January 11, 2017

Corporate Governance: The New Paradigm

Martin Lipton | Harvard Law School Forum

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a growing body of academic research has confirmed that short-term financial activists are a major contributor to systemic short-termism in managing businesses and investments. The notion that activist attacks increase, rather than undermine, long-term value creation has been resoundingly discredited. Economists Yvan Allaire and François Dauphin, for example, demonstrated in a series of papers issued by the Institute for Governance of Private and Public Corporations that the “benefits” of activism cited by its proponents were, to the extent not temporary, marginal at best, largely the result of basic short-term financial maneuvers (such as asset sales, spin-offs, buybacks and cost cuts) and not of any superior long-term strategies and may simply constitute a wealth transfer from employees and creditors to shareholders rather than actual wealth creation.

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