Tackling Shareholder Short-Termism and Managerial Myopia

61 Pages Posted: 7 Apr 2011 Last revised: 8 Feb 2013

See all articles by Emeka Duruigbo

Emeka Duruigbo

Texas Southern University - Thurgood Marshall School of Law

Date Written: April 4, 2011


Market observers and legal commentators link the collapse, a few years ago, of giant energy company Enron and some fabled financial firms to the short-termism phenomenon – investors acting like traders and influencing corporate managers to make policy decisions based on quarterly earnings statements. Opponents of short-termism note that the future well-being of many investors, corporations, overall economy and society at large is in jeopardy if investors with a near-term horizon, especially hedge funds, enjoy a dominant role in corporate governance. Skeptics dismiss the concerns, insisting that the notion of pervasive short-term investing is a figment of opponents’ imagination. Moreover, short-term investors provide needed liquidity and stability to the markets. This paper evaluates three reform proposals to curb shareholder short-termism, namely a securities transaction tax, capital gains tax reform and loyalty dividends. It acknowledges their strengths but notes their weaknesses which caution against creating a situation in which the remedy becomes worse than the malady. Instead, it argues that greater emphasis should be placed on the management side of the equation. The appraisal suggests that effectively addressing short-termism requires an all-hands-on-deck approach that not only includes tackling managerial myopia but also empowers managers to resist shareholder pressure toward an excessive and destructive focus on the near-term. In practical terms, this will involve instituting a corporate norm of long-term shareholder primacy. The norm presents a framework that dissuades managers from their independent short-termism and protects them from shareholder pressure to engage in short-termist behavior.

Keywords: Shareholder Primacy, Short-Termism, Managerial Myopia, Corporate Governance, Loyalty Dividends, Capital Gains, Securities Transaction Tax

Suggested Citation

Duruigbo, Emeka, Tackling Shareholder Short-Termism and Managerial Myopia (April 4, 2011). Available at SSRN: https://ssrn.com/abstract=1802840 or http://dx.doi.org/10.2139/ssrn.1802840

Emeka Duruigbo (Contact Author)

Texas Southern University - Thurgood Marshall School of Law ( email )

3100 Cleburne Street
Houston, TX 77004
United States

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