dunnettreader + shareholder_value   23

Mike Konczal, J.W. Mason, Amanda Page-Hoongrajok - Ending Short-Termism: An Investment Agenda for Growth - Roosevelt Institute - Nov 2015
The first part of this agenda will directly counter several of the specific trends known to increase short-termism. It will include ideas that are broadly applicable across industries, such as policies to address skyrocketing CEO pay, as well as more targeted solutions. A policy agenda to address corporate short-termism requires a comprehensive approach focused on building countervailing power, which is addressed in the second part of our proposal. The forces that push firms toward shorttermism will persist and find new ways to exert power, but the reforms outlined in this paper embrace wide-scale, long-term changes, such as granting workers power on boards, designed to attract long-term stakeholders. The agenda also includes practical, simple policy changes for regulators.The third part of our agenda contains solutions that point to a new role for the state. Taxes and full employment are two obvious and necessary ways of checking short-termism, and if companies are less interested in investment, government needs to fill in that gap, whether by providing high-speed cable or funding basic research. -- downloaded pdf to Note
US_economy  investment  investors  capital_markets  corporate_finance  corporate_governance  shareholder_value  shareholders  short-termism  financial_system  equity_markets  capital_formation  capital_allocation  executive_compensation  debt  buybacks  tax_policy  Labor_markets  labor_share  unions  investment-government  downloaded 
november 2015 by dunnettreader
J.W. Mason - Understanding Short-Termism: Questions and Consequences - Roosevelt Institute - Nov 2015
addresses the most common objections to the idea that short-termism is a serious problem for the US economy. These objections fall into 3 broad categories: short-termism is not real (because of an apparent increase in business investment), short-termism is not harmful (because increased payouts allocate capital more efficiently), and short-termism is not our problem (because shareholders alone should determine what to do with a corporation’s surplus funds). J.W. Mason provides answers to 12 common questions about short-termism and shareholder payouts. Questions 1 and 2 reflect the first objection, Questions 3 through 7 reflect the second objection, and questions 8 through 12 reflect the third objection. Drawing on the best available data, he concludes that none of these objections hold up under scrutiny.This report is part of the Roosevelt Institute’s comprehensive Rewriting the Rules agenda, which aims to level the playing field and grow the economy. A companion report, “Ending Short-Termism,” develops a policy agenda to respond to this challenge -- downloaded pdf to Note
US_economy  investment  investors  capital_markets  corporate_finance  corporate_governance  shareholder_value  shareholders  short-termism  financial_system  equity_markets  capital_formation  capital_allocation  executive_compensation  debt  buybacks  tax_policy  downloaded 
november 2015 by dunnettreader
Leo E. Strine - The Dangers of Denial: The Need for a Clear-Eyed Understanding of the Power and Accountability Structure Established by the Delaware Law :: SSRN Wake Forest Law Review, 2015, Forthcoming (March 20, 2015)
Supreme Court of Delaware; Harvard Law School; Penn Law School -- There is now a tendency among those who believe that corporations should be more socially responsible to pretend that corporate directors do not have an obligation under Delaware corporate law to make stockholder welfare the sole end of corporate governance within the limits of their legal discretion. These advocates of CSR contend that Delaware directors may subordinate stockholder welfare to other interests, such as those of the company’s workers or society generally. (..) But, the problem with that argument is that it is inconsistent with both judge-made common law of corporations in Delaware and the design of the Delaware General Corporation Law. More important, pretending that the nation’s leading corporate law is fundamentally different than it is runs contrary to the goal of ensuring that for-profit corporations behave lawfully, responsibly, and ethically. Lecturing others to do the right thing without acknowledging the rules that apply to their behavior and the power dynamics to which they are subject is not a responsible path to social progress. Rather, it provides an excuse to avoid tougher policy challenges, such as advocating for stronger externality regulation and encouraging institutional investors to exercise their power as stockholders responsibly. Those challenges must be confronted if we are to ensure that for-profit corporations are vehicles for responsible, sustainable, long-term wealth creation. -- PDF File: 43 -- downloaded pdf to Note
US_legal_system  US_politics  corporate_law  corporate_citizenship  corporate_governance  shareholder_value  profit_maximization  principal-agent  fiduciaries  law-and-economics  CSR  capital_as_power  duties-legal  duties-civic  duty_of_care  duty_of_loyalty  Delaware_law  downloaded 
