Spring 2023 Workshops

Jan 30, 2023 (Mon)
4:20 – 6:10 PM

Elizabeth Pollman

Professor of Law;
Co-Director, Institute for Law & Economics,
UPenn Carey Law School

Presentation in person in Case Lounge (Jerome Greene Hall, room 701).

The Making and Meaning of ESG

ESG is one of the most notable trends in corporate governance, management, and investment of the past two decades. It is at the center of the largest and most contentious debates in contemporary corporate and securities law. Yet few observers know where the term comes from, who coined it, and what it was originally aimed to mean and achieve. As trillions of dollars have flowed into ESG-labeled investment products, and companies and regulators have grappled with ESG policies, a variety of usages of the term have developed that range from seemingly neutral concepts of integrating “environmental, social, and governance” issues into investment analysis to value-laden notions of corporate social responsibility or preferences for what some have characterized as “conscious” or “woke” capitalism.

This Article makes three contributions. First, it provides a history of the term ESG that was coined without precise definition in a collaboration between the United Nations and major players in the financial industry to pursue wide ranging goals. Second, it identifies and examines the main usages of the term ESG that have developed since its origins. Third, it offers an analytical critique of the term ESG and its consequences. It argues that the combination of E, S, and G into one term has provided a highly flexible moniker that can vary widely by context, evolve over time, and collectively appeal to a broad range of investors and stakeholders. These features both help to account for its success, but also its challenges such as the difficulty of empirically showing a causal relationship between ESG and financial performance, a proliferation of ratings that can seem at odds with understood purposes of the term ESG or enable “sustainability arbitrage,” and tradeoffs between issues such as carbon emissions and labor interests that cannot be reconciled on their own terms. These challenges give fodder to critics who assert that ESG engenders confusion, unrealistic expectations, and greenwashing that could inhibit corporate accountability or crowd out other solutions to pressing environmental and social issues. These critiques are not necessarily fatal, but are intertwined with the characteristic flexibility and unfixed definition of ESG that was present from the beginning, and ultimately shed light on obstacles for the future of the ESG movement and regulatory reform.

Feb 13, 2023 (Mon)
4:20 – 6:10 PM

Ofer Eldar

Professor of Law, Economics & Finance;
Professor of Economics,
Duke Law School

Presentation in person in Case Lounge (Jerome Greene Hall, room 701).

The Rise of Anti-Activist Poison Pills

We provide the first systematic evidence of contractual innovation in the terms of poison pill plans. In response to the increase in hedge fund activism, pills have changed to include anti-activist provisions, such as low trigger thresholds and acting-in-concert provisions. Using unique data on hedge fund views of SEC filings as a proxy for the threat of activists’ interventions, we show that hedge fund interest predicts pill adoptions. Moreover, the likelihood of a 13D filing declines after firms adopt “anti-activist” pills, suggesting that pills are effective in deterring activists. The results are particularly strong for “NOL” pills that, due to tax laws, have a five percent trigger. Our analysis has implications for understanding the modern dynamics of market discipline of managers in public corporations and evaluating policies that regulate defensive tactics.

Feb 27, 2023 (Mon)
4:20 – 6:10 PM

Caley Petrucci

Climenko Fellow & Lecturer on Law (2022 - 2023),
Harvard Law School

Presentation in person in Case Lounge (Jerome Greene Hall, room 701).

Equal Treatment Agreements:
Theory, Evidence & Policy

While the rise of dual class companies — companies like Facebook, Google, and Visa, with two or more classes of common stock that differ in voting rights — has been widely observed over the past decade, prior commentators have largely overlooked the important “equal treatment” agreements that are embedded in many dual class charters. Equal treatment agreements require that stockholders are treated equally, for example by receiving the same consideration per share in the sale of the company, thereby potentially taking away one of the most important benefits of holding the high vote shares. Using an original database of 312 dual class charters and their equal treatment agreements, this Article is the first to conduct a robust empirical analysis of equal (and unequal) treatment agreements in dual class companies. As a policy matter, the Article identifies when such structures are desirable and efficient from a law and economics perspective. In doing so, this Article highlights agreements (which I term “unequal treatment agreements”) that require equal treatment except for a fixed proportion of disparate consideration as promising structures to facilitate efficient deals, deter inefficient deals, and manage moral hazard. Based on this analysis, the Article provides implications for stakeholders including founders, investors, practitioners, and courts.

For founders and investors, who often hold the high-vote and low-vote shares respectively, and issuers, who create and sell the dual class stock, this Article examines the importance, features, and power of equal treatment agreements, and the impact of the current doctrinal landscape on their utility. For practitioners, who draft and negotiate these agreements, this Article analyzes the interaction of multiple equal treatment agreements within the same charter and identifies nuances in the scope and degree of equality afforded under various formulations of purportedly “equal” treatment. For courts, who interpret and apply equal treatment agreements, this Article argues that because of the impact of recent doctrine on corporate practice, many equal treatment agreements fail to fully protect low-vote stockholders from disparate treatment. Accordingly, the Article proposes normative recommendations for approaching equal treatment agreements and contends that unequal treatment agreements may have a broader role to play in dual class charters.

