critique of Dodge work was confirmed by a March 31, 2022, search of the Westlaw Law Reviews and Journals database, which identified 98 articles published in the last three years that cited her book and 43 during the same period that cited her article.
Given the renewed attention to the corporate purpose question and the continuing influence of Stout’s work on that debate, it seems appropriate to revisit her arguments to determine whether she was correct that law professors should stop teaching Dodge. I conclude that law professors ought to keep teaching Dodge. It was good law when handed down in 1919 and remains good law today.
Don’t Compound the Caremark Mistake by Extending It to ESG Oversight, 77 The Business Lawyer 651 (2022)
The question addressed in this article is whether the board’s Caremark obligations should be extended to encompass oversight of corporate performance with environmental, social, and governance (ESG) issues. In other words, should the board face potential liability not just for failing to ensure that the company has adequate reporting and monitoring systems in place to ensure compliance with ESG-related legal requirements, but also to monitor ESG risks in areas where corporate compliance would be voluntary or aspirational. The article concludes that Caremark should not be so extended.
Christianity and Corporate Purpose, in Christianity and Market Regulation: An Introduction 101 (Cambridge University Press; Daniel A. Crane & Samuel Gregg eds. 2021)
This essay compares and contrasts the law governing corporate purpose with the pertinent Christian teachings from Scripture and Tradition, with a special focus on Catholic social thought.
Making Sense of the Business Roundtable’s Reversal on Corporate Purpose, 46 Journal of Corporation Law 285 (2021)
In August 2019, the Business Roundtable (BRT) issued a statement on the purpose of the corporation in which it reversed a longstanding position. Since 1978, the BRT has periodically issued statements on Principles of Corporate Governance, which purport to summarize law and best practice in this area. Since 1997, all versions of those statements had embraced the view that corporations exist primarily to serve their shareholders. In contrast, the 2019 version contains a much broader conception of corporate purpose, which posits that corporations should “commit to deliver[ing] value to all of” the corporation’s stakeholders.
Obviously, the BRT cannot unilaterally change the law. As this article explains, the law of corporate purpose remains that directors have an obligation to put shareholder interests ahead of those of other stakeholders and maximize profits for those shareholders.
What people do matters more than what they say. To date, the evidence is most BRT members remain committed to shareholder value maximization, despite their recent rhetoric to the contrary. This should not be surprising. The incentive structure faced by directors and managers still skews in favor of shareholders.
Why then did the BRT shift position? This article suggests two possibilities. First, the members may be engaged in puffery intended to attract certain stakeholders for the long-term benefit of the shareholders. Specifically, they may be looking to lower the company’s cost of labor by responding to perceived shifts in labor, lower the cost of capital by attracting certain investors, and increase sales by responding to perceived shifts in consumer market sentiment. They may also be trying to fend off regulation by progressive politicians. Second, some BRT members may crave a return to the days of imperial CEOS.
Corporate Purpose in A Populist Era, 98 Nebraska Law Review 543 (2020)
In the wake of the 2016 U.S. presidential election and similar devel- opments in parts of Europe, commentators widely acknowledged the rise of populist movements on both the right and left of the political spectrum that were deeply suspicious of big business. This development potentially has important implications for the law and practice of corporate purpose.
Left-of-center corporate social responsibility campaigners have long advocated the use of “boycotts, shareholder activism, negative publicity, and so on” to pressure corporate managers to act in ways those campaigners deem socially responsible. Right-of-center populists could use the same tactics to induce corporate directors to make decisions they favor. The question thus is whether they are likely to do so based on their historical track record.
Assuming for the sake of argument that right-of-center populists be- gin focusing on corporate purpose, the question arises whether modify- ing the shareholder wealth maximization norms to give managers more discretion to take the social effects of their decisions into account would lead to outcomes populists consider desirable. Populists histori- cally have viewed corporate directors and managers as elites opposed to the best interests of the people. Today, right-of-center populists find themselves increasingly at odds with an emergent class of social justice warrior CEOs, whose views on a variety of critical issues are increas- ingly closer to those of blue state elites than those of red state populists.