A roundtable at HLS on corporate time horizons

A group of senior corporate managers, hedge fund, mutual fund, and private equity leaders, and economics and corporate law academics from Europe and the U.S. gathered at HLS on Sept. 14-15 for a conference on the role of corporate finance and governance in encouraging or discouraging long-term value in public corporations.

During the two-day conference, primarily organized by Harvard Law School Professors Reinier Kraakman and Mark Roe, participants examined how corporate governance structures, corporate law rules, financial market structures, market information flows, and standard corporate practices facilitate or impede achieving the best long-term value in large firms.

HLS Professor Reinier Kraakman co-organized the two-day roundtable with Professor Roe

Former Secretary of the Treasury of the United States Larry Summers, President Emeritus of Harvard University and the Charles W. Eliot University Professor of Harvard University, Harvard Kennedy School, delivered the keynote lunch address on Friday, Sept. 14, applying current thinking from behavioral economics on how excessive optimism from market participants can explain critical time horizon phenomena observed in financial markets.

Divided into six sessions, the roundtable focused on: Widely-held Stock: Impact on Corporate Time Horizons; Hedge Funds and Private Equity: Impact on Corporate Time Horizons; What is short-term?; On Foundations, Families, and the State: A Focus on the EU; Mergers, Hostile Tender Offers, and their Impact on Corporate Time Horizons; and The Non-monetizeable Long-term.

Harvard University Distinguished Service Professor and Austin Wakeman Scott Professor of Law Robert Clark, dean of Harvard Law School from 1989 to 2003

Each of the six sessions was introduced by an academic who described the core issues involved and summarized issues on which there is an academic consensus and those that are in dispute. Participants from the financial markets and corporate management then commented from their experience.

HLS participants included, in addition to Kraakman and Roe, Professors Robert Clark, John Coates, Luca Enriques, Allen Ferrell, Jesse Fried, Mark Ramseyer, Robert Sitkoff, and Holger Spamann. See the full list of participants, below. The law school’s project on Comparative Corporate Governance and Finance, which Reinier Kraakman recently founded, sponsored the event.

Roe said that the conference’s takeaway for him was to solidify the view that, while there’s evidence that financial markets can at times induce pernicious short-term corporate thinking, on balance there’s also much good evidence that key sectors of financial markets are generally more long-run oriented (like venture capital, publicly-owned technology companies, and research-oriented private firms).

John C. Coates, John F. Cogan, Jr. Professor of Law and Economics at Harvard Law School

“The short-term view has had substantial influence on corporate law thinking, usually in supporting insulating managers and boards from financial markets. Corporate law judges have written sympathetically to the short-termist pressures said to come from financial markets. But the actual overall impact of financial markets on time horizons is much more mixed than is conventionally thought, there are substantial correctives embedded in the corporate structure, and major pressures toward an unwarranted short-term come not from financial markets but from inside the firm, such as from a CEO’s time horizon attuned to his or her expected tenure at the helm. As such, using the time horizons view to justify isolating firms and boards further from stock markets is much less warranted than influential corporate thinking has had it,” he said.

 


Roundtable Participants

Michael J. Album
Proskauer Rose

Margaret Blair
Vanderbilt University Law School

Patrick Bolton
Columbia Business School

Chris Cernich
Institutional Shareholder Services

Robert Clark
Harvard Law School

John Coates
Harvard Law School

Isaac Corre
Eton Park Capital Management

Martijn Cremers
University of Notre Dame
Mendoza College of Business

Lynne Dallas
University of San Diego School of Law

Stephen Davis
Harvard Law School and the
Brookings Institution

Christian Dyvig
The Lundbeck Foundation

Luca Enriques
Harvard Law School
former commissioner
CONSOB (Italian SEC)

Allen Ferrell
Harvard Law School

Jesse Fried
Harvard Law School

Ronald Gilson
Columbia Law School

Jeffrey Gordon
Columbia Law School

Henry Hansmann
Yale Law School

Ben Heineman
Harvard Kennedy School
former general counsel,
General Electric

Gerard Hertig
ETH Zurich

Beat Hess
former legal director, Shell

Karl Hofstetter
Schindler Holding AG

Bengt Holmstrom
Massachusetts Institute of Technology

The Honorable Jack Jacobs
Delaware Supreme Court

Roy J. Katzovicz
Pershing Square Capital Management

Vic Khanna
University of Michigan Law School

April Klein
New York University
Leonard N. Stern School of Business

Elliot Konopko
Halcyon Asset Management (UK)

Reinier Kraakman
Harvard Law School

Michael Liss
Cipher Capital Partners

Yair Listokin
Yale Law School

John Martin Jr.
Time Warner, Inc.

Robert Mendelsohn
Navigators Group, Inc.
formerly of Royal & Sun Alliance

Peter Muelbert
Johannes Gutenberg-Universität Mainz

Scott Ostfeld
Partner, JANA Partners

Robert Pozen
MFS Investment Management

Mark Ramseyer
Harvard Law School

Mark J. Roe
Harvard Law School

Robert Sitkoff
Harvard Law School

Peter Y. Solmssen
Siemens AG

David Sorkin
Kohlberg Kravis Roberts & Co.

Holger Spamann
Harvard Law School

Richard A. Spillane, Jr.
Babson College
former president of Strategic Advisors,
Fidelity

Lawrence Summers
Harvard Kennedy School

Steen Thomsen
Copenhagen Business School

Randall Weisenburger
Omnicom Group, Inc