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Volume 107

On the Promise of Stakeholder Governance: A Response to Bebchuk and Tallarita

William Savitt, Partner, Wachtell, Lipton, Rosen & Katz

Aneil Kovvali, Harry A. Bigelow Teaching Fellow & Lecturer in Law, University of Chicago Law School

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8 Feb 2022

Professor Bebchuk and his coauthor Roberto Tallarita have launched a broadside against recent efforts of business leaders, scholars, and lawyers to promote a corporate governance model that permits directors to take into account interests other than stockholders—a governance regime that authorizes directors to manage their corporations having in mind the interests not of stockholders alone, but also of employees and customers and society at large.11. See, e.g., RICHARD A. POSNER, A FAILURE OF CAPITALISM: THE CRISIS OF ‘08 AND THE DESCENT INTO DEPRESSION xii, 260 (2009) (revisiting position on deregulation in the wake of the financial crisis). Calling the prospect of stakeholder governance an “illusory promise,” Bebchuk and Tallarita trundle out a familiar litany of reasons why change won’t work and that the only productive path forward is the same path that has guided corporate governance over the past decades.22. See Lucian A. Bebchuk & Roberto Tallarita, The Illusory Promise of Stakeholder Governance, 106 CORNELL L. REV. 91, 176–77 (2020).

We suggest that Professors Bebchuk and Tallarita should reconsider their all-chips-in approach to the share price maximization model. We see in our daily work that business leaders have been forced to focus too heavily on share prices and quarterly earnings to the exclusion of the health of their businesses and of the broader society. We see a system that no one thinks is functioning as it should. We recognize that a more inclusive corporate governance model will not solve all these problems. But stakeholder- and society-facing corporate governance remains an urgent imperative nonetheless—if for no other reason than to reinforce the institutional legitimacy of the form of business organization that has been an engine of growth for generations and whose contribution is needed now more than ever. At all events, doing nothing, staying the familiar course—which is the Bebchuk prescription—should not be an option.

To read this Essay, please click here: On the Promise of Stakeholder Governance: A Response to Bebchuk and Tallarita.

References

References
1 See, e.g., RICHARD A. POSNER, A FAILURE OF CAPITALISM: THE CRISIS OF ‘08 AND THE DESCENT INTO DEPRESSION xii, 260 (2009) (revisiting position on deregulation in the wake of the financial crisis).
2 See Lucian A. Bebchuk & Roberto Tallarita, The Illusory Promise of Stakeholder Governance, 106 CORNELL L. REV. 91, 176–77 (2020).
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