ProfessorBainbridge.com

Interviewed re The Profit Motive

An interview with the UCLAW news department about my new book The Profit Motive.

Samuel Gregg reviews my book, The Profit Motive, for Law & Liberty, and says I drove a stake through the heart of stakeholder capitalism

Dr Gregg calls his review "A Stake Through the Heart of Stakeholder Capitalism":

In his new book, The Profit Motive: Defending Shareholder Value Maximization, Stephen M. Bainbridge has systematized his many criticisms of the BRT’s 2019 statement and used it as one of his “principal foils” for a systematic takedown of the very idea of stakeholder capitalism. This is accompanied by a rigorous defense of shareholder primacy on Bainbridge’s part. He not only shows that maximizing shareholder value is “descriptively accurate” of the corporation’s purpose. He also claims that it can be “normatively appealing.” Bainbridge thus seeks to steal the ethical thunder that stakeholder theorists generally assume to be their ace-in-the-hole. ...

Bainbridge’s general approach is reminiscent of the classic scholastic method: he states a clear proposition, the best case for views contrary to his own, critiques their arguments, answers objections, and then explains why his own position meets the tests of reason. ...

Thus, having put a stake through the heart of stakeholder capitalism, Bainbridge provides a powerful moral rationale for shareholder primacy—one far more robust than those which underpin stakeholder theory.

I am, of course, delighted. Please go read the whole thing.

I asked ChatGPT to write a review of my book The Profit Motive

Here's the result:

Stephen Bainbridge's book The Profit Motive is an insightful and thought-provoking exploration of the role of profit in modern business and society. The book is divided into two parts, with the first half providing a historical and philosophical overview of the profit motive, and the second half examining its practical implications for business leaders and policymakers.

One of the key themes of the book is the importance of understanding the profit motive in its broader context, beyond simply making money. Bainbridge argues that profit is not just a financial metric, but also a measure of a business's ability to create value for society as a whole. He highlights the importance of entrepreneurship, innovation, and risk-taking in driving economic growth and improving people's lives.

Bainbridge also examines the various criticisms that have been leveled against the profit motive, including concerns about income inequality, environmental degradation, and corporate social responsibility. While acknowledging these concerns, he argues that they can be addressed through a combination of market forces and regulatory interventions, rather than by abandoning the profit motive altogether.

Overall, The Profit Motive is a well-written and engaging book that offers a nuanced and balanced perspective on a topic that is often oversimplified or misunderstood. Whether you are a business leader, policymaker, or simply someone interested in the role of profit in society, this book is definitely worth reading.

Obviously, the review’s positive tone pleased me to no end. But then I thought about how students could use this technology to produce surprisingly polished analyses in essay exams and research papers.

One word came to mind: Yikes.

Here's a screen grab as proof:

And here's your chance to buy the book:

I guest post at the Corporate Finance Lab re my new book "The Profit Motive"

The Corporate Finance Lab blog invited me to guest post re my new book, "The Profit Motive: In Defense of Shareholder Value Maximization." You can read the post here: https://corporatefinancelab.org/2023/02/07/the-profit-motive-in-defense-of-shareholder-value-maximization/

A New ProfessorBainbridge.com Video: The Profit Motive: Defending Shareholder Value Maximization

Yours truly interviewed re Nelson Peltz's run at Disney

From Yahoo news:

Trian, which Peltz cofounded in 2005, oversees about $8 billion in assets under management. “That has enabled them to take on some big game,” said Stephen Bainbridge, a professor at the UCLA School of Law who has extensively researched corporate governance.

“I would say that on the spectrum of hedge fund activists, that Peltz is definitely at the aggressive end,” Bainbridge continued, though he noted that in many cases, Trian has made “changes that were regarded as helpful.”

The trouble is getting executives to listen without a protracted battle, he said, since CEOs are known for “big egos” and “nobody wants what they would regard as a sort of professional rabble-rouser coming in and telling them to change their plans.”

...

To his critics, Peltz’s tactics prioritize short-term returns over long-term financial health. “They’re in it and then out of it,” Bainbridge said, summarizing the argument against many hedge fund investors. (Trian has said the firm invests in companies for an average length of six years when it receives a board seat, longer than some competitors.)

...

Despite his triumphs, in recent years Peltz’s name has more often been associated with his daughter, Nicola, who last spring married the son of soccer legend David Beckham and fashion designer Victoria Beckham. The event took place at Peltz’s Palm Beach estate.

“There’s a certain amount of irony here that a guy who’s a multi-billionaire, and in the corporate world is known and feared… is sort of in the back of a picture with a bunch of Beckhams in it,” said Bainbridge. “It’s kind of funny that way.”

