Debating stakeholder capitalism

HLS Professor Lucian Bebchuk says the promise of stakeholder capitalism is illusory

The COVID-19 crisis has intensified discussions about corporate purpose and corporate duties to stakeholders. Against this backdrop, the European Corporate Governance Institute and the London Business School Centre for Corporate Governance hosted a virtual debate on stakeholder capitalism between Harvard Law School Professor Lucian Bebchuk LL.M. ’80 S.J.D. ’84 and London Business School Professor Alex Edmans.

Held earlier this month, the debate, titled “Stakeholder Capitalism: The Case For and Against,” was moderated by Gillian Tett, chair of the editorial board and editor-at-large of the Financial Times.

Stakeholder capitalism is the idea that companies should look to serve all stakeholders, not just shareholders but also customers, employees, suppliers, and local communities. Shareholder capitalism, on the other hand, is the view that companies should focus exclusively on serving in the interest of shareholders, the owners of the stock of the company.

Edmans, a professor of finance and academic director of Centre for Corporate Governance, London Business School, argued in favor of corporate leaders serving goals other than shareholder value. His arguments drew on his book “Grow the Pie: How Great Companies Deliver Both Purpose and Profit.”

Bebchuk, the James Barr Ames Professor of Law, Economics, and finance and director of the Program on Corporate Governance at Harvard Law School, argued that relying on corporate leaders to serve goals other than shareholder value should not be expected to provide material benefits to stakeholders and should be rejected, including by those who deeply care about stakeholder interests, as a way to ensure that capitalism works for stakeholders.

Bebchuk’s arguments built on his articles “The Illusory Promise of Corporate Governance,” co-authored with Roberto Tallarita and discussed on the Harvard Law School Forum on Corporate Governance blog, and “For Whom Corporate Leaders Bargain,” co-authored with Kobi Kastiel and Robert Tallarita, and also discussed on the Forum). Bebchuk and Tallarita also wrote a Wall Street Journal op-ed that provides a brief account of his approach.


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