july 2015 by dunnettreader
Lyman Johnson, David Millon - Corporate Law after Hobby Lobby :: SSRN (rev'd Jan 2015) THE BUSINESS LAWYER, Vol 70 - November 2014
Lyman Johnson, Washington and Lee University - School of Law; University of St. Thomas, St. Paul/Minneapolis, MN - School of Law -- David Millon
Washington and Lee University - School of Law -- We evaluate the U.S. Supreme Court's controversial decision in the Hobby Lobby case from the perspective of state corporate law. We argue that the Court is correct in holding that corporate law does not mandate that business corporations limit themselves to pursuit of profit. Rather, state law allows incorporation 'for any lawful purpose.' We elaborate on this important point and also explain what it means for a corporation to 'exercise religion.' In addition, we address the larger implications of the Court's analysis for an accurate understanding both of state law's essentially agnostic stance on the question of corporate purpose and also of the broad scope of managerial discretion. -- PDF File: 33 -- Keywords: Corporate purpose, Corporate personhood, Shareholder wealth maximization, Shareholder primacy, Corporate social responsibility -- downloaded pdf to Note
article  SSRN  corporate_law  corporate_citizenship  corporate_governance  shareholders  freedom_of_conscience  SCOTUS  civil_liberties  corporate_control  corporate_personhood  limited_liability  corporations-closely-held  corporations  CSR  shareholder_value  shareholder_voting  profit_maximization  law-and-economics  labor_law  employee_benefits  power-asymmetric  capital_as_power  constitutional_law  downloaded 
july 2015 by dunnettreader
David Millon - Radical Shareholder Primacy :: SSRN - Aug 2014
Washington and Lee University - School of Law -- University of St. Thomas Law Journal, Vol. 10:4 (2013) -- Washington & Lee Legal Studies Paper No. 2014-17 -- written for a symposium on the history of CSR, seeks to make sense of the surprising disagreement on the foundational legal question of corporate purpose: does the law require shareholder primacy or not? (..) disagreement is due to the unappreciated ambiguity in the shareholder primacy idea. (.. ) 2 models, the 'radical' and the 'traditional.' Radical shareholder primacy originated at Chicago in the later 1970s, (Daniel Fischel and Frank Easterbrook). [It asserts] that corporate management is the agent of the shareholders, charged with maximizing their wealth. There is no legal authority for this claim; Fischel drew it from the financial economists Michael Jensen and William Meckling, who used the agency idea in a non-legal sense. [The traditional model is] the idea that shareholders hold a privileged position within the corporation's governance structure, ... and (..) fiduciary duties as being owed to 'the corporation and its shareholders.' (..) shareholders enjoy primacy over (..) other stakeholders, although there is no maximization mandate and shareholders [have limited effective legal means] to insist that management privilege their interests. Nevertheless, this version of shareholder primacy is enshrined in the law, and, if the radical version's agency claim is laid to rest, there is no harm in acknowledging that fact. -- PDF File: 34 -- saved to briefcase
paper  SSRN  corporate_law  corporate_citizenship  corporate_governance  shareholder_value  profit_maximization  principal-agent  fiduciaries  law-and-economics  CSR  capital_as_power  status_quo_bias 
july 2015 by dunnettreader
David Millon - The Single Constituency Argument in the Economic Analysis of Business Law :: SSRN - Jan 2007
David Millon, Washington and Lee University - School of Law -- Research in Law and Economics, 2007 -- Washington & Lee Legal Studies Paper No. 2007-01 -- The essay points out an interesting parallel in law-and-economics business law scholarship. Working largely independently of each other, economically oriented scholars working in different areas have argued that the law should focus on the interests of a single constituency - shareholders in corporate law, creditors in bankruptcy law, and consumers in antitrust law. Economic analysts thus have rejected arguments advanced by progressive scholars working in each of these areas that the law should instead concern itself with the full range of constituencies affected by business activity. The law-and-economics single constituency claim rests in part on skepticism about judicial competence but the underlying objection is to the use of law for redistributive purposes. The primary value is efficiency, defined in terms of market-generated outcomes. In this essay, I question this political commitment, suggesting that it implies a strong tendency toward maintenance of the existing distribution of wealth. Even more importantly, the single constituency claim may actually have redistributive implications. In each of these areas of business law, however, it is a regressive program that favors owners of capital against those who are generally less well of, such as workers and small business owners. -- Number of Pages in PDF File: 31 -- saved to briefcase
