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Should corporate managers pursue shareholder value maximization? At an AEI event on Wednesday, Cornell Law School's Lynn Stout and Yale Law School's Jonathan Macey debated the role of shareholder value in corporate governance. Stout contended that corporations should be able to pursue anything lawful, and if those corporations choose to prioritize shareholder value maximization, they should be able to stipulate that in their corporate charters. She furthermore argued that neither history nor state law supports the primacy of shareholder value, and claimed that key pieces of evidence -- such as shrinking corporation lifespans and diminishing corporation populations -- suggest that shareholder value thinking is ultimately destructive.
Macey disagreed with Stout, arguing that shareholder value maximization is -- and should be -- the default position of public corporations. Macey argued that shareholders are the residual claimants of excess earnings, and that they do have exclusive voting rights under law. He moreover suggested that shareholder wealth maximization should not be blamed for poor corporate decisions. Using benefit corporations as an example, Macey concluded that corporations may choose to expressly opt out of the default, but that abolishing stakeholder value thinking would limit the availability of capital that allows businesses to invest and thrive.
Conventional wisdom holds that corporations should maximize shareholder value. In her new book “The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public” (Berrett-Koehler, 2012), Lynn Stout argues that this is a harmful myth. According to Stout, shareholder value thinking leads managers to focus exclusively on short-term earnings to the detriment of investors, corporations, and the public.
According to Jonathan Macey, however, while shareholder value maximization may be a myth, it helpfully constrains corporate managers. Leaving corporate managers with unconstrained choices — the real result of Stout's argument — would be far more dangerous.
Join Macey and Stout as they debate shareholder value thinking and its implications for the corporate community, public policy arena, and public.
If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.
Lee Liberman Otis, Federalist Society
Jonathan Macey, Yale Law School
Lynn Stout, Cornell Law School
Alex J. Pollock, AEI
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Jonathan Macey is the Sam Harris Professor of Corporate Law, Corporate Finance and Securities Law at Yale University and a professor in the Yale School of Management. Macey is the author of several books, including the two-volume treatise “Macey on Corporation Laws” (Aspen Publishers, 1999) and coauthor of two leading casebooks: “Corporations: Including Partnerships and Limited Liability Companies” (West, 2010) and “Banking Law and Regulation” (Aspen Publishers, 2001). In 1995, Macey was awarded the Paul M. Bator Award for excellence in teaching, scholarship, and public service by the Federalist Society. In 2004, he received a teaching award from the Yale Law Women in recognition of his “commitment to excellence in teaching, mentoring and inspiring.”
Lee Liberman Otis is the senior vice president and faculty division director at the Federalist Society. Otis clerked for Judge Antonin Scalia of the US Court of Appeals, served as a special assistant at the US Department of Justice under former attorneys general William French Smith and Edwin Meese, and returned to clerk for Justice Scalia after his appointment to the US Supreme Court. Otis then joined George Mason University School of Law as an assistant professor, where she taught constitutional law, federal courts, appellate advocacy, and legislation. She went on to serve as associate counsel to President George H.W. Bush; to practice appellate litigation at the Washington, DC, office of Jones, Day, Reavis and Pogue; and to serve as chief counsel to the Immigration Subcommittee of the Senate Judiciary Committee, general counsel of the US Department of Energy, and, most recently as associate deputy attorney general at the US Department of Justice.
Alex J. Pollock joined AEI in 2004 after 35 years in banking. He was president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is the author of numerous articles on financial systems and the organizer of the Deflating Bubble series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues, including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards, and the banking system. He is the lead director of the CME Group, a director of Great Lakes Higher Education Corporation and the International Union for Housing Finance, and chairman of the board of the Great Books Foundation.
Lynn Stout is Distinguished Professor of Corporate and Business Law at Cornell University Law School. Stout is an internationally recognized expert in the fields of corporate governance, securities regulation, financial derivatives, law and economics, and moral behavior. She is the author of numerous articles and books on these topics and lectures widely. Her most recent book is “The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations and the Public” (Berrerr Koehler, 2012). Stout also serves as an independent trustee for the Eaton Vance family of mutual funds, as a member of the board of advisers for the Aspen Institute’s Business & Society Program, as executive adviser to the Brookings Institution Project on Corporate Purpose, and as a research fellow for the Gruter Institute for Law and Behavioral Research.