After meeting Colin Mayer (Oxford) and hearing him present at Vanderbilt’s 2013 Law and Business Conference, I purchased and read his recent book, Firm Commitment: Why the Corporation is Failing Us and How to Restore Trust in it. The book is organized in three parts: (1) how the corporation is failing us; (2) why it is happening; (3) what we should do about it. While the first two parts contain some helpful background and interesting case studies, I found the third part the most useful. In the third part, Professor Mayer suggests:
“These three straightforward adaptations of current arrangements – establishing corporate values, permitting the creation of a board of trustees to act as their custodians, and allowing for time dependent shares – together solve the fundamental problems of breaches of trust in relation to current and future generations.” (pg. 247)
In discussing corporate values, Professor Mayer writes:
“Corporate social responsibility was rightly dismissed as empty rhetoric and jettisoned when recession forced a return to more traditional shareholder value. Why should I trust an organization that is owned and controlled by anonymous, opportunistic, self-interested wealth seekers? Without commitment, there is no reason why there should be any trust in the corporation, however much its fine promotional material suggests otherwise. Values need value. They need to be valuable to those upholding them and costly to those who do not. They need to inflict pain on those who abuse them and gain on those who do not.” (pg. 244)
While Professor Mayer was writing about corporations generally, and not benefit corporations specifically, the same commitment concern is present with these new corporate forms (called benefit corporations or public benefit corporations) that claim to be focused on society and the environment.
As one possible solution to the commitment problem, Professor Mayer suggests time dependent shares. Time dependent shares would provide greater voting power to shareholders who commit to hold shares for a longer period of time. This feature, Professor Mayer argues, would focus the managers on long term value, which could benefit all stakeholders. Professor Mayer does not favor requiring time dependent shares for all corporations, but suggests that time dependent shares might be useful for those firms that need or desire long-term investment and commitment. I am still thinking through all the possible implications of time dependent shares, especially in the M&A context, but appreciate the effort to fight short-termism and focus management on longer term goals for the corporation.
Interested readers can find Firm Commitment through Oxford University Press.
Cross-Posted at Business Law Prof Blog.