paper  SSRN  philosophy_of_law  jurisprudence  legal_theory  political_philosophy  political_economy  law-and-economics  conflict_of_interest  principal-agent  profit_maximization  incentives  incentives-distortions  efficiency  shareholder_value  creditors  consumers  consumer_protection  competition  status_quo_bias  capital  inequality-wealth  inequality-opportunity  power-asymmetric  capital_as_power  distribution-income  distribution-wealth  corporate_governance  corporate_law  corporate_citizenship  bankruptcy  antitrust  conservative_legal_challenges 
july 2015 by dunnettreader
Margaret Blair - What must corporate directors do? Maximizing shareholder value versus creating value through team production | Brookings Institution - June 2015
Blair reviews the legal and economic theories behind the share-value maximization norm, and then lays out a theory of corporate law building on the economics of team production. Arguing that the corporate form itself helps solve the team production problem, Blair details five features which distinguish corporations from other organizational forms: 1. Legal personality -- 2. Limited liability -- 3. Transferable shares -- 4. Management under a Board of Directors -- 5. Indefinite existence -- Blair concludes that these five characteristics are all problematic from a principal-agent point of view where shareholders are principals. However, the team production theory makes sense out of these arrangements. This theory provides a rationale for the role of corporate directors consistent with the role that boards of directors historically understood themselves to play: balancing competing interests so the whole organization stays productive. -- downloaded pdf to Note
paper  corporate_governance  corporate_citizenship  business_practices  shareholder_value  hedge_funds  corporate_law  firms-theory  firms-structure  equity-corporate  equity_markets  investors  long-term_orientation  labor_share  cooperation  coordination  teams  downloaded 
june 2015 by dunnettreader
William Lazonick - Stock buybacks: From retain-and reinvest to downsize-and-distribute | Brookings Institution - April 2015
Stock buybacks are an important explanation for both the concentration of income among the richest households and the disappearance of middle-class employment opportunities in the United States over the past three decades. Over this period, corporate resource-allocation at many, if not most, major U.S. business corporations has transitioned from “retain-and-reinvest” to “downsize-and-distribute,” says William Lazonick in a new paper.
paper  US_economy  capital_markets  capitalism  investment  R&D  corporate_governance  corporate_finance  buybacks  shareholder_value  short-termism  incentives-distortions  labor_share  productivity  productivity-labor_share  inequality  wages  unemployment  downloaded 
may 2015 by dunnettreader
Steve Perlstein - Social Capital, Corporate Purpose, and the Revival of American Capitalism | Brookings Institution - January 2014
Since the Great Recession of 2008, corporate profits have more than rebounded, and yet the rest of the American economy has struggled to recover. Widening income inequality and an erosion of social capital and economic trust has deprived capitalism of its moral high ground. The public has lost confidence in big businesses--asking what purpose they serve in society writ large. Pearlstein argues we can begin to restoring the economic and moral legitimacy of American capitalism by reconsidering the purpose of corporations in American life. Despite the current dominance of the theory of “maximizing shareholder value,” this idea has little basis in history or law. Shifting to a more balanced form of capitalism will take time, but some possible steps for reform include: #-# Support investment funds dedicated to long-term horizons, including socially responsible investment funds #-# Recalibrate corporate governance law to allow for more flexible decision making #-# Rebalance capital gains taxes to encourage long-term stock holding by investors #-# Explore regulatory options for financial services, like a financial transaction tax to dampen the influence of short-term trading #-# Encourage a wider range of corporate metrics beyond quarterly earnings guidance #-# Reform shareholder voting rights to foster a sense of stewardship -- didn't download it -- Brookings also has video of Perlstein in Charlie Rose
paper  video  corporate_governance  corporate_citizenship  business_practices  corporate_finance  corporate_law  corporate_tax  financial_crisis  investors  institutional_investors  shareholder_value  capital_markets  shareholder_voting  capital_gains  financial_transaction_tax  short-termism  capitalism  capitalism-systemic_crisis 
may 2015 by dunnettreader
Bill Galston and Elaine Karmack - Overcoming corporate short-termism: Blackrock's chairman weighs in | Brookings Institution - April 2015
hen the head of the world’s largest investment fund raises fundamental questions about U.S. corporations, we should all pay attention.

