Academic

The lefties are coming, the lefties are coming!

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

Shareholder primacy--the idea that a corporation should be managed for the benefit of its shareholders-- has been ascendant in the academy for the past few decades, but it is under attack here in Long Beach. This Mid-Year Meeting arose from 2 different proposals, one a ?taking stock? and the other a corporate social accountability proposal (aka progressive or stakeholder corporate governance). Both ideas were kind of lumped together in this meeting, and today?s morning session, What are the Objectives of the Public Companies and Who Decides?, focused on the ideological question.

Kent Greenfield, our first speaker, urged young progressive corporate scholars to "come out of the closet." He made the case for stakeholder governance, arguing that corporations will be better managed when directors consider allinvestors (including employees, consumers, debtholders, community members) of the firm, not just one "small subset", the shareholders. He urged a rethinking of corporate law?s structures to reflect the interests of these other investors. As 2 of his co-panelists characterized his views, Kent argued that corporate law can change to world.

Lynn Stout opened by calling herself a corporate medical examiner and declaring ?Shareholder primacy is intellectually dead. Dead, dead, dead.? She quoted no less than Lucian Bebchuk in the Economist suggesting that aligning shareholders and managers may have encouraged sub-optimally risky behavior, with unsuspecting debtholders and taxpayers bearing the costs. She offered some alternative conceptions of the corporation: Margaret Blair?s capital lock-in model; Blair and Stout?s team production model, or a universal shareholder model. She closed with a call to arms for corporate scholars: ?Stop being enablers. Shareholder primacy is a false idea we have collectively tolerated for far too long. If present circumstances aren?t enough to explain that corporations are about more than maximizing shareholder value, nothing is. Are you part of the problem or part of the solution??

Finally our own Gordon questioned the importance of law at all. After postulating that there are evolutionists (who believe that corporate law looks as it does because of market forces) and creationists (who believe that corporate law gives managers discretion to consider moral or social norms), Gordon subscribed to isomorphism, a theory that postulates that organizations tend towards homogeneity over time. So he suggestedd that corporations tend to pursue profits not just because of market pressures, but also because of how business schools train business professionals. He described Rakesh Khurana?s From Higher Aims to Hired Hands, which traces the evolution of business schools' training of corporate managers.  B-schools moved from inculcating the values of professionalism to a logic that glorified the market as a tool to discipline managers (and also wound up making them rich).

As Gordon joked, I think we?re all waiting for the Pay-per-View grudge match between Lynn and Lucian.

Full post as published by Conglomerate on June 09, 2009 (boomark / email).