Captialism The Great Debate – Stakeholder v Shareholder

published on July 13, 2020

Hello i'm renee adams professor of finance at syed business school at the university of oxford welcome to our 25th live webinar in the series leadership in extraordinary times the series was created by the school as

Part of our response to the current pandemic for those of you who want to follow along later recordings of the series are available on our website and the school youtube

Channel let me tell you how the event will be structured we'll have some opening statements and some debate with time for audience questions at the end

So please use the chat function on whatever platform you are watching and indicate who the question is for the question in front of us is should corporate leaders manage their companies for all their

Stakeholders or just their shareholders in the tradition of an economic of an oxford debate i would like you to indicate your answer to this question now and at the end of the debate so

There'll be two polls on this question for this first round voting will close in three minutes to put some contacts on the debate i think it is important to note that there really is nothing to talk

About when the interests of shareholders and stakeholders are aligned so this debate really only makes sense if there is attention in a 2011 paper my co-authors amir

Lila sagiv and i set out to investigate whether directors themselves perceive attention between shareholderism as we defined it and stakeholderism we found that director stances towards shareholders

And stakeholders can be mapped onto an ideological continuum with shareholders on one side and stakeholders on the other so what this evidence suggests that indeed

There is a need to fight it out so i am delighted today to have two experts who have written extensively on this subject to represent the two polar extremes of this ideological continuum and to make their case for the answers

To the question our protagonists are professor lucien bebchook of the harvard law school and professor colin meyer cbe of syed business school lucian is professor of law economics and

Finance and the director of the corporate governance program at harvard colin is a peter moore's professor of management studies at syed business school and academic lead of the british academy future

Of the corporation program lucian you have the floor there are mutes oh yeah yeah sorry uh delighted to be here uh i'll be skip speaking for the proposition

That corporate leaders should not serve many masters and therefore i should not serve the interests of all stakeholders let me see us um the presentation is based on joint

Work that i did with roberto talarita the illusory promise of stakeholder governance anyone who is interested uh the work will be published later this year but is already available online

Now the it's important to start by distinguishing between two versions of stakeholderism one version is instrumental stakeholderism and that means that corporate leaders

Should pay close attention to stakeholder interest but they should do it only because doing so would in the end serve long term shorter value and this version as you can readily tell

Is not really conceptually different from shareholder value maximization the other version that is practically more meaningful and that's the version that a professor mayor will defend

Is one that treats stakeholder welfare as an independent end in itself and that calls upon corporate leaders in the numerous situations in which there are trade-offs to aggregate and balance the interest of

All stakeholders now the view that i am defending is one that i should uh stress takes very seriously the major externalities that modern companies impose on

Stakeholders but it argues that reliance on corporate leaders is a counterproductive approach for addressing such concerns for two main reasons first that the benefits of

Stakeholderism are illusory stakeholderism should not be expected to produce maternal benefits for stakeholders and secondly not only that it won't produce material benefits

But the stakeholderism has real perils embracing it would impose substantial cost on shareholders society at large and the very stakeholders that it intends to support

Now let me speak briefly about uh some rhetoric that has been around stakeholderism last summer the business roundtable issued

A statement on the purpose of the corporation which was heralded as a historic milestone they stated that we share a fundamental commitment to all our stakeholders

And commit to deliver value to all of them now we put forward in our paper detailed evidence pieced together from various documents and corporate documents and statements

That indicate that the statement represented a public relations move rather than a commitment to bring about meaningful changes but putting aside this uh statement

Which i mentioned only because it did receive a great deal of attention and turning to the merits of stakeholderism more generally can it serve as a tool that would materially improve

The welfare of stakeholders as professor mayor believes our answer is no in the in our written work we show and provide evidence that first of all there is a robust

Link and significant alignment between the interests of corporate leaders and those of shareholders this is not the perfect alliance uh uh it's not a perfect alignment and this is a problem that corporate

Governance scholars have wrestled with but there is a significant alignment and a robust link by contrast no such link whatsoever exists between the interests of corporate leaders

If the endorse of stakeholders and therefore it's a matter of economic logic the logic of incentives directors and ceos have incentives not to protect stakeholders beyond what

Would be called for by shareholder value maximization we also set out to test this no incentive conclusion by looking at past behavior of corporate leaders and trying

To see what it teaches us and we take the view that a good laboratory is provided by acquisitions of companies in the many states in the united states that adopted constituency statutes

