Dual Pathway for Short-Termism Reform

  • Kim M. Willey


This chapter analyzes if the reforms identified in Chapter 4 solve the SMST issue. Based on the analysis in the previous chapters, this chapter presents a dual pathway for reform. This dual pathway provides that an effective remedy to the short-termism problem involves either: (1) minimizing the excessive discounting of future returns; or (2) cutting off the transmission mechanisms of short-termism. Option (2) requires ‘hard’ law reform, and Option (1) is a ‘lighter’ touch. Few of the reforms set out in Chapter 4 address the short-termism issue, and the ones that do proceed via Option (1). Given the inherent difficulty in effectively regulating to correct short-termism, it is not surprising that the few implemented reforms to date have been minimal and relatively ‘light’ touch. This chapter concludes that reform efforts should continue to be ‘light’ touch but should focus on reforms following Option (1) of the dual pathway.


  1. Ambachtsheer, Keith. 2014. “The Case for Long-Termism.” Fall. 7:2 Rotman International Journal of Pension Management. 6–16.Google Scholar
  2. Aspen Institute. 2009. “Overcoming Short-termism: A Call for a More Responsible Approach to Investment and Business Management.” 9 September.Google Scholar
  3. Aspen Institute. 2010. “Short-Termism and U.S. Capital Markets: A Compelling Case for Change.”
  4. Ayres, Ian and Braithwaite, John. 1992. Responsive Regulation: Transcending the Deregulation Debate. Oxford University Press: New York and Oxford.Google Scholar
  5. Bainbridge, Stephen M. 2006. “Response, Director Primacy and Shareholder Disempowerment.”119 Harvard Law Review. 1735–1758.Google Scholar
  6. Bardach, Eugene and Kagan, Robert A. 1982. Going by the Book: The Problem of Regulatory Unreasonableness. Transaction Publishers: New Brunswick, NJ.Google Scholar
  7. Barton, Dominic and Wiseman, Mark. 2014. “Focusing Capital on the Long Term.” January–February. Harvard Business Revie. 44–51.Google Scholar
  8. Bebchuk, Lucien. 2013. “The Myth That Insulating Boards Serves Long-Term Value.” 113:6 Columbia Law Review. 1637–1694.Google Scholar
  9. Bollen, Rhys. 2012. “Bounded Rationality in the Sale and Purchase of Managed Funds.” 9 Macquarie Journal of Business Law. 125–144.Google Scholar
  10. Bolton, P. and Thadden, E.-L. von. 1998. “Blocks, Liquidity, and Corporate Control.” February. 53:1 Journal of Finance. 1–25.CrossRefGoogle Scholar
  11. Bratton, William W. and Wachter, Michael L. 2010. “The Case Against Shareholder Empowerment.” 158 University of Pennsylvania Law Review. 653–728.Google Scholar
  12. Camerer, Colin, Issacharoff, Samuel, Loewenstein, George, O’ Donoghue, Ted, and Rabin, Matthew. 2003. “Regulation for Conservatives: Behavioral Economics and the Case for “Asymmetric Paternalism’.” January. 151:3 University of Pennsylvania Law Review. 1211–1255.CrossRefGoogle Scholar
  13. Cheffins, Brian R. 2002. “Corporate Law and Ownership Structure: A Darwinian Link?” 25:2 University of New South Wales Law Journal. 346–378.Google Scholar
  14. Cho, M. H. 1998. “Ownership Structure, Investment, and Corporate Value: An Empirical Analysis.” 47 Journal of Financial Economics. 103–121.CrossRefGoogle Scholar
  15. Dasgupta, Amil and Piacentino, Giorgia. 2015. “The Wall Street Walk When Blockholders Compete for Flows.” December. 70:6 The Journal of Finance. 2853–2896.CrossRefGoogle Scholar
  16. Demsetz, H. 1983. “The Structure of Ownership and the Theory of the Firm.” 26 Journal of Law and Economics. 375–390.CrossRefGoogle Scholar
  17. Demsetz, H. and Lehn, K. 1985. “The Structure of Corporate Ownership: Causes and Consequences.” 93 Journal of Political Economy. 1155–1177.CrossRefGoogle Scholar
  18. Demsetz, H. and Villalonga, B. 2001. “Ownership Structure and Firm Performance.” 7 Journal of Corporate Finance. 209–233.CrossRefGoogle Scholar
  19. Dent, George. 2010. “Essential Unity of Shareholders and the Myth of Investor Short-Termism.” 35:1 Delaware Journal of Corporate Law. 97–150.Google Scholar
  20. Dobbs, Ian M. 2009. “How Bad Can Short-Termism Be?—A Study of the Consequences of High Hurdle Discount Rates and Low Payback Thresholds.” 20 Management Accounting Research. 117–128.CrossRefGoogle Scholar
  21. Drucker, Peter F. 1986. Editorial. “A Crisis of Capitalism.” 30 September. Wall Street Journal.Google Scholar
  22. Fink, Larry. 2018. CEO Letter, BlackRock, Inc. January.
  23. Fox, Justin and Lorsch, Jay W. 2012. “What Good Are Shareholders?” 90:7 Harvard Business Review. 48–57.Google Scholar
