Don’t Let the Short-Termism Bogeyman Scare You

Active investor oversight is a plus, not a minus.

by

Lucian A. Bebchuk

by

Lucian A. Bebchuk

From the Magazine (January–February 2021) · Long read

Peter Wegner, Buildings Made of Sky III, 2009. Courtesy of Peter Wegner and Galerie m, Bochum, Germany

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It’s Time to Replace the Public Corporation

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Don’t Let the Short-Termism Bogeyman Scare You

Summary.

The author, a professor at Harvard Law School, argues that concerns about the perils of short-termism—and support for measures that would insulate corporate leaders from the outside pressures that allegedly make them myopic—are long on alarming rhetoric and short on empirical evidence or economic logic. Furthermore, he writes, the threat of hedge fund activism should be expected to discourage managerial slack and underperformance, thus playing an important disciplinary role and incentivizing leaders to enhance shareholder value.

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This issue of Harvard Business Review includes, as many prior issues did, an article decrying the perils of short-termism and supporting measures for insulating corporate leaders from the outside pressures that allegedly make them myopic. But such arguments are long on alarming rhetoric and short on empirical evidence or economic logic. Furthermore, their supporters overlook substantial benefits that outside-investor oversight produces and that such measures would sacrifice.

A version of this article appeared in the January–February 2021 issue of Harvard Business Review.

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LB

Lucian A. Bebchuk is the James Barr Ames Professor of Law, Economics, and Finance at Harvard Law School and the founding director of its Program on Corporate Governance. He is also the author of “The Myth That Insulating Boards Serves Long-Term Value” (Columbia Law Review, 2013) and a coauthor of “The Long-Term Effects of Hedge Fund Activism” (Columbia Law Review, 2015) and “Should Short-Term Shareholders Have Less Rights?” (2019).

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It’s Time to Replace the Public Corporation

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Don’t Let the Short-Termism Bogeyman Scare You

Don’t Let the Short-Termism Bogeyman Scare You

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