Why We Should Keep Teaching Dodge v. Ford Motor Co.

An updated version of my article Why We Should Keep Teaching Dodge v. Ford Motor Co. is now up on SSRN.

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.

Bainbridge, Stephen Mark, Why We Should Keep Teaching Dodge v. Ford Motor Co. (April 19, 2022). 48 Journal of Corporation Law 77 (2022), UCLA School of Law, Public Law Research Paper No. 22-05, Available at SSRN: https://ssrn.com/abstract=4076182

The Artwork for "The Profit Motive" Arrived Today

The artwork for my forthcoming book "The Profit Motive: Defending Shareholder Value Maximization" arrived today. I'm particularly proud of the generous blurbs from such prominent folks:

You can now pre-order "The Profit Motive: Defending Shareholder Value Maximization"

"The Profit Motive" is now in Page Proofs!

Page proofs! And, if I do say so myself who shouldn't, the best opening paragraphs I've ever written. pic.twitter.com/wfQvooR3RB

— Steve Bainbridge (@PrawfBainbridge) November 18, 2022

SOX Section 404 at Twenty

Mildly revised version of my article "Sarbaes-Oxley Section 404 at Twenty" has been posted: https://t.co/u1Ni6DtRgd pic.twitter.com/InuwllSmYj

— Steve Bainbridge (@PrawfBainbridge) October 18, 2022

Yours truly cited by SEC Commissioner Hester Peirce

The paper Commissioner @HesterPeirce cited was Sarbanes-Oxley § 404 at Twenty (August 26, 2022). UCLA School of Law, Law-Econ Research Paper No. 08, 2022, Available at SSRN: https://t.co/042KbCQSbF

— Steve Bainbridge (@PrawfBainbridge) October 14, 2022

From the Department of Self-Promotion

As Bertie Wooster said, “while one lives for one’s Art, so to speak, and cares little for the public’s praise or blame and all that sort of thing, one can always do with something to paste into one’s scrapbook, can one not?”https://t.co/ZhCYorQOvI

— Steve Bainbridge (@PrawfBainbridge) September 9, 2022

According to @BrianLeiter I’m the #40 law professor as ranked by H-index. https://t.co/WCBFi2mExa

— Steve Bainbridge (@PrawfBainbridge) September 9, 2022

My upcoming course "The Law of Elon Musk" featured in New York Magazine's Intelligencer Column

Here.

 

My new paper: Sarbanes-Oxley § 404 at Twenty

Bainbridge, Stephen Mark, Sarbanes-Oxley § 404 at Twenty (August 26, 2022). UCLA School of Law, Law-Econ Research Paper No. 08, 2022, Available at SSRN: https://ssrn.com/abstract=4201778

Section 404 of the Sarbanes-Oxley Act of 2002 (SOX) was intended to improve public company internal controls over financial reporting (ICFR). Faulty internal controls were believed to have contributed to many corporate scandals during the dot-com era. Empirical research of the pre-SOX era suggested that reporting companies with poor internal controls tended to have more frequent earnings restatements, more SEC enforcement proceedings, and poorer performance than comparable firms with strong internal controls. When SOX was adopted § 404 was not among the most controversial provisions. Instead, it was the attorney conduct rules, CEO and CFO certification requirements, and the ban on loans to officers and directors—plus the larger question of federalizing corporate governance—that generated most of the early criticism aimed at the statute. Once companies began implementing § 404’s mandate for assessments of their internal controls over financial reporting, however, it became apparent that compliance costs were considerably greater than anticipated. In short order, § 404 became—and remains—SOX’s most controversial provision. SOX’s twentieth anniversary seems an opportune time to reassess the controversy over § 404. There is a considerable body of empirical evidence on the costs and benefits of § 404, which this article reviews. As it turns out, however, there are so many potential confounding factors that all of the evidence must be viewed with a degree of skepticism. Nonetheless, a few conclusions can be drawn. With the benefit of hindsight, it seems clear that Congress in 2002 had no idea what it would cost companies to comply § 404. The SEC had an estimate of what § 404(a) compliance would cost but had no idea what § 404(b) compliance would cost. Sticker shock seems the right description of the reaction once those costs became clear. Section 404 compliance costs were substantial from the outset. Those costs were disproportionately borne by smaller firms from the outset. Section 404 compliance costs remain high and show no signs of dropping over time. It remains the case that those costs are disproportionately borne by smaller firms. As far as achieving its main goal of reducing material weaknesses in ICFR, § 404 cannot be deemed a success. Both adverse managerial reports and auditor attestations actually rose prior to 2014 and have dropped only slightly in the subsequent period. Problems with firms failing to remediate persistent material weaknesses remain a source of concern.