  24. Glosten, Lawrence and Milgrom, Paul. 1985. “‘Bid, Ask and’ Transaction Prices in a Specialist Market with Heterogeneously Informed Traders.” 14 Journal of Financial Economics. 71–100.CrossRefGoogle Scholar
  25. Grossman, Sanford J. and Hart, Oliver D. 1980. “Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation.” 11:1 Bell Journal of Economics. 42–64.CrossRefGoogle Scholar
  26. Hirsch, Dennis D. 2010 “Green Business and the Importance of Reflexive Law: What Michael Porter Didn’t Say.” Fall. 62:4 Administrative Law Review. 1063–1126.Google Scholar
  27. “Implementation of the Kay Review: Progress Report.” 2014. Department for Business Innovation & Skills. October.Google Scholar
  28. Jensen, Michael C. and Meckling, William H. 1976. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” October. 3:4 Journal of Financial Economics. 305–360. CrossRefGoogle Scholar
  29. Johnston, Andrew and Morrow, Paige. 2014. “Commentary on the Shareholder Rights Directive.” University of Oslo Faculty of Law Research Paper No. 2014-41.Google Scholar
  30. Jolls, Christine, and Sunstein, Cass R. 2006. “Debiasing Through Law.” 35:1 Journal of Legal Studies. 199–242.Google Scholar
  31. Jurrikkala, O. 2012. “The Behavioural Paradox: Why Investor Irrationality Calls for Lighter and Simpler Financial Regulation.” 2012/2013. 18:1 Fordham Journal of Corporate and Financial Law. 33–93.Google Scholar
  32. Kahneman, Daniel. 2003. “A Perspective on Judgement and Choice.” Anderson, Norman B. (editor). 58:9 American Psychologist. 697–720.Google Scholar
  33. Kay, John. 2012. ‘The Kay Review of UK Equity Markets and Long-Term Decision Making.” Final Report. July.Google Scholar
  34. Lin, Yu-Hsin. 2017. “Controlling Controlling-Minority Shareholders: Corporate Governance and Leveraged Corporate Control.” 2 Columbia Business Law Review. 454–510.Google Scholar
  35. Lipton, Martin and Rosenblum, Steven A. 1991. “A New System of Corporate Governance: The Quinquennial Election of Directors.” 58:1(3) University of Chicago Law. 187–253.Google Scholar
  36. Lucas, G. M. and Tasic, S. 2015. “Behavioral Public Choice and the Law.” Fall. 118:1 West Virginia Law Review. 199–266.Google Scholar
  37. Martin, Roger. 2011. “How to Make Companies Think Long-Term.” 3 October. Harvard Business Review.Google Scholar
  38. Maug, Ernts. 1998. “Large Shareholders as Monitors: Is There a Trade-Off Between Liquidity and Control.” 53:1 The Journal of Finance. 65–98.CrossRefGoogle Scholar
  39. Nguyen, Bang Dang and Nielsen, Kasper Meisner. 2013. “When Blockholders Leave Feet Firm: Do Ownership and Control Affect Firm Value?” 26 June.
  40. Nocera, Joe. 2011. “What Is Business Waiting For?” 16 August. New York Times.Google Scholar
  41. Oyedele, Akin. 2017. “Here Is the Letter the World’s Largest Investor, BlackRock CEO Larry Fink, Just Sent to CEOs Everywhere.” 24 January. Business Insider UK.–1?r=US&IR=T.
  42. Porter, Michael E. “Capital Choices: Changing the Way America Invests in Industry.” June. 5:2 Journal of Applied Corporate Finance. 4–16.CrossRefGoogle Scholar
  43. Shiller, Robert J. 2015. Irrational Exuberance. Princeton University Press: New York.Google Scholar
  44. Shleifer, Andrei and Vishny Robert W. 1986. “Large Shareholders and Corporate Control.” 94:3(1) The Journal of Political Economy. 461–488.CrossRefGoogle Scholar
  45. Simon, H. A. 1955. “Behavioral Model of Rational Choice.” 69:1 The Quarterly Journal of Economics. 99–118.CrossRefGoogle Scholar
  46. Sorkin, Andrew Ross. 2013. “Shareholder Democracy Can Mask Abuses.” 25 February. New York Times.Google Scholar
  47. Stout, Lynn. 2012. The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public. Berrett-Koehler Publishers: San Francisco, CA, USA.Google Scholar
  48. Sunstein, Cass R. 1996. “On the Expressive Function of Law.” 144 University of Pennsylvania Law Review. 2021–2053.CrossRefGoogle Scholar
  49. Sunstein, Cass R. 2014. Why Nudge: The Politics of Libertarian Paternalism. Yale University Press: New Haven.Google Scholar
  50. Teubner, Gunther. 1983. “Substantive and Reflexive Elements in Modern Law.” Spring.17:2 Law and Society Review. 239–285.CrossRefGoogle Scholar
  51. Turner, Matt. 2016. “Here Is the Letter the World’s Largest Investor, BlackRock CEO Larry Fink, Just Sent to CEOs Everywhere.” 2 February. Business Insider UK.
  52. Wolf, Daniel E. 2014. “Controlling Stockholders in Delaware—More Than a Number.” 12 November. Harvard Law School Forum on Corporate Governance and Financial Regulation.

Copyright information

© The Author(s) 2019

Authors and Affiliations

  • Kim M. Willey
    • 1
  1. 1.Faculty of LawUniversity of VictoriaVictoriaCanada

Personalised recommendations