Are anti-takeover statutes that allow corporate leaders to take into account the interest of stakeholders when they consider an acquisition offer they were

Adopted due to concerns that the interests of their stakeholders were sacrificed in the face of deal transactions so we reviewed the terms and deal documents of a hand-collected

Data sets of over 100 acquisitions of public companies by private equity firms during the last two decades and we look at private equity acquisitions because as many of you know uh because they move assets into the hands

Of people who have powerful incentives to maximize financial returns it is reasonable to expect that they might have adverse effect on stakeholders

What did we find for whom did corporate leaders bargain using the power that the statutes gave them we found that corporate leaders use their bargaining power to obtain

Substantial benefits for shareholders in terms of larger premiums as well as for corporate leaders themselves both executives and directors however we found that corporate leaders made very little use of their bargaining

Power to benefit stakeholders there is no evidence whatsoever of any protections for customers and suppliers and even though there are some provisions

Regarding employees or local communities the analysis indicates that those protections are generally cosmetic and or unenforceable so for the last two decades uh even

Though constituency status empowered corporate leaders to deliver benefits to stakeholders they failed to do so and we wonder why should we rely on such discretion

To produce stakeholder benefits in the future furthermore that lack of benefits came with a significant cost because although these anti-tegra statutes failed to

Benefit stakeholders they did benefit corporate managers by increasing managerial insulation and slack this is all under the existing incentives

And note that stakeholders commonly advocate relying on corporate leaders without uh proposing major changes in the existing corporate structures but in our work we nonetheless go beyond

Those arguments and try to see whether uh if we combine stakeholderism with some major corporate reforms we could produce incentives for to protect

Stakeholders beyond what's useful for shareholders and we showed that attempting to do so attempting to provide other code incentives to serve all stakeholders by changing either how

Corporate leaders are compensated and or how they're elected would be both quite challenging and quite costly i would be interested in hearing whether

Uh professor mayer has a way of providing incentives to serve all stakeholders that would be effective and not highly costly now might stakeholderism not help

But also perhaps not hurt our answer is no acceptance of stakeholderism would not only fail to deliver benefits but would in fact be counterproductive two periods i want to put on the table for you first

Stakeholderism would increase the insulation of corporate leaders from shareholders and would make corporate leaders less accountable to anyone illusory stakeholder benefits have for

Long been used to justify reforms that insulate an entrenched manager such as anti-takeover statutes and by making corporate leaders more insulated

And less accountable to anyone stakeholderism would benefit corporate leaders themselves but no one else it would increase managerial slack and underperformance to the detriments of shareholders

Society and stakeholders themselves secondly stakeholderism presents a clear and present danger of chilling stakeholders in protecting reforms

It would do so by raising force expectations and hopes that corporate leaders on their own would protect stakeholders and this those fourth hopes might chill or delay meaningful

Governmental reforms to protect stakeholders in various ways we discuss in our work and therefore those who care about stakeholders should be

Clear-eyed about the illusory promise of stakeholderism warn against placing hopes on it and focus on meaningful governmental reforms to illustrate a recent joint statement by numerous academics

Sounds the alarm says uh there is less than a decade left in which to address the catastrophic threat of climate change and therefore to all those who who have a shared sense of urgency now

Is the time to reform corporate governance we strongly disagree not because we are not worried about climate change quite the country

For those with this shared sense of urgency it would be a serious mistake to devote attention to corporate governance reforms rather than say carbon tax

Expecting the discretion of corporate leaders to contribute materially to saving the planet would undermine rather than advance meaningful efforts to do so

To conclude those who take stakeholder interest seriously as we do should focus on real stakeholder protecting governmental reforms and should reject the illusory

And costly promise of stakeholderism despite the appealing closing of stakeholderism stakeholderism really is just a new form of a managerialism a philosophy that so to empower managers and insulate them and which

Many corporate governance have come around to reject so we should do uh with stakeholderism and to you colleen thank you very much lucian why does business exist why is it

Created and what is it there to do in other words what's its purpose lucian has a simple answer to make money but that's not a purpose

It's a product of a purpose it's not a purpose the purpose of business is to do things that benefit us as customers communities and the natural world it's there to help us to solve problems to solve

Problems profitably lucian has just rehearsed an age-old repetition of a discussion about what companies do can't do are incentivized to do and forced to do it is how lucian sees the world but it