In a letter earlier this week to the Fortune 500 CEOs, BlackRock Chairman Larry Fink criticized the short-term orientation that he believes shapes too much of today’s corporate behavior. “It concerns us,” he declared, that “in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies. Too many have cut capital expenditure and even increased debt to boost dividends and increase share buybacks.” And he concluded, “When done for the wrong reasons and at the expense of capital investment, [returning cash to shareholders] can jeopardize a company’s ability to generate sustainable long-term returns.”
institutional_investors  corporate_governance  corporate_citizenship  corporate_finance  CSR  short-termism  capital_markets  shareholder_value  capital_gains  investment  R&D  buybacks 
may 2015 by dunnettreader
George Serafeim - The Role of the Corporation in Society: An Alternative View and Opportunities for Future Research b(revised June 2014) :: SSRN
Harvard University - Harvard Business School *--* A long-standing ideology in business education has been that a corporation is run for the sole interest of its shareholders. I present an alternative view where increasing concentration of economic activity and power in the world’s largest corporations, the Global 1000, has opened the way for managers to consider the interests of a broader set of stakeholders rather than only shareholders. Having documented that this alternative view better fits actual corporate conduct, I discuss opportunities for future research. Specifically, I call for research on the materiality of environmental and social issues for the future financial performance of corporations, the design of incentive and control systems to guide strategy execution, corporate reporting, and the role of investors in this new paradigm. -- Pages in PDF File: 27 -- Keywords: corporate performance, corporate size, sustainability, corporate social responsibility, accounting -- downloaded pdf to Note
paper  SSRN  corporate_governance  corporate_citizenship  global_economy  global_governance  international_political_economy  shareholder_value  shareholders  CSR  disclosure  accountability  accounting  institutional_economics  institutional_investors  incentives  institutional_change  long-term_orientation  business-and-politics  business-norms  business_practices  business_influence  sustainability  MNCs  firms-theory  firms-structure  firms-organization  power  power-concentration  concentration-industry  downloaded 
april 2015 by dunnettreader
Russell J. Lundholm, George Serafeim, Gwen Yu - FIN Around the World: The Contribution of Financing Activity to Profitability - July 1, 2012 :: SSRN
Russell J. Lundholm, University of British Columbia - Sauder School of Business -- George Serafeim ,Harvard University - Harvard Business School -- Gwen Yu, Harvard Business School -- Harvard Business School Accounting & Management Unit Working Paper No. 2113557 -- We study how the availability of domestic credit influences the contribution that financing activities make to a firm’s return on equity (ROE). Using a sample of 51,866 firms from 69 countries, we find that financing activities contribute more to a firm’s ROE in countries with higher domestic credit. The higher contribution of financing activities is not driven by firms taking greater leverage in these countries, but by firms realizing a higher spread (i.e., a greater difference in operating performance and borrowing cost) when more domestic credit is available. Also, we find that firms partially substitute trade credit for financial credit, with large firms exhibiting the greatest rate of substitution. For small firms, the rate of substitution improves with the country’s available domestic credit, while large firms are insensitive to this friction. The findings suggest that both country and firm-level factors have a significant impact on how financing activities contribute to corporate performance. -- Pages in PDF File: 51 -- Keywords: Domestic Credit, Financial Statement Analysis, Return on Equity, Corporate Performance -- didn't download
paper  SSRN  corporate_finance  profit  interest_rates  financial_sector_development  credit  SMEs  financial_access  trade_finance  leverage  shareholder_value 
april 2015 by dunnettreader
Beiting Cheng, Ioannis Ioannou, George Serafeim - Corporate Social Responsibility and Access to Finance - May 19, 2011 | Strategic Management Journal, 35 (1): 1-23. :: SSRN
