June 20, 2010
Millon on Enlightened Shareholder Value
Enlightened Shareholder Value, Social Responsibility, and the Redefinition of Corporate Purpose Without Law, by David Millon, Washington and Lee University - School of Law, was recently posted on SSRN. Here is the abstract:
Enlightened shareholder value (ESV) is the idea that corporations should pursue shareholder wealth with a long-run orientation that seeks sustainable growth and profits based on responsible attention to the full range of relevant stakeholder interests. This approach to management contrasts with a short-term focus on current share price even when that objective entails immediate or longer-term negative effects on nonshareholders. The combination of a long-run, sustainable conception of value coupled with acknowledgement of the importance of stakeholder considerations for achievement of that goal resonates with notions of corporate social responsibility (CSR). In this paper I consider whether market pressures might generate a version of ESV that could have the effect of shifting US transnational corporations away from narrowly focused shareholder primacy. The model I explore here is based on corporate risk management practices. Activities – such as labor and environmental policies – that reduce operating expenses in the short-term may present litigation and reputational risks because of the threat of public exposure, especially by non-governmental organizations (NGOs) and the media. The result may be significant litigation and settlements costs, as well as negative reputational effects in product, labor, and capital markets. Extra-legal pressures rather than new legal mandates could thereby redefine management responsibility and corporate purpose, and, because concerned private actors apply the pressure, public opinion about socially acceptable behavior drives management's rethinking of its role. The result may be a richer, more socially-oriented notion of the corporate objective, shaped by public opinion rather than legal intervention. Having presented this model, I then suggest that some caveats are in order. It is highly doubtful that private actors alone can generate the amount of information needed to hold transnational corporations fully accountable for their behavior. And, even when misdeeds are exposed and pressure brought to bear, it is not clear that corporations necessarily deal fully with the problems they have created. Public relations and reputational recovery may be the real objective. Finally, and most importantly, this approach to CSR is driven by bottom-line considerations. ESV is still about shareholder value after all, and this objective imposes a limit on how far corporations are likely to be willing to go. To the extent this is true, critics of transnational corporations should not expect that a commitment to shareholder value – even if enlightened – will necessarily generate the measure of socially responsible behavior that they believe to be appropriate. There may still be a role for law.
Ribstein on the Constitutionality of the Delaware Anti-Takeover Statute
Preemption as Micromanagement, by Larry E. Ribstein, University of Illinois College of Law, was recently posted on SSRN. Here is the abstract:
Guhan Subramanian, Steven Herscovici & Brian Barbetta, Is Delaware’s Antitakeover Statute Unconstitutional? Evidence from 1988-2008 , 65 BUS. LAW. 685 (2010) (“SHB”), argues that the constitutionality of the Delaware takeover statute is “up for grabs” because it denies bidders the “meaningful opportunity for success” three Delaware district court opinions require to avoid preemption by the Williams Act. However, this comment on SHB argues that, even assuming the applicable federal cases might be construed to support SHB’s conclusion, courts almost certainly would not follow this approach once they saw, with the aid of SHB’s analysis, the extent to which it requires courts to micromanage state corporate law. Moreover, from a policy standpoint, this micromanagement could have a significant negative effect on the development of state law. In short, rather than providing an argument for preempting the Delaware statute, SHB’s analysis demonstrates why it is important to avoid this result.