Isn't how the world is should be could be or will be it therefore tells us nothing about the subject of this debate should corporate leaders manage their firms for

All their stakeholders or just their shareholders shouldn't should they not do they start from the question of what we want them to do and work from there

We want them to solve our problems to help get us out of pandemics to avoid us getting into crisis to help protect not destroy our natural world we want them to do it in a way that is

Commercially viable profitable and sustainable so of course we want them to manage their firms for all their stakeholders including their shareholders it's not either all it's both and

Stakeholders include shareholders and of course companies recognize the importance of stakeholders to them companies are not just responsible to the stakeholders who depend on them they are also dependent on them

Lucian is simply confused between cause and effect making money comes from solving problems solving problems does not follow automatically from making money should companies be managed for that all

Their stakeholders for example their employees as well as their shareholders yes does this benefit their shareholders as well as their employees yes satisfied employees cause superior

Financial performance should companies be managed only for their shareholders no financially driven banks caused immense harm for their customers and societies in the

Financial crisis as simon sinek describes in his brilliant ted talk all the largest and most successful companies microsoft apple google facebook alibaba johnson johnson

Have one thing in common they all know not just what they do and how they do it but above all why they do it that purpose they are some of the most purposeful companies in the world take microsoft's

Purpose to empower every person and every organization on the planet to achieve more or google's to organize the world's information and make it universally accept

Accessible and useful or alibaba's make it easy to do business anywhere in the world clear precise meaningful and inspiring challenges have they delivered yes have they

Profited yes have they profited at the expense of others from producing problems as well as solutions most definitely yes and that's precisely the problem with

Lucian's preoccupation with profits and the proposition that companies should just be managed for their shareholders do we really want companies to maximize their share price

So long as they do not break the law or regulation or suffer reputational damage as a consequence even if this results in them polluting the environment

Paying their employees less than living wages producing addictive products or avoiding paying taxes of course not and that comes to the second part

Of a purpose or company not profiting from producing problems do markets solve this no the most successful companies in the world are often so large they don't have competitors

As in several of the cases i've just mentioned even if they did that would not solve the problem that is a second confusion of cause and effect

On the part of lucium good markets do not make good firms a competitive market of thieves makes better thieves instead good firms make good markets

Think of financial markets some of the most competitive markets in the world and some of the worst performing firms during and after the financial crisis and regulation on its own

Cannot solve this either regulation of banks was intensified after the financial crisis but bank regulators quickly realized that banks were

Not changing their behavior because they had not changed their purposes cultures or values to make money a third confusion of cause and effect lucian's

View is just impose regulation and everything follows in fact impose regulation and avoidance follows good regulation does not make good

Firms britain has one of the most sophisticated regulations of utilities of any country in the world and the worst performing utilities leakages and pollution in water

Crowded late and expensive trains lack of investment in infrastructure it excels in just two respects returns to shareholders and egregious executive remuneration good regulation does not make good firms

Good firms make good regulation but the consequence of lucian's only shareholders mata thesis is much more serious than this no one else matters in his world that is precisely the mindset that has

Got us the point where the environment is posing threats to our existence our health and natural world where large swathes of society feel that they are treated as machines

And where they know full well that as soon as they can be replaced by machines they will be and where discrimination exclusion exploitation and deception are acceptable so long as they make

Money for their shareholders black lives poor lives female lives children's lives matter as customers societies employees suppliers investors and shareholders

In and to companies but the greatest irony of all is that lucian's view is bad for shareholders because believe it or not shareholders are humans too

They too are concerned about their survival health employment and environment they too care about their children and grandchildren in other words they are of course

Stakeholders as well as shareholders interested not just in their wealth but their welfare and well-being and those of their families and communities

Leaders of companies therefore face precisely the impossible trade-offs that lucian seeks to avoid by pursuing only shareholders matter policies purpose solves the problem for shareholders as well

As stakeholders because it says what a company is not there to do as well as what it is there to do what and whose problems it is not solving as well as solving

Purpose limits the task it specifies in whose interest is the company wrong what its values are and precisely the hard tradeoffs it has to make in this pandemic crisis

Between its employees and customers and between its shareholders and societies it simplifies and makes precise what the only shareholders matter idea leaves vague and confused

And it measures the performance of the firm against what matters for shareholders as well as stakeholders not only is the notion of purpose as solving the challenges we face