Beiting Cheng, Harvard University - Harvard Business School -- Ioannis Ioannou, London Business School -- George Serafeim, Harvard University - Harvard Business School **--** In this paper, we investigate whether superior performance on corporate social responsibility (CSR) strategies leads to better access to finance. We hypothesize that better access to finance can be attributed to a) reduced agency costs due to enhanced stakeholder engagement and b) reduced informational asymmetry due to increased transparency. Using a large cross-section of firms, we find that firms with better CSR performance face significantly lower capital constraints. Moreover, we provide evidence that both of the hypothesized mechanisms, better stakeholder engagement and transparency around CSR performance, are important in reducing capital constraints. The results are further confirmed using several alternative measures of capital constraints, a paired analysis based on a ratings shock to CSR performance, an instrumental variables and also a simultaneous equations approach. Finally, we show that the relation is driven by both the social and the environmental dimension of CSR. -- Pages in PDF File: 43 -- Keywords: corporate social responsibility, sustainability, capital constraints, ESG (environmental, social, governance) performance -- didn't download
article  SSRN  business_practices  business-norms  corporate_finance  corporate_governance  shareholder_value  CSR  environment  sustainability  accounting  accountability  firms-theory  firms-structure  information-asymmetric  disclosure  finance-cost 
april 2015 by dunnettreader
James Kwak - Why Capitalism Is Against Big Banks (like JP Morgan) — Bull Market — Medium - Jan 2015
Pressure now from stock analysts to break up JPM, which isn't just too-big-to-fail but too big to manage -- The debate over JPMorgan is not a debate between capitalists and socialists. It’s a debate between two types of capitalists: those who care solely about returns, and those who care about size for its own sake. In this debate, let’s hope the greedy bastards win over the megalomaniacs.
banking  banking-universal  shareholder_value  financial_regulation  financialization  finance_capital 
january 2015 by dunnettreader
Mike Konczal - The 2003 Dividend Tax Cut Did Nothing to Help the Real Economy | Next New Deal January 2015
Pre Obama proposal to reverse part of Bush tax cuts - Berkeley economist Danny Yagan’s fantastic new paper, “Capital Tax Reform and the Real Economy: The Effects of the 2003 Dividend Tax Cut” -- He uses a large amount of IRS data on corporate tax returns to compare S-corporations with C-corporations. C-corps are publicly-traded, S-corps are closely held without institutional investors. But they are largely comparable in the range Yagan looks at (between $1 million and $1 billion dollars in size), as they are competing in the same industries and locations. -- S-corps don’t pay a dividend tax and thus didn’t benefit from the big 2003 dividend tax cut, while C-corps do pay them and did benefit. So that allows Yagan to set up S-corps as a control group and see what the effect of the massive dividend tax cut on C-corporations has been. -- [Yagan finds no difference in things we want to encourage] -- The one thing that does increase for C-corps of course, is the disgorgement of cash to shareholders -- an increase in dividends and share buybacks. This shows that these corps are responding to the tax cut; they just happen to be decisions that benefit, well, probably not you. If right now you are worried that too much cash is leaving firms to benefit a handful of investors while the real economy stagnates, suddenly Clinton-era levels of dividend taxation don’t look so bad. -- downloaded pdf to Note
paper  US_economy  US_politics  21stC  taxes  corporate_finance  corporate_tax  capital  dividends  investment  shareholders  investors  GOP  shareholder_value  tax_policy  tax_reform  supply-side  trickle-down  Obama_administration  Bush_administration  distribution-income  distribution-wealth  1-percent  downloaded  EF-add 
january 2015 by dunnettreader
Mark S. Mizruchi - Berle and Means Revisited: The Governance and Power of Large U.S. Corporations | JSTOR: Theory and Society, Vol. 33, No. 5 (Oct., 2004), pp. 579-617
In The Modern Corporation and Private Property (1932), Berle and Means warned of the concentration of economic power brought on by the rise of the large corporation and the emergence of a powerful class of professional managers, insulated from the pressure not only of stockholders, but of the larger public as well. In the tradition of Thomas Jefferson, Berle and Means warned that the ascendance of management control and unchecked corporate power had potentially serious consequences for the democratic character of the United States. Social scientists who drew on Berle and Means in subsequent decades presented a far more benign interpretation of the rise of managerialism, however. For them, the separation of ownership from