Session I: Corporate Purpose and Governance

18 Pages Posted: 27 May 2020

See all articles by Ira Millstein

Ira Millstein

affiliation not provided to SSRN

Colin Mayer

University of Oxford - Said Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Jeffrey N. Gordon

Columbia Law School; European Corporate Governance Institute (ECGI)

Kristin Bresnahan

Columbia University - Law School

Ron Gilson

affiliation not provided to SSRN

Marty Lipton

affiliation not provided to SSRN

Date Written: Summer 2019

Abstract

In this first of five sessions of a recent Columbia Law School symposium devoted to discussion of his new book, Prosperity—and The Purpose of the Corporation, Oxford University's Colin Mayer begins by calling for a “radical reinterpretation” of the corporate mission. For all but the last 50 or so of its 2,000‐year history, the corporation has combined commercial activities with a public purpose. But since Milton Friedman's famous pronouncement in 1970 that the social goal of the corporation is to maximize its own profits, the gap between the social and private interests served by corporations appears to have grown ever wider, helping fuel the global outbreaks of populist protest and indictments of capitalism that fill today's media. In Mayer's reinterpretation, the boards of all companies will produce and publish statements of corporate purpose that envision some greater social good than maximizing shareholder value. To that end, he urges companies to make continuous investments of their financial capital and other resources in developing other forms of corporate capital—human, social, and natural—and to account for such investments in the same way they now account for their investments in physical capital. Although the author appears to prefer that such changes be mandatory, enacted through new legislation and enforced by regulators and the courts, his main efforts are directed at persuading the largest institutional owners of corporations—many of whom are already favorably predisposed to ESG—to support these corporate initiatives. Marty Lipton, after expressing enthusiasm about Mayer's proposals, suggests that mandating such changes is likely neither feasible nor desirable, but that attempts—like his own New Paradigm—to gain the acceptance and support of large shareholders is the most promising strategy. Ron Gilson, on the other hand, after voicing Lipton's skepticism about the enforceability of such statements of purpose, issues a number of warnings. One is about the political risks associated with ever more concentrated ownership of public companies in a world where populist distrust of all concentrations of wealth and power is clearly on the rise. But most troubling for the company themselves is the confusion such proposals could create for corporate boards whose responsibility is to limit two temptations facing corporate managements: short‐termism, or underinvestment in the corporate future to boost near‐term earnings (and presumably stock prices); and what Gilson calls hyperopia, or overinvestment designed to preserve growth (and management's jobs) at all costs.

Suggested Citation

Millstein, Ira and Mayer, Colin and Gordon, Jeffrey N. and Bresnahan, Kristin and Gilson, Ron and Lipton, Marty, Session I: Corporate Purpose and Governance (Summer 2019). Journal of Applied Corporate Finance, Vol. 31, Issue 3, pp. 10-25, 2019, Available at SSRN: https://ssrn.com/abstract=3604425 or http://dx.doi.org/10.1111/jacf.12356

Ira Millstein (Contact Author)

affiliation not provided to SSRN

No Address Available

Colin Mayer

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 1865 288112 (Phone)
+44 1865 288805 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Jeffrey N. Gordon

Columbia Law School ( email )

435 West 116th Street
Ctr. for Law and Economic Studies
New York, NY 10027
United States
212-854-2316 (Phone)
212-854-7946 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Kristin Bresnahan

Columbia University - Law School ( email )

435 West 116th Street
New York, NY 10025
United States

Ron Gilson

affiliation not provided to SSRN

No Address Available

Marty Lipton

affiliation not provided to SSRN

No Address Available

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