Commercially and profitably inspiring and motivational for all of us as stakeholders and shareholders it's also the way of improving our lives as shareholders as well as citizens of the world

Lucian and i will now pose each other three questions and i will begin by asking lucian the first question lucian so long as it was neither illegal nor socially

Unacceptable for them to do so it would seem that according to your thesis directors of companies once had a duty to minimize costs and maximize profits by employing and trading slave labor

Is that correct lucian and is it desirable no that's that's not correct and in fact as you know although you would like to change the system the system our system has run

In many countries under the principle of shared value maximization and companies uh have not been doing uh the abhorrent things of the example that you mentioned but going into it

More broadly um i think that the distinction you draw between your view and my view is uh uh unwarranted you draw the distinction between

What we care about and what our values are you care about solving the problems of the world and myself as well as a very long tradition in economics

Cares only about the shareholders and money making this is very far from my view as i stressed a number of times throughout the presentation and numerous times in our work

We care deeply about stakeholder interest and in fact we support a stakeholder favoring reforms in many areas labor inequality climate change that are probably on the more uh

Aggressive drastic uh progressive side of the spectrum but even though we share your are we all like you want to make the world better off so i think we should really put aside this distinction

The question is what's the best way of getting there in our view which is part of a very long tradition it goes back to adam smith as you know our view is that it might be better to make the managers accountable and

Focus on one clear objective but face them with very substantial constraints and regulations that would make them internalize externalities

So we believe in this we don't think regulation is a panacea but we think that it's far dominates the alternative which you support because in your view the way we would solve the world

Is to have the corporate leaders of each company be where the head of the social planner or the social czar take into account all the social interests of their

Choices and try to balance them and do all of this magic without having any good and effective incentives to do so we think it's not going to work uh uh certainly much less than what we

Uh favor and secondly it's also going to propose it's going to produce real damage because corporate leaders might be might end up using this discretion to serve their own private benefits

Rather than those of the stakeholders okay now um first of all let me just point out i'm sure you're aware of this fact that modern slavery persists in child labour to this day

Despite having been deemed to be illegal and that regulation as i was describing in many areas has not provided anything like the panacea that you believe that it should do

Furthermore your challenge in terms of what it is that we should do to incentivize companies to perform better i've set out as being very straightforward

And that is that there is a basic underlying priority that should guide the incentive system for companies they should not profit from producing problems for people or planet

We should measure profits in such a way that companies have to provide costs for remedying the extent to which they cause damage and the costs associated with cleaning that up now if one comes to the example that i

Was actually talking about in which i'm afraid you failed to completely answer because as you're well aware actually companies operated in exactly the way that i was

Just describing uh in terms of pursuing profits before there were laws that prevented them from doing so uh or that there was a social prohibition by employing

Slave labor now had we gone back three four hundred years and had what i set out as a very basic presumption as to how we should be measuring profit slave labor and the trading of slave

Labor would never have arisen simply because it would not have been permissible or would not have been profitable to have done it unfortunately because you are in a

Position where you're saying we should not try and predict how governments are going to react we are going to make repeated mistakes of the same sort

For example in relation to the way in which we allow artificial intelligence to take over our lives in the future of course we have to be predictive of what happens

Of course we have to expect companies to anticipate as far as we possibly they possibly can what are the likely negative consequences of what they're going to do as well as the profitable outcomes and

They have to make provisions for that in the way in which they would want to make provisions against any risks that they themselves incur i'll come and i'll ask you a second question

You don't seem to be asking me questions do you think that companies should have produced ventilators and retained their employees during the current crisis

Even if this caused them to cut their dividends and reduce their share prices and long-term financial performance as a consequence the answer is uh yes and indeed

Companies have been racing both to produce ventilators and to invest in vaccines and those are companies which help you to go over the documents with you those are

Companies that provide their executives and the directors incentives that are largely stock-based now um let me respond to your broader challenge

And then i'll ask a question so i'm glad that you are here suggesting a practical way of implementing incentives that would get directors to

Do the right thing in a world in which stakeholderism is happening and this by the way and that's important to note is not something that most of the advocates of stakeholderism have done so

We have looked at the executive pay arrangements of uh all the business roundtable signatories they don't have such arrangements we have looked at many other things so

Uh we have looked at many writings but uh uh so i commend you for proposing this and let's look at this you are saying why don't we when company pollutes we measure this and tie the compensation