control actually led to an increased level of democratization in the society as a whole. Beginning in the late 1960s, sociologists and other social scientists rekindled the debate over ownership and control, culminating in a series of rigorous empirical studies on the nature of corporate power in American society. In recent years, however, sociologists have largely abandoned the topic, ceding it to finance economists, legal scholars, and corporate strategy researchers. In this article, I provide a brief history of the sociological and finance/legal/strategy debates over corporate ownership and control. I discuss some of the similarities between the two streams of thought, and I discuss the reasons that the issue was of such significance sociologically. I then argue that by neglecting this topic in recent years, sociologists have failed to contribute to an understanding of some of the key issues in contemporary business behavior. I provide brief reviews of four loosely developed current perspectives and then present an argument of my own about the changing nature of the U.S. corporate elite over the past three decades. I conclude with a call for sociologists to refocus their attention on an issue that, however fruitfully handled by scholars in other fields, cries out for sociological analysis. -- downloaded pdf to Note
article  jstor  economic_history  intellectual_history  20thC  21stC  US_economy  US_politics  political_economy  political_sociology  economic_sociology  law-and-finance  law-and-economics  capitalism  corporations  MNCs  corporate_governance  corporate_finance  capital_markets  shareholder_value  shareholders  principal-agent  management  managerialism  corporate_citizenship  corporate_control_markets  corporate_law  M&A  business-and-politics  business-norms  power  power-asymmetric  status  interest_groups  lobbying  regulation  bibliography  downloaded  EF-add 
september 2014 by dunnettreader
John Groenewegen - European Integration and Changing Corporate Governance Structures: The Case of France | JSTOR: Journal of Economic Issues, Vol. 34, No. 2 (Jun., 2000), pp. 471-479
Speculates that the economic and business cultures of major countries are distinctive enough that the expectation of global convergence on Anglo-Saxon corporate governance norms is too simplistic. It's based implicitly or explicitly on the assumption that liberalization of European capital markets will produce a European-wide market in corporate control that will impose its Anglo-Saxon norms and values via access to and pricing of international capital. He looks at ways that European Integration might reinforce local norms or converge toward a more European set of values and governance practices. Short article, didn't download
article  jstor  France  Eurozone  EU  market_integration  capital_markets  corporate_governance  shareholder_value  corporate_control_markets  busisness-ethics  business-norms  corporate_finance  corporate_citizenship 
september 2014 by dunnettreader
Richard Briffault - The Uncertain Future of the Corporate Contribution Ban (Valparaiso University Law Review, Forthcoming) July 25, 2014 :: SSRN
Columbia Law School -- Columbia Public Law Research Paper No. 14-405 -- Concern about the role of corporate money has been a longstanding theme in American politics. The first permanent federal campaign finance law – the Tillman Act of 1907 – prohibited federally-chartered corporations from making contributions in any election and prohibited all corporations from making contributions in federal elections. Subsequently amended, continued, and strengthened over a century the federal corporate contribution ban is still on the books. Twenty-one states also prohibit corporate contributions to candidates in state elections. SCOTUS sustained the federal corporate contribution ban as recently as 2003 in FEC v. Beaumont, but that decision and the corporate contribution ban today rest on shaky ground. The Roberts Court has demonstrated little respect for either legislated campaign finance restrictions or the Court’s own campaign finance precedents. -- In Citizens United and McCutcheon, the Court emphasized that campaign finance restrictions cannot be justified by the goal of reducing the political power of the wealthy. Although much of the impetus for the corporate contribution ban is public anxiety over corporate wealth and power, the shareholder-protection and anti-circumvention justifications are not triggered by concern about corporate wealth but, rather, reflect other key features of the corporate form – its artificial existence as a legal to achieve ends desired by the individuals who have created it, and the potential for those who control the corporation to exploit shareholders. These two interests work in tandem, with shareholder-protection having greater purchase for multi-shareholder publicly-held entities, and anti-circumvention more relevant for single-shareholder, closely-held or nonprofit corporations. Together, they make the case for the corporate contribution ban for reasons other than the equality-promoting goal that Citizens United and McCutcheon so vehemently rejected. -- another paper beginning to deal with inherent conflict between management and shareholder interests in political spending that puts 2 conservative trends on collision
