Welcome to the Boardroom Governance Podcast. I’m your host, Evan Epstein. In this episode, I talk with Stephen Bainbridge, the William D. Warren Distinguished Professor of Law at UCLA School of Law. Professor Bainbridge is a prolific scholar, whose work covers a variety of subjects, but with a strong emphasis on the law and economics of public corporations. He has written over 100 law review articles and 20 books, including seven in multiple editions. In this podcast, we talk about his latest book, called “The Profit Motive: Defending Shareholder Value Maximization” where he addresses questions of corporate purpose using historical, legal, and economic perspectives. The book offers context for the current debates on corporate purpose, ESG and argues that shareholder value maximization is not only required by law, but what the law ought to require. We also discuss other corporate governance topics, including the SVB collapse and the ongoing financial crisis, the McDonald’s case and the expansion of Caremark duties for directors and officers. We also talk about public benefit corporations, the rise of compliance in the corporate context and pass-through voting by large asset managers. If you like this show, please consider subscribing, leaving a review or sharing this podcast on social media. You can find all the show notes on the website boardroom-governance.com and please feel free to subscribe to the Boardroom Governance Newsletter at evanepstein.substack.com
0:00 -- Intro.
1:35 -- Start of interview.
4:35 -- About his new book "The Profit Motive, Defending Shareholder Value Maximization" (2023). He wrote it to offer context for the current debate about corporate purpose and ESG. He argues that shareholder value maximization is not only required by law, but what the law ought to require.
9:23 -- His take on why we should care about corporate purpose.
13:54 -- The legal arguments and foundation for directors' duties to maximize shareholder value.
16:26 -- On the merits of the Business Roundtable Restatement of the Purpose of the Corporation (2019). "It can't really be justified." "The concern is that directors that are accountable to everybody, are accountable to no one."
20:54 -- On public benefit corporations. "The core problem of PBCs is that it's still the shareholders that elect directors, it's still the shareholders to whom the directors owe fiduciary duties, and that becomes a particular problem when a PBC goes public [they become vulnerable to shareholder activists.]" Example: Etsy case. "Hobby Lobby strikes me as an ideal [private company] to become a PBC [because they have a small number of shareholders, all of whom share the same social/political/religious point of views, and are willing to sacrifice profits to carry out those views and support a board of directors that seeks to advance those views."]
26:33 -- On the influence of EU/international views on U.S. corporations, and vice-versa (for example, influence of Delaware corporate law on international corporate law, ie. in Israel). On diversity quotas on boards.
31:07 -- The take-aways from his book: "be deeply skeptical about what CEOs say in this area [ESG], and watch what they do." The phenomenon of greenwashing. The case of Marc Benioff and Salesforce.
35:33 -- On the SVB collapse and the current financial crisis. "I think it's really important that directors be focused on enterprise risk management."
42:07 -- On the Credit Suisse collapse and merger with UBS. "It's been a banking industry problem child for a long time."
44:56 -- On the expansion of Caremark Duties and the McDonald's case. "There are two rulings from the case that are interesting but also controversial: 1) Officers also have Caremark duties (oversight obligations), and 2) Sexual harassment claims were breaches of fiduciary duty. We are potentially opening the door to treating employment discrimination cases as breaches of fiduciary duties. So what's next is sort of the question. I think [VC Laster] has opened a real Pandora's box in terms of [where this may be going]."
51:57 -- On the compliance industry. The rise of the Master of Legal Studies "M.L.S." with a focus on compliance at UCLA School of Law. "Compliance is a growth industry."
53:50 -- On large asset managers passing-through voting power to beneficial owners. "I'm deeply skeptical."
55:44 -- The books that have greatly influenced his life:
56:07 -- His mentors, and what he learned from them.
56:48 -- Paraphrasing Winston Churchill: "I'm prepared to settle for the very best" [the exact quote: “My tastes are simple: I am easily satisfied with the best.”]
57:07 -- An unusual habit or an absurd thing that he loves: he's an amateur chef, and loves designing meals, matching food with wine. Tropical fish.
57:46 -- The living person he most admires: Bishop Robert Barron.
Stephen Bainbridge is the William D. Warren Distinguished Professor of Law at UCLA School of Law. Professor Bainbridge is a prolific scholar, whose work covers a variety of subjects, but with a strong emphasis on the law and economics of public corporations. He has written over 100 law review articles and 20 books, including seven in multiple editions.
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Music/Soundtrack (found via Free Music Archive): Seeing The Future by Dexter Britain is licensed under a Attribution-Noncommercial-Share Alike 3.0 United States License