Abstract


 
 
 In an important recent contribution to the short-termism debate, Professors Michal Barzuza and Eric Talley challenge what they call an “emerging consensus in certain legal, business, and scholarly communities . . . that corporate managers are pressured unduly into chasing short-term gains at the expense of superior long-term prospects.” See Michal Barzuza & Eric Talley, Long-Term Bias, 2020 COLUM. BUS. L. REV. 104. Instead, Barzuza and Talley contend that “corporate managers often fall prey to long-term bias—excessive optimism about their own long-term projects.”
 This article is an invited comment on Barzuza and Talley’s article. Subject to various quibbles raised herein, I broadly concur with Barzuza and Talley’s argument that corporate directors and officers can be biased towards long-term projects and, accordingly, may reject short-term projects offering higher returns.
 But what law reforms follow logically from their conclusion, if any? With respect to judicial review, I want to differ with Barzuza and Talley on three points. First, I believe Barzuza and Talley overstate the risk of judicial intervention. Second, they fail adequately to distinguish between directors and managers, even though that distinction is central to the application of Delaware law. Third, I believe their analysis implies that judges should retain the deference to director decisionmaking inherent in doctrines such as the business judgment rule and intermediate review.
 
 
 
 With respect to encouraging shareholder activism, I argue that the responsibility for policing managerial hyperopia (or myopia, for that matter) should be assigned to the board of directors, not the shareholders. Heterogenous shareholders lack the proper incentives and knowledge to properly police management.
 
 
 
 
 

Highlights

  • Elite opinion holds as a virtual article of faith that corporations should be managed for the long term

  • Famed corporate lawyer Martin Lipton argued that “in order to create short-term action in the stock, you do things that are contrary to long-term investment.”[6]

  • In a more recent development, President Trump asked the SEC to consider abandoning the longstanding requirement of quarterly financial disclosure so as to relieve corporate managers of pressures to emphasize the short term, a position shared by a number of prominent lawyers and business leaders.[11]

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Summary

INTRODUCTION

Elite opinion holds as a virtual article of faith that corporations should be managed for the long term. Gains.[10] In a more recent development, President Trump asked the SEC to consider abandoning the longstanding requirement of quarterly financial disclosure so as to relieve corporate managers of pressures to emphasize the short term, a position shared by a number of prominent lawyers and business leaders.[11] Into this debate come Professors Michal Barzuza and Eric Talley with their article, Long-Term Bias, which argues that corporate managers can be biased in favor of the long term, and that a focus on the long term may be just as detrimental as the more widely condemned short-term bias.[12]. Are judges or shareholders better equipped than directors to distinguish among unbiased managers—both those suffering from shortterm bias and those suffering from long-term bias? And are judges or shareholders better equipped than directors to intervene when managers suffer from either short-term or long-term bias? My answer to both is a definitive “no.”

QUIBBLES
So Many Biases
Overconfidence or Misperception?
The Case Studies
THE JUDICIAL ROLE
Is it Really Just a “Matter of Time”?
The Judges Are Not Business Experts
ACTIVIST SHAREHOLDERS TO THE RESCUE?
Findings
CONCLUSION
Full Text
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