article  SSRN  SCOTUS  constitutional_law  corporate_law  campaign_finance  elections  corporate_governance  shareholders  shareholder_value  investors  management  principal-agent  capital_markets  downloaded  EF-add 
september 2014 by dunnettreader
Leo E. Strine , Nicholas Walter - Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United (Cornell Law Review, Forthcoming) - August 1, 2014 :: SSRN
Leo E. Strine Jr. - Supreme Court of Delaware; Harvard Law School; University of Pennsylvania Law School -- Nicholas Walter, Yale University -- Harvard Law School John M. Olin Center Discussion Paper No. 788 -- One important aspect of Citizens United has been overlooked: the tension between the conservative majority’s view of for-profit corporations, and the theory of for-profit corporations embraced by conservative thinkers. This article explores the tension between these conservative schools of thought and shows that Citizens United may unwittingly strengthen the arguments of conservative corporate theory’s principal rival. Citizens United posits that stockholders of for-profit corporations can constrain corporate political spending and that corporations can legitimately engage in political spending. Conservative corporate theory is premised on the contrary assumptions that stockholders are poorly-positioned to monitor corporate managers for even their fidelity to a profit maximization principle, and that corporate managers have no legitimate ability to reconcile stockholders’ diverse political views. Because stockholders invest in for-profit corporations for financial gain, and not to express political or moral values, conservative corporate theory argues that corporate managers should focus solely on stockholder wealth maximization and non-stockholder constituencies and society should rely upon government regulation to protect against corporate overreaching. Conservative corporate theory’s recognition that corporations lack legitimacy in this area has been strengthened by market developments that Citizens United slighted: that most humans invest in the equity markets through mutual funds under section 401(k) plans, cannot exit these investments as a practical matter, and lack any rational ability to influence how corporations spend in the political process. -- Keywords: Corporate governance, political spending, Citizens United, conservative corporate theory, regulatory externalities, lobbying, profit maximization, constitutional law, election law, labor law
article  SSRN  SCOTUS  legal_history  legal_system  legal_theory  corporate_law  corporate_governance  principal-agent  management  shareholders  shareholder_value  campaign_finance  lobbying  elections  labor_law  US_constitution  constitutional_law  public_policy  interest_groups  oligarchy  rent-seeking  investors  savings  capitalism  capital_markets  downloaded  EF-add 
september 2014 by dunnettreader
Steve Denning - The Copernican Revolution In Management - Forbes - July 2013
Today’s hierarchical bureaucracies are so out-of-step with the current marketplace in which power has shifted from seller to buyer that we cannot wait for the results of definitive long-term scientific studies. As Don Tapscott said in this column last week, “The fundamental problem facing all our institutions today, including government, is not related to conjunctural economic changes. It’s not a business cycle that we are going through. It’s not a cyclical change. It’s a secular change. We are at a punctuation point in human history where the industrial age and institutions have finally come to their logical conclusion. They have essentially run out of gas.” The shareholder value theory is thus only a small part of the problem. It is part of a web of obsolete management ideas that no longer fit the 21st Century marketplace. As noted below, other once-sacred truths in management are part of the same failing paradigm. Absorbing even a couple of these fundamental shifts will take time. Absorbing them all, and acquiring the skills and attitudes necessary to implement them, will not be easy or quick. -- large number of links to recent articles, papers etc