Of the managers to the cost of pollution okay this assumes that we can measure this cost well which i'm happy to assume but in this case i would strongly prefer government regulation that imposes this cost on the company and lets it run

And the reason is that when we studied the possibility of compensation be based on esg we found that it would be very problematic because you'll ask who is going to design

The compensation scheme that is measuring uh compensation enticed to pollution we all know how big a problem we had with executive compensation even when we were focusing just on shoulder value and people were

Concerned that managers might use compensation to line their own pockets so okay okay let me just explain to you sure how how one would do this and firstly let me just come back to your question

The question i posed you if you if they cut their dividends and reduce their long-term financial performance and share prices they are violating the notion that they are uh

Pursuing shareholder interest it's not it's not a question of uh trading off the present for the future they are simply making their shareholders worse off now according to you

They shouldn't be doing they shouldn't be engaging in that type of trade-off but let me explain how companies are actually dealing with this problem and i'll give you an illustration

Of a company that is doing it in a very straightforward way microsoft has indicated it is going to go carbon zero in relation to its um phase one and phase two uh co2 emissions

Uh and it's going to go uh carbon zero in relation to the phase three now what that is saying is that they have a clear set of metrics by which they are going to

Measure whether or not they are achieving a reduction in co2 they set out the expenditures that are required to do that and then they measure their performance against it and to the extent to the

Extent that they're failing to do it then they have to uh provide for the cost of ensuring that they uh rectify that damage and that is all that's required it doesn't

Require you to make valuations of harm it's a matter of saying what are the metrics that indicate whether or not harm or good is being done and then to provide for the cost of

Cleaning that that up but but let me just ask you let me maybe just respond to this and also ask you my question so uh putting aside microsoft uh in our paper we actually looked

At a significant number of companies and looked at what they had in their compensation arrangements and we have since then expanded this a great deal and what we find is that by and large uh

When metrics are used they are used in a cosmetic and limited fashion and more importantly they are used in a way that outsiders cannot scrutinize them effectively to see whether this is done to enable managers

To make more money if you come to when you come to microsoft you have to ask your question because we're running out of time oh okay so so my question is the following it

Seems to me that the evidence that we presented and i are briefly summarized with respect to private equity transactions

Speaks directly to the potential effects of what you would like to see so basically 20 years ago in the us people had the problem that employees and others had

Adverse effects like firing as a result of prostate takeovers they adopted legal rules not just conventions legal rules that explicitly gave managers the power to take interest into account

With the motivation with the intention of protecting stakeholders after 20 years we see that this was used for the private benefits of managers these entrenched managers but it didn't produce

Any benefits for stakeholders doesn't that give you at least some pose nothing before advocating doing it more journey not in the slightest because you as you

Well know the us is a system in which there is essentially uh one of the most pro shareholder systems in the world the fact that one observes companies who

Are coming in to states that offer potential protection to stakeholders and still are able to uh deliver outcomes that are basically beneficial

Uh for the uh for the acquirers is bound to yield outcomes that are detrimental to the stakeholders what only what makes sense is to think about how do you actually

Change the system in such a way that companies as a whole are putting that purpose first now you actually have a law in the us that could be a model for doing that based on the public

Benefit corporation if one in essence had that operating then those provisions that you're talking about in the constituency states would of course be effective because the

Acquiring companies would have to demonstrate how their purpose is consistent with not doing damage to that almost no public companies have opted into this lawsuit and they

Are now beginning to do exactly that in terms of the known being the first major uh publicly listed company to do that we are going to see as companies realize the importance of

The uh the issues that the pandemic crisis are raising not just for the environment but now also for society we're going to see more and more companies moving in this

Direction and that is precisely what we want to see i think we at this stage are supposed to hand back to renee uh please to uh answer us ask us some questions from the audience

Yes um but first i'm going to jump into the fray um so we gave the audience a chance to give their views and it seems only fair that we also give

Directors a chance to express their views um so what i have on this slide is some evidence that i referred to earlier where we asked directors um what their view is on the shareholder

Versus stakeholder debate and uh what this slide shows is a histogram of uh their views and um so if you're over here at six you're pro shareholder and over here

At one your pro stakeholder all right so these are directors from listed companies around the world um and what you clearly see here is uh most directors actually fall right smack in the middle

Right the mass is in the middle and um let me just show you um some comparison here uh so that was the full sample it was 23 countries and what we have here is the us