March 6, 2023 (Mon)
4:20 – 6:10 PM

Mark Roe

David Berg Professor of Law,
Harvard Law School

Presentation in person in Case Lounge (Jerome Greene Hall, room 701).

Are Public Firms Disappearing?
Corporate Law and Market Power Analyses

The number of public firms in the United States has halved since the beginning of the twenty-first century, causing consternation among corporate and securities law regulators. The dominant explanations, often advanced by Securities and Exchange commissioners when considering policy initiatives, come from over- or under- corporate regulation of the stock market. The central legal explanation is that corporate and securities law has made the cost of being public too high. Conversely, goes the second legal explanation, capital-raising rules for private firms were once very strict but have loosened up. Private firms can now raise capital nearly as well as small- and medium sized public firms. Either way, these views see legal imperatives as explaining the sharp decline in the public firm.

We challenge the implications of this thinking. While the number of firms has halved, public firms’ economic weight has not halved. To the contrary, the public firm sector is bigger by every other measure: total stock market capitalization is up greatly over the past three decades, profits are up, revenues are up, investment is up, and employment is up. Moreover, stock market capitalization, profits, revenues, and investment have not only increased but have all grown faster than the economy.

The second challenge we pose is whether the explanation for the changing configuration of the public firm sector lies primarily in legal explanations. In other policy circles—at the Federal Trade Commission or the Justice Department’s Antitrust Division, for example—policymakers ask why American industry is so much more concentrated now, with fewer firms in most industries today than there were at the end of the twentieth century. Yet these policymakers bring forward antitrust and industrial organization explanations, not corporate or securities regulation. Little crossover exists between these two policymaking circles, one focusing on corporate and securities regulation (the SEC) and the other on competition (the FTC). We bring forward real economy changes that could readily explain the reconfiguration of the American public firm sector to one that is more profitable, more valuable, and with bigger but fewer firms. These real economy developments are largely tied to industrial organization via changes in antitrust enforcement or changes in the efficient scope of the firm. In a single article, this explanatory effort can only be exploratory. Multiple researchers in multiple efforts will be needed to explain which real economy forces have an impact and which do not. We begin this effort: There are fewer firms, but the firms are bigger, more profitable and often in more concentrated industries. We show why the legal explanation is unlikely to be the complete story for the package of change over the past quarter-century and probably not even the most important one. Corporate policymakers should adjust appropriately.

March 20, 2023 (Mon)
4:20 – 6:10 PM

Jill Fisch

Saul A. Fox Distinguished Professor of Business Law;
Co-Director, Institute for Law and Economics,
UPenn Carey Law School

Presentation in person in Case Lounge (Jerome Greene Hall, room 701).

Corporate Democracy and the
Intermediary Voting Dilemma

Corporate governance is changing. For the past two decades, the focus of shareholder voting and engagement was deconstructing impediments to shareholder power and increasing managerial accountability. The goal of these interventions was to increase firm value by reducing agency costs. Increasingly, however, environmental and social issues have risen to the fore. This new focus is arguably more about values than value. This Article is the first to argue that, because of this shift, institutional intermediaries—namely, pension and mutual fund managers—can no longer vote and engage on the affairs of their portfolio companies without seeking the input of the pension-plan participants and mutual-fund shareholders who are their beneficiaries. We argue that the fiduciary duties of fund managers compel them to seek this input. We further argue that regulators should supplement existing fiduciary standards by adopting formal requirements that managers of mutual funds and pension funds seek input from their beneficiaries on their views, reflect those views in their engagement efforts and their votes, and publicly disclose how they have complied. At the same time, we caution against an approach in which fund managers shirk their intermediary role by implementing pass-through voting or rigidly voting in proportion to the preferences expressed by their beneficiaries. Instead, fund managers should act like elected representatives. They should continue to exercise voting power for the securities in the portfolios that they manage and should have discretion in how to incorporate the input they receive from fund beneficiaries. This enables professional fund managers to use their sophistication and experience to translate beneficiary preferences—which might be incomplete, vague, and contradictory—into individualized and informed votes at each of their portfolio firms. It also retains the ability of fund managers to leverage the economic power of dispersed beneficiaries consistent with their historical success in reducing the traditional collective action problems associated with shareholder voting. In reconceptualizing the role of intermediaries, this approach preserves the benefits of intermediation while better aligning intermediary stewardship with beneficiary best interests.

April 3, 2023 (Mon)
4:20 – 6:10 PM

Robert Bartlett

I. Michael Heyman Professor of Law,
Faculty Director, Berkeley Center for
Law, Business & the Economy,
University of California Berkeley Law School

Ryan Bubb

Robert B. McKay Professor of Law,
New York University Law School

Presentation in person in Case Lounge (Jerome Greene Hall, room 701).