globalization  global_economy  business  management  corporate_governance  technology  networks-business  hierarchy  shareholder_value  capital_markets  investors  financialization  Labor_markets  Innovation  capitalism  executive_compensation  1-percent  inequality  links 
august 2014 by dunnettreader
Steve Denning - HBR Blows The Lid Off C-Suite Over-Compensation - Forbes - Feb 2012
At the heart of the disaster, according to Desai, is market-based compensation—the idea that the C-Suite and financial managers should be compensated by the issuance of stock. The idea was intended to align managers’ interests with those of shareholders, but the result has been the opposite. According to Desai, the idea is “intellectually flawed” and “a foundational myth.” That’s because in implementing market-based compensation, there is a failure to distinguish results due to sheer luck (beta) from the results due to skill (alpha). Moreover those who should be monitoring compensation—pension funds, mutual funds and foundations—have not only been asleep at the wheel: they have been actively complicit in the debacle. They have “readily outsourced performance evaluation and compensation in order to avoid their obligation to make tough decisions and bring pay into line with performance.” “The combination of a foundational myth and absent monitors over the past 2 decades gave rise to harmful incentives, asymmetrical payoffs and windfall compensation levels… The result has been the creation of perhaps the largest and most pernicious bubble of all: a giant financial incentive bubble.” This in turn results in “the twin crises of American capitalism: repeated governance failures, which lead many to question the stewardship abilities of American managers and investors and rising income inequality.” Even worse, the skewed incentives and huge unearned windfalls have given rise to righteous but unwarranted belief in entitlement: the individuals “now consider themselves entitled to such rewards. Until the financial incentives bubble is popped, we can expect mis-allocations of financial, real and human capital to continue.” -- Desai is pessimistic re reforms - Denning continues with things Desai left out
capitalism  management  executive_compensation  financialization  corporate_governance  capital_markets  shareholders  shareholder_value  investors  norms-business  1-percent  inequality 
august 2014 by dunnettreader
Steve Denning - From CEO 'Takers' To CEO 'Makers': The Great Transformation - Forbes - August 2014
CEOs, through the pervasive use of share buybacks, have become takers, not makers. Instead of creating value for their organizations and society, they are extracting value. Pervasive share buybacks are an economic, social and moral disaster: they contribute to loss of shareholder value, crippled capacity to innovate, runaway executive compensation, destruction of jobs, rapidly increasing inequality and sustained economic stagnation. Yet share buybacks have become “an unhealthy corporate obsession,” even “an addiction.” The situation is one of fundamental institutional failure. CEOs are extracting value from their firms. Business schools are teaching them how to do it. Institutional shareholders are complicit in what the CEOs are doing. Regulators pursue individuals but remain indifferent to systemic failure. Rating agencies reward malfeasance. Analysts applaud short-term gains and ignore obvious long-term rot. Politicians stand by and watch. In a great betrayal, the very leaders who should be fixing the system are complicit in its continuance. Unless our society reverses course, it is heading for a cataclysm. The solution to fundamental institutional failure goes beyond passing a few regulations or changing the behavior of a few CEOs. It involves changes in behavior in a whole set of institutions and actors: -- Change won’t happen merely by pointing out that shareholder primacy is a bad idea. Bad ideas don’t die just because they are bad. They hang around until a consensus forms around another idea that is better. Fortunately, a consensus is emerging around a better idea. The idea isn’t new. It’s Peter Drucker’s foundational insight of 1973: the only valid purpose of a firm is to create a customer. It’s through providing value to customers that firms justify their existence. Profits and share price increases are the result, not the goal of a firm’s activities
business  busisness-ethics  norms-business  corporate_governance  corporate_finance  investment  investors  management  financialization  finance_capital  capital_markets  inequality  1-percent  Drucker_Peter  Friedman_Milton  shareholder_value  profit 
august 2014 by dunnettreader

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