The very shareholder oriented us and you see a very similar picture right so a lot of the mass here is in the middle and here we have the uk so we have um some of the tail is

Missing but also i should say that the sample is relatively small okay so i i put up this data and um now i would like to ask both of you a question uh so i'll start with you colin so if we

Look at this data are we just talking you know you saw that most of the mass was in the middle so directors are not uniformly on the pro shareholder side so are we just

Talking here about a few bad apples no we're not talking about a few bad apples we're talking about exactly results that i would have expected to have observed from this in

Fact your slide shows that the uk if anything is more pro-shareholder than than the us it's uh it's indicative of the fact that there is a wide disparity so what so

What you you are picking up is that there are some companies that are highly stakeholder oriented and there are some companies that are highly child oriented now the problem that arises is

That the influence of that pro-shareholder group in a system in which there is a free market for corporate control or hedge fund activism undermines the ability of those

Who are uh pro stakeholder to be able or pro purposes i put it to be able to actually implement it and that means that in effect and this is exactly the result that lucian is basically finding

Uh in his study that even in constituency states if you have that notion of an active market underpinning what companies can do that drives companies even though they

Want to be pro stakeholder in a direction where they basically have to be pro shelled um so lucian what would you say about this so you know the fact we basically we observe doesn't seem to

Matter so much right but um that doesn't necessarily mean that directors are not a pro stakeholder yes it's a financial with due respect to directors a very important set of people as a financial

Economist what matters most to me and is most telling is not what directors say in surveys but what they do okay and what they do uh uh in our paper we

Have a lot we what they do is that when they make decisions when to sell the company they actually show when it really matters that they use all their power to benefit

Shareholders and executives and themselves and don't use this power to benefit uh stakeholders they agreed to have the company go along with the business roundtable

Statement but we show through various corporate documents that they are are basically operating under the assumption that this is really a public relations move rather than commitment to meaningful change now why

Would corporate leaders when asked say things like that same reason why the business roundtable made this statement it sounds very good it uh gets you a point uh uh sometimes with

With public opinion um and it provides you with some degree of insulation when shareholders when institutional investors are complaining about underperformance you might say

Look part of it is we because we are focusing on long-term effect of of stakeholders so one there are some self uh there are some reasons to doubt what we learn from what

Corporate leaders say and there are a lot of reasons to look at what they do and what they do speaks very loudly that we cannot expect them to protect stakeholders with power that is given to them

For this purpose okay so um yeah so we didn't just ask people what they think right so we were a bit cleverer than that um so um you know i i highly recommend reading the paper because um i think

It's a bit more a bit more informative than it than it may be then it may appear but um now let's turn over to um to the audience and i'm going to first ask a question to colin could

Colin please explain how he would explain to shareholders that he was not interested in maximizing profits uh colin is extremely interested in the returns to shareholders uh by pointing out

That it's a primary purpose of companies to deliver profitable solutions and so that uh what will what we're looking to do here is exactly what i was setting out

Recognizing that this is a quest and this is what the debate is all about who should companies be managing their companies for should they be managing them just for their

Showers my answer is no they should be managing them for their stakeholders and their shareholders why because if they promote the interest of their stakeholders

That actually delivers a better outcome for the company and in many cases not necessarily in all cases that it gives rise to greater returns to shareholders and if it's the case that for example

One can deliver tremendous social benefits in this pandemic through shifting production towards social goods even if it reduces shelder value in the long term and i'm

Afraid lucian never answered this question because according to the shelter primacy you simply cannot do that what i'm saying is if you lose a small amount even in the long term from shelters

There may be vast compensating benefits for stakeholders which justify even that type of action but for in general what we're talking about here are things that are profitable for shareholders as well

Okay so um i'm going to ask you a question lucian but before i do that can i remind everyone that um there will be another round of polling uh so we can see whether people's opinions changed

Um and now lucian let me ask you this question which is uh government regulation is known to be uh in quotation marks responsive to big business in the end it's what big companies want

How does shareholderism overcome this what overcomes this is not a shareholderism but an effort on the people who deeply care about stakeholders for example about climate change or

Inequality or labor requires mobilization to get something that would work sure there are some uphill struggles but our point is that there is really no other way

That relying on corporate leaders to produce this outcome which is actually in your question you were mentioning that it's exactly corporate leaders who lobby against such regulations so

Relying on corporate leaders to take care of the externalities is not going to work so we have to be clear clear-eyed about it and it's not going to be easy

