A kerfuffle has broken out on the East Coast of the US, between Lucian Bebchuk, an esteemed professor at Harvard University, and Martin Lipton, partner at New York law firm Wachell, Lipton, Rosen & Katz. Specifically, Lipton has mounted a strong attack on an article published by Bebchuk (a critical examination of 'stakeholder governance'). That Lipton has objected should not be surprising. After all, he is a lawyer with vested interests and he has a long record of promoting stakeholder governance.
This is what Bebchuk asserted:
Stakeholderism, we demonstrate, would not benefit stakeholders as its supporters claim. To examine the expected consequences of stakeholderism, we analyze the incentives of corporate leaders, empirically investigate whether they have in the past used their discretion to protect stakeholders, and examine whether recent commitments to adopt stakeholderism can be expected to bring about a meaningful change. Our analysis concludes that acceptance of stakeholderism should not be expected to make stakeholders better off.
Lipton's counter to these assertions was strident:
We reject Professor Bebchuk's economic, empirical and conceptual arguments. They are ill-conceived and ignore real-world challenges companies and directors face today.
This debate exposes something awkward—that when partisans announce their views people react, especially if they denounce other perspectives. This tactic may well pique interest and sell column inches, but it rarely results in viable outcomes that can be sustained over time.
My own research, and experience both as an advisor and serving company director, suggests that either-or argumentation, a characteristic of determinism, is deeply flawed. To pursue profit as an exclusive goal inevitably results in selfishness and inequity. Similarly, the pursuit of priorities espoused by ESG proponents introduces a another, and not insignificant, risk—of exposing the companies and the economy more generally to an 'Icarus moment'.
Larry Fink, Chairman and CEO of Blackrock, summed things up well in his January 2019 letter:
Profits are in no way inconsistent with purpose—in fact, profits and purpose are inextricably linked. Profits are essential if a company is to effectively serve all of its stakeholders over time—not only shareholders, but also employees, customers, and communities. Similarly, when a company truly understands andexpresses its purpose, it functions with the focus and strategic discipline that drive long-term profitability. Purpose unifies management, employees, and communities. It drives ethical behaviour and creates an essential check on actions that go against the best interests of stakeholders.
Fink's position highlights that a balanced perspective is probably 'best'. But how might it be achieved? The pathway may be hiding in plain sight. If the board is to fulfil its duty to ensure value is created over time, it needs to look well beyond selfish interests and motivations. This means considering the wider context within which the company operates, creating a viable strategy, determining appropriate 'performance' measures and only then governing accordingly.
Bebchuk was brave to call out the messianic assertions of the stakeholder capitalism camp. Perhaps Lipton might take stock, and meet with Bebchuk—the purpose being to explore the nuances of each other's views, in search of a more balanced understanding of the purpose of companies and role of the board.
Thoughts on corporate governance, strategy and boardcraft; our place in the world; and other topics that catch my attention.