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    Business Scholarship Podcast

    Stephen Bainbridge on the Profit Motive

    Mon Apr 10 2023
    corporate governanceshareholder value maximizationstakeholder capitalismESGbusiness ethics
    1. Introduction
    2. The Case for Shareholder Value Maximization
    3. ESG and Stakeholder Governance vs Shareholder Value Maximization
    4. Leo Strine's Critique and Closing Thoughts

    Stephen Bainbridge discusses his new book, The Profit Motive, Defending Shareholder Value Maximization. The book presents arguments for stakeholder capitalism fairly but ultimately disagrees with them. It defends the shareholder value maximization approach by providing a clear description of the law and engaging non-lawyers in understanding why the law is structured as it is. The book aims to maximize long-term shareholder value within legal and regulated boundaries, emphasizing the importance of society regulating corporate behavior through laws.

    Introduction

    00:06 - 09:43

    • Stephen Bainbridge discusses his new book, The Profit Motive, Defending Shareholder Value Maximization.
    • In the past, the purpose of corporations was primarily to increase profits.
    • There has been a shift towards a more stakeholder-focused view of corporations.
    • Younger scholars are more open to ESG and stakeholder capitalism.
    • The book is a response to the increased interest in stakeholder capitalism.
    • The author aims to defend shareholder value maximization.
    • The author was prompted to write the book after the Business Roundtable adopted stakeholder capitalism in 2019.
    • Many CEOs and investors have embraced ESG and stakeholder capitalism.
    • Most books on the market support stakeholder capitalism, but there is no persuasive defense of traditional shareholder value maximization.
    • The author presents arguments for stakeholder capitalism fairly but ultimately disagrees with them.

    The Case for Shareholder Value Maximization

    09:17 - 19:17

    • This book is not one of those praising stakeholder capitalism as the right thing to do morally and financially.
    • The affirmative case for shareholder value maximization is that it requires managers to sustainably generate long-term value for shareholders.
    • Managers have discretion to consider other stakeholders' interests as long as they align with long-term shareholder value.
    • In zero-sum decisions, managers should choose the option in the best interest of shareholders.
    • Having a single goal of shareholder value maximization makes decision-making and accountability easier.
    • Shareholder value maximization leads to more efficient resource allocation, creates new social wealth, and promotes economic and political liberties.
    • A society that allows corporations to pursue profits within the bounds of the law respects freedom and free enterprise.

    ESG and Stakeholder Governance vs Shareholder Value Maximization

    18:53 - 27:26

    • ESG and stakeholder governance versus shareholder value maximization have been prominent topics in academia, corporate boardrooms, capital markets, and politics.
    • There is a history of right-of-center populist movements being skeptical of big corporations.
    • The corporate social responsibility debates have been polarized and lack reasoned discourse.
    • There is an increasingly strident anti-woke, anti-ESG movement.
    • The book takes the arguments on both sides seriously but ultimately defends the shareholder value maximization approach.
    • The first third of the book focuses on the descriptive discussion of what the law is regarding shareholder value maximization.
    • Some claim that the law does not require shareholder value maximization, but the author argues that the law is clear on this matter.
    • Understanding what the law is before debating normative issues is crucial.

    Leo Strine's Critique and Closing Thoughts

    27:04 - 33:40

    • Leo Strine, former chief justice of the Delaware Supreme Court, criticizes academic arguments that shareholder value maximization is not the law
    • The book aims to provide a clear description of the law accessible to non-lawyers
    • The goal is to engage non-lawyers in understanding and questioning why the law is structured as it is
    • The book targets both an academic audience and non-lawyers/non-academics
    • Closing thoughts emphasize that the argument is not for corporations to exploit employees or harm the planet, but rather for directors to make decisions that maximize long-term shareholder value within legal and regulated boundaries
    • Society should regulate corporate behavior through laws rather than relying on business to solve social issues
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