And i want to stress it's not a panacea but it's the only game in town and we have to be clear-eyed about it and i want to mention just one quick thing about what what colin just said and there is a

Big disagreement between us on this last point uh colin generally says that he doesn't support the instrumental stakeholderism when you do it just

To benefit long-term shoulder value but what he was saying just now was saying look practically speaking most of the time doing what's good for the share

For the stakeholders is also good for the shareholders and here we have a basic fundamental disagreement about the state of the world and here i would assert and we don't

Have time to debate this that most economies would agree with me the trade-offs are ubiquitous we have trade-offs right and left sure there are some things that are good for stakeholders

And for shareholders treating your customers well and we can expect this to happen anyway under your view under my view but there are numerous instances when there are real trade-offs and

Therefore your side of the debate should not invoke the assumption that most of the time what's good for stakeholders is good for business

All right so um we're running out of time so i will ask two more questions and hopefully we can keep the answers short so you each get a chance so to collin should managers of large

Companies or even only public companies be elected by the general public this arguably would internalize the interests of all stakeholders into managers consideration no it does not require

All directors to be elected by all the public uh it can still involve directors being as they are elected now by their shareholders but under the understanding that the

The duties of their directors are to promote their corporate purposes uh and to come back to lucian's point about the ubiquitous trade-offs it is precisely where those trade-offs are difficult that one

Needs to have a clear notion of a corporate purpose that determines how uh directors should be making those trade-offs and precisely the problem that arises in the context of the

Shareholder primacy view and has set out quite explicitly in their paper is that they don't want directors to have to make those sort of trade-off decisions

Directors are making them all the time and one of the primary issues that lucian has failed to address is that even within the shareholder class there is a wide divergence of view as to

What they want companies to do and directors have to make a trade-off in terms of long-term versus short-term in terms of promoting impact investing because some of their investors want to

Have their well-being rather than their wealth maximized and those sorts of trade-offs within the shareholder model simply do not have any guidance to them within what i'm

Talking about as purposeful companies there's a clear notion of measuring your performance against that purpose setting out the metrics demonstrating

How you're delivering on them and thereby having a mechanism for ensuring that you are reflecting the trade-offs in the minds of shareholders as well as in the minds of stakeholders

It is the only practical approach what lucian is describing is entirely impractical and the notion that it's simply reg it's simply sharehold stakeholder uh notions that are giving rise to the

Distortions with government that is simply undermined by what one observes in the us uh and the extensive lobbying that goes on of government policy just look at financial regulation

And how that was diminished in the face of regular of lobbying from by banks uh it it it is simply a a mistake to think that purpose of this sort creates problems it is a way of solving

Exactly the sorts of problems that leucine is pointing to so lucian um maybe quick your choice quick response to colin to end up another sure quick response

On the voting issue i think there is a tension in colleen's view because if he believes that all stakeholders should be taken into effect and the board should respond to all of them then the natural

Step is to give voting power to all of them because as long as only their shoulders have voting power there is a fundamental tension you have only one group that votes on the directors and set

Their compensation and you expect the directors to balance interest on the lobbying i agree it's a big problem but that's just more of a reason

Not to expect that the corporate leaders that kevin that colleen is concerned about their lobbying will use their discretion in order to protect the interest that regulation

Is a suppose or is trying to address if they do not uh if they try to oppose ferociously regulation they presumably would also not use their discretion to a benefit stakeholders thanks a lot

All right thank you um to both of you and um we now have a new poll um with results that will be showing up soon please don't forget to vote um

So uh all their shareholders if i see this so blue bar is clearly higher now could we see the previous results um all right so stakeholders win

Um now it's not entirely clear okay actually um i looks like we have more uh shareholder orientation um than at the beginning if i'm reading this correctly

So uh lucian um you're our guest and it's um you know you it seems that you've persuaded some people to your side during the course of this debate um so i guess with that um

I'd like to thank everyone who participated in putting this event together of course most importantly thank our two participants who debated and tried to fight out this issue

I think uh it's probably clear we have not resolved uh this question uh there were many questions uh that the audience submitted um that excellent questions that we couldn't get to

Uh so it seems clear that there will be ongoing debates um for a while so thanks very much everyone for attending participating and thinking most importantly for thinking

About these very important issues thanks a lot thank you thank you very much renee thank you lucian thanks a lot uh colleen and renee and thanks for everyone for being here you

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