Corporate Social Responsibility Through Shareholder Governance

New approaches to corporate purpose have emerged in recent years that hold out the promise of addressing concerns about corporate social responsibility (CSR) through shareholder governance, rather than in spite of it, by reconceptualizing shareholder interests in more holistic ways. We provide the first comprehensive analysis of such attempts to reconcile shareholder primacy with CSR. The seminal approach—enlightened shareholder value (ESV)—is based on the idea that treating other stakeholders well can ultimately redound to long-term shareholder value. Two newer approaches depart from the traditional corporate objective of long-term shareholder value by positing that it is shareholders’ welfare, not their wealth per se, that managers should pursue. The shareholder social preferences (SSP) view incorporates into the corporate objective the degree to which the firm’s operations aligns with the social views of shareholders. The portfolio value maximization (PVM) view, in contrast, argues that corporate fiduciaries should maximize the value of diversified shareholders’ portfolios by considering the externalities of the firm’s operations on those portfolios.

While the long-term shareholder value objective of ESV does align to some extent with key stakeholder concerns, it falls short of resolving all social conflicts about corporate conduct, and moreover management will sometimes, perhaps often, fall short of the degree of social responsibility that is consistent with the shareholder value objective. But incorporating shareholders’ social preferences into the corporate objective offers little hope for improvement. For one, shareholder welfare puts far greater relative weight on long-term shareholder value than would a proper conception of social welfare. As well, shareholders’ insulation from the social and moral pressures that generate pro-social behavior at the individual level mutes their social preferences with respect to corporate conduct. Conflicts among shareholders about social issues further dampen the role of social preferences in shareholder welfare. Additionally, the shareholders actually willing to hold the shares of the companies that pose the greatest social concerns will be those least concerned about the social issues implicated. And even among these shareholders, management faces significant information problems in gleaning their social preferences. Finally, we show that the optimal incentive scheme under SSP in fact focuses management squarely on shareholder value.

April 17, 2023 (Mon)
4:20 – 6:10 PM

Georg Ringe

Professor of Law & Finance;
Director, Institute of Law & Economics,
University of Hamburg

Visiting Professor,
Stanford Law School

Presentation in person in Case Lounge (Jerome Greene Hall, room 701).

The main focus of Professor Ringe's talk will be the role of public company investors (first paper below), but he will also consider the implications for net zero of private companies (second paper below).

Investor-led Sustainability in Corporate Governance

The transition to a sustainable economy currently involves a fundamental transformation of our capital markets. Lawmakers, in an attempt to overcome this challenge, frequently seek to prescribe and regulate how firms may address environmental, social, and governance (ESG) concerns by formulating conduct standards. Deviating from this conceptual starting point, the present paper makes the case for another path towards achieving greater sustainability in capital markets, namely through the empowerment of investors.

This trust in the market itself is grounded in various recent developments both on the supply side and the demand side of financial markets, and also in the increasing tendency of institutional investors to engage in common ownership. The need to build coalitions among different types of asset managers or institutional investors, and to convince fellow investors of a given initiative, can then act as an in-built filter helping to overcome the pursuit of idiosyncratic motives and supporting only those campaigns that are seconded by a majority of investors. In particular, institutionalized investor platforms have emerged over recent years as a force for investor empowerment, serving to coordinate investor campaigns and to share the costs of engagement.

ESG engagement has the potential to become a very powerful driver towards a more sustainability-oriented future. Indeed, I show that investor-led sustainability has many advantages compared to a more prescriptive, regulatory approach where legislatures are in the driver’s seat. For example, a focus on investor-led priorities would follow a more flexible and dynamic pattern rather than complying with inflexible pre-defined criteria. Moreover, investor-promoted assessments are not likely to impair welfare creation in the same way as ill-defined legal standards; they will also not trigger regulatory arbitrage and would avoid deadlock situations in corporate decision-making. Any regulatory activity should then be limited to a facilitative and supportive role.

Private Companies: The Missing Link on The Path to Net Zero

Global consensus is growing on the contribution that corporations and finance must make towards the net-zero transition in line with the Paris Agreement goals. However, most efforts in legislative instruments as well as shareholder or stakeholder initiatives have ultimately focused on public companies. This article argues that such a focus falls short of providing a comprehensive approach to the problem of climate change. In doing so, it examines the contribution of private companies to climate change, the relevance of climate risks for them, as well as the phenomenon of brown-spinning (ie, the practice of public companies selling their highly polluting assets to private companies). We show that one cannot afford to ignore private companies in the net-zero transition and climate change adaptation. Yet, private companies lack several disciplining mechanisms that are available to public companies, such as institutional investor engagement, certain corporate governance arrangements, and transparency through regular disclosure obligations. At this stage, only some generic regulatory instruments such as carbon pricing and environmental regulation apply to them. The article closes with a discussion of the main policy implications. Primarily, we discuss and evaluate the recent push to extend climate-related disclosure requirements to private companies. These disclosures would not only help investors by addressing information asymmetry, but also serve a wide group of stakeholders and thus aim at promoting a transition to a greener economy.