The Win-Win That Wasn’t: Managing to the Stock Market’s Negative Effects on American Workers and Other Corporate Stakeholders

Abstract

Easterbrook and Fischel’s work suggests that society as a whole would achieve the best results if corporate leaders focused only on raising stock prices, leaving other institutions to tend to all other interests. But the idea that making societally important corporations govern to the whims of the stock market would be a win-win for investors, other corporate stakeholders, and our society as a whole has proven incorrect. At bottom, Easterbrook and Fischel failed to contend with the real world realities that allow investors to profit by shifting distributions and political power to themselves, while shifting costs and risks to workers, creditors, consumers, and taxpayers. In this Article, prepared for a Symposium celebrating Easterbrook and Fischel’s work, we evaluate Easterbrook and Fischel’s predictions and find that their failures are attributable to flaws in their assumptions about corporate influence over the political process and the extent to which stockholders could not succeed unless the corporation respected other stakeholders and society.

Keywords: Corporations, corporate law, governance, & decisionmaking, profit & shareholder value maximization, short-termism, cost & risk shifting, political process & power, flawed assumptions, stakeholders, labor, societal interests, externalities, sustainable wealth creation, Frank Easterbrook, Dan Fischel

JEL Classification: A13, K20, K22, K31, L21, M14, M21, Z13