Counter-Narratives Project

In 2019, the Millstein Center launched its Counter-Narratives Project, which focuses on alternative theories to the conventional shareholder primacy paradigm—the theory that shareholder interests should be prioritized above the interests of all other stakeholders (including debtholders, employees, customers, suppliers, the environment, the community, and the corporation itself). While many agree that one economic purpose of a corporation is to maximize value for all of its stakeholders in the aggregate over a long-term time horizon, this view holds that shareholders’ interests must always take precedence.

The alternative theories, or “counter-narratives,” are critical of shareholder primacy and argue that such a view encourages “short-termist” actors and behaviors which have contributed to economic malaise and a maldistribution of wealth. These counter-narratives propose various methods of balancing the interests of all stakeholders and measuring the success of a corporation through means other than simple shareholder wealth maximization.

The complex task of mediating the interests of intra-firm constituencies is complicated further by the fact that the role and structure of corporate ownership is being reshaped in a manner not seen in over a century in two significant ways. First, ownership of public companies is increasingly concentrated in the hands of a specialized group of institutional investors and asset managers; in turn, an increasing share of such holdings are managed “passively” to track the performance of broad-gauged market indices. Second, an increasingly large share of innovative enterprise is being funded by private capital markets rather than public markets, and capital markets are evolving in ways that facilitate such private ownership choices. (The Millstein Center is exploring these shifts specifically through our Future of the Corporation Project.)

As ownership changes, the governance sub-institutions that serve the broad objective of maximizing value will necessarily change as well. Debates that have traditionally been addressed through an increasingly strained shareholder-based model now fall even more woefully short of the task of addressing pressing contemporary questions, such as:

  • What is the responsible way for the asset managers and the other institutional investors to exercise their rights as shareholders alongside other shareholders?
  • To what extent do their interests in diversified portfolios conflict with firm-level value maximization?
  • Have these new ownership structures exacerbated conflicts of interest with other firm-level constituencies (such as customers, creditors and employees)?  
  • What is the appropriate role of governance rights arbitrageurs, like hedge funds, or information intermediaries, like proxy advisors, in this new ecology of ownership and control? 
  • Does “governance” that may be optimal from a shareholder point of view, or even an overall wealth point of view, raise serious questions of financial inclusion and distributional fairness? If so, should these questions be addressed at the level of the corporation? 

Inaugural Conference

Corporate Governance “Counter-narratives”: On Corporate Purpose and Shareholder Value(s)

To begin exploring these counter-narratives, and to design a research agenda around them, the Millstein Center convened corporate governance experts at its March 1, 2019 conference, Corporate Governance “Counter-narratives”: On Corporate Purpose and Shareholder Value(s), to discuss and debate prominent “counter-narratives” being put forth. The “counter-narrators” included Saïd Business School Professor Colin Mayer, who recently organized a British Academy project on The Future of the Corporation and finished a book called Prosperity: Better Business Makes the Greater Good, and Chief Justice Leo Strine of the Delaware Supreme Court, who wrote a series of articles describing the reality of shareholder power and calling for better use of this power (“investing for the long-term”). SEC Commissioner Robert Jackson, a former Columbia Law Professor and former Executive Director of the Millstein Center, delivered the keynote address.

See here for additional details. Full recordings of the day’s sessions are available here.

Counter-Narratives Roundtables

Does (and Should) Delaware Law Allow “Long Term” “Stakeholder Governance”?

The Millstein Center held the first in a series of roundtables following our March 1 conference on Thursday, May 16th in partnership with Gibson Dunn. A small group of practitioners and academics convened to explore whether and to what extent Delaware law does (and should) allow for “long-term stakeholder governance” (as an alternative to the traditional shareholder primacy paradigm).

Discussions of long-termism and stakeholder governance dominate today’s corporate governance discussions. Both doctrines are held up as the solutions to the major problems facing our corporations and society at large. Debate continues, however, as to whether Delaware law and the business judgment rule allow boards of directors to make decisions on any basis outside of creating immediate shareholder value. How much freedom does the law give to boards to consider whether benefits to non-shareholder constituencies may ultimately serve as investments in downstream shareholder value? What kind of record needs to be made for a board to conclude that taking an action having a more immediate positive impact on non-shareholder constituencies creates long-term value for shareholders? Can the “shareholder” include those holding through large index funds like Vanguard or Fidelity? If this type of stakeholder decision-making is adopted in the name of maximizing long-term shareholder value, do boards have too much wiggle room to pursue “non-Revlon” M&A transactions and long-term strategies that destroy shareholder value without being held accountable.

The roundtable discussion explored all of these questions, and the insights that arose will help to shape the direction of the Millstein Center’s Counter-Narratives Project going forward.