For Whom Corporate Leaders Bargain: Presentation Slides

Abstract

The presentation slides in this document provide an overview of our study, For Whom Corporate Leaders Bargain, which is forthcoming in the Southern California Law Review. At the center of a fundamental and heated debate about corporate purpose, an increasingly influential view (which we refer to as “stakeholderism”) advocates giving corporate leaders increased discretionary power to serve all stakeholders and not just shareholders. Supporters of stakeholderism argue that its application would address growing concerns about the impact of corporations on society and the environment. By contrast, critics of stakeholderism argue that corporate leaders should not be expected to use expanded discretion to benefit stakeholders. This Article presents novel empirical evidence that can contribute to resolving this key debate. Following a stakeholderist framework, the constituency statutes adopted by more than thirty U.S. states authorize corporate leaders to give weight to stakeholder interests when considering a sale of their company. Using hand-collected data, we study how corporate leaders in fact used their stakeholderist discretion in transactions governed by such statutes in the past two decades. In particular, we provide a detailed analysis of more than 100 transactions governed by such statutes in which corporate leaders negotiated a company sale to a private equity buyer. We find that corporate leaders used their discretion to obtain gains for shareholders, executives, and directors. However, despite the clear risks that private equity acquisitions often posed for stakeholders, corporate leaders generally did not use their discretion to negotiate for any stake-holder protections. Indeed, in the small minority of cases in which some stakeholder protections were formally included, they were generally cosmetic and practically inconsequential. Beyond the implications of our findings for the long-standing debate on constituency statutes, these findings also provide important lessons for the ongoing debate on stakeholderism. At a minimum, stakeholderists should identify the causes for constituency statutes’ failure to deliver stakeholder benefits in the analyzed transactions and examine whether embracing stakeholderism would not similarly fail to produce such bene-fits. After examining alternative explanations for our findings, we conclude that the most plausible explanation lies in corporate leaders’ incen-tives not to protect stakeholders beyond what would serve shareholder value. Our findings thus indicate that stakeholderism cannot be relied on to produce its purported benefits for stakeholders. Stakeholderism there-fore should not be supported as an effective way for protecting stakeholder interests, even by those who deeply care about stakeholders. The document is based on presentations slides we prepared for various presentations of our study, including at Columbia Law School, Harvard Law School, the University of Chicago, and the 2021 Global Corporate Governance Colloquium. Our study For Whom Corporate Leaders Bargain is part of a larger research project of the Harvard Law School Corporate Governance on stakeholder capitalism. Another part of this research project is The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita.