Corporate Governance

Lucian Bebchuk and Robert Jackson discuss how Elon Musk’s threat to develop AI projects outside Tesla may distort investors’ votes on restoring his large options grant.

Michael Jensen, a leading late 20th century economist, pivoted from praising public companies in the 1970s to assailing public company governance in the 1980s and 1990s. Disappointment that corporate executives did much to thwart takeover activity prompted Jensen’s 180-degree turn. 

One of the questions that Elon Musk’s lawsuit against OpenAI and its CEO, Sam Altman, raises is whether Microsoft’s involvement in changes to OpenAI’s board in November violated nonprofit law. Benjamin Leff assesses this challenge and if current nonprofit law is capable of monitoring nonprofit behavior in its current form.

Two professors of law assess the merits and questions raised by Musk's recent lawsuit against OpenAI and its CEO, Sam Altman.

Elon Musk recently sued OpenAI over claims that the company has strayed from its social mission and has instead focused on profit maximization. Roberto Tallarita examines how Musk’s lawsuit shows well-intentioned corporate planners how hard it is to commit to an effective and enforceable social purpose and warns policymakers that relying on corporate self-regulation of AI could be a fatal mistake.

Luigi Zingales argues that Elon Musk is right to sue OpenAI and CEO Sam Altman, given the economic principles at stake.

How can investors use capital markets to encourage emissions reductions? In new research, Matthew E. Kahn, John G. Matsusaka, and Chong Shu examine whether public pension funds are more effective in mitigating pollution when they divest from fossil fuel companies or actively engage their management.

Business and economic thought instituted at least since the Reagan revolution in the United States have promoted firms’ narrowly self-interested, profit-maximizing conduct even at the expense of consumers and workers. This paradigm leads to social distrust and insufficient cooperation. Steven C. Salop explains this distortion and proposes 10 guidelines by which firms can self-moderate their behavior to produce prosocial outcomes.

Many financial commentators thought that the surge of retail investors participating in the stock market, the most notable of whom boosted “meme stocks” like GameStop, would democratize corporate governance and improve prosocial firm behavior, including the promotion of environmental, social, and governance (ESG) goals. In new research, Dhruv Aggarwal, Albert H. Choi, and Yoon-Ho Alex Lee find evidence that the exact opposite took place.

New research by Vesa Pursiainen, Hanwen Sun and Yue Xiang finds that competition hurts corporate incentives to fulfill environmental, social, and governance (ESG) goals. Firms facing more competitive pressure have worse ESG scores, in particular when the firms have short-term-oriented shareholders. However, firms located in areas that are more concerned about climate change appear more willing to sacrifice profits for better ESG performance.