Sunday, September 25, 2022

Brief Thoughts on Martin Lipton: "ESG, Stakeholder Governance, and the Duty of the Corporation" (Harvard Law School Forum on Corporate Governance)


Pix: Fra Angelico San Domenico Altarpiece (c1455)


Martin Lipton has been providing quite insightful commentary on the "ESG Wars" that often find their way to the Harvard Law School Forum on Corporate Governance. These now amuse (in the more ancient sense of that term) the magisterium of strategically sensitive corporate lawyers, academics with public intellectual ambitions, well meaning though ideologically blinded NGOs, and sensitive business people blinded by a century or more of judicial rigidity and the cultures it has spawned in baseline thinking for the business community and the public officials who rely on them. 

Recently, Mr. Lipton posted the HLSFCC a short essay well worth reading carefully: ESG, Stakeholder Governance, and the Duty of the Corporation (18 September 2022). In it Mr. Lipton again situates the debate about ESG within the now ancient debate that was once merely an academic bauble meant to amuse elite lawyer-academics, but which has now metastasized into a larger cultural artifact the emanations of which continue to pollute the form, scope and language of the debate about (1) how we render corporations in real space (eg as a function of quantifiable value measured against a "gold" standard that the sum of positive value must exceed, in the long term negative value); (2) the constrained way in which those with authority have chosen to select those actions of corporations that merit valuation and to marginalize those that do not through the device of financial accounting and thereafter by incorporating the ideologies built into financial accounting into policy driven and markets protective disclosure regimes); and (3) how that is then backed into and repackaged in a sort of specious and quite artificial "debate" about corporate purpose.  Of course, the effect is to engage in a century of backwards logic and reverse engineering of the operations of collectives engaged in economic activity which then lends itself both to capture, and to incoherence. 

Kali, late 18th century Bengal, British Museum
That, of course, is the essence of the false conundrum of environmental, social, and governance (ESG) factors in the construction, constitution, and accounting for the activities of economic collectives organized as corporations with state sanctioned legal personality (as well as rights, and obligations, autonomous of those of its stakeholder, including shareholders). Mr. Lipton seeks clarity through an insightful analysis grounded in the ancient discursive tropes and expectations built into the corporate purpose debate. To that end he fights old ghosts (who remain culturally potent; eg Friedman) and resurrects, as he must the Romulus and Remus of the corporate law (in debates of Berle and Dodd). He offers up new meanings in of text.  And he settles, as do most of the advanced social forces of American (and global) corporate law--as well as their colleagues on the human rights and sustainability side of the fence). And what he then offers up is what has been embraced by the international human rights and sustainability elites--the transformation of corporate governance into a privatized system of administrative practice guided by the sensibilities of compliance and articulated through the development of administrative systems that operationalize (delegated) regulatory authority from public organs (as well as responses to market actor sensibilities as expressed form time to time in some measurable form).  He offers this up in its American form. As Mr. Liption writes after describing compliance as a first principle of corporate law: "the Caremark doctrine requires that companies have in place information and reporting systems reasonably designed to provide timely, accurate information to allow management and the board to reach informed judgments about the corporation’s compliance with law and its business performance. The stakeholder governance model aligns closely with Caremark ." (Lipton essay supra).

Mr. Liption has no choice, really, but to follow this course and to craft his essay along those lines. This is particularly so if he means to serve as a powerfully influential public intellectual.  That is the language that people with power embrace, or at least purport to understand  And that is the language that must be molded to suit the times.  And the times  now require a broader accounting.  To that effort, it is necessary to take the language of corporate purpose and repurpose it--that is to drain the words of those tropes of its ancient meaning and to infuse a new set of collective meaning on ancient terms. The result is the preservation of an appearance of fidelity to ancient principles even as its interior is gutted, rearranged, and invested with new sensibilities. 

This is a very American project and one that is culturally appropriate. It aligns with the core semiotic ideologies of common law and the practices of statutory and constitutional interpretation of the American judiciary. Mr. Lipton inhabits a quite august position within that magisterium and it makes perfect sense to use its semiotic tropes in the service of new meaning that captures the cultural moment. That is the good news. The bad news, of course, is that the outer shell of that effort remains rigid and in come cases produces the challenge of complex meaning pathways (that reduces its impact on operations level people) and that at times creates greater obstacles to achieving the end of meanings change revolutions--even veiled ones like this one. 

Altarpiece, Cologne Cathedral 2022)
But Mr. Lipton actually did have a choice--and a path with respect to which neither he nor the people like him who drive the law and culture of corporate governance appear to have much stomach for. That is something a bit more complex and straightforward, but one that would displace the bureaucrat and lawyer in favor of the accountant and the coder: ESG represents values that are themselves identifiable, quantifiable, and that significantly affect the value (and pricing) of the goods and service produced by corporate enterprises in pursuit of whatever more granular purpose its managers put forward and its stakeholder can tolerate. To convert the qualitative language of ESG into the quantifiable measures of and within financial accounting systems much more directly prices the impact of enterprise activity on all relevant stakeholders in a way that is unavoidably tied to corporate activity--without the need for linguistic and philosophical contortions required by an endlessly fruitless quest for purpose.  One might better leave the purpose debate back n the 20th century along with the triumph of the therapeutic and the narcissism of the early post Soviet age of globalization. "Corporate purpose" is an object best curated by historians.  For corporate lawyers, and corporate stakeholders, it is valuation and accountability within the traditional language of finance that better advances corporate complaisance in the business (market) and legal (administrative) spheres.

The ramifications are of significant importance for the elaboration of emerging systems of human rights and sustainability due diligence. It is of profound relevance to the current project of datafication, systems building and modeling (descriptive and predictive) through which post-Caremark systems are now embracing (even if in preliminary forms). The emerging compliance ecologies, and the fundamental needs of cultures of compliance in economic production require a more quantifiable, rigorous and analytcal approach in which the protection and deployment of value can acquire a more comprehensive character in shaping corporate decision making with respect both to its activities and to the means chosen to achieve them. The dead hand of corporate purpsoe and its textual and qualitative prisons impede that process.

The original may be accessed on the HLSFCC website HERE. It also follows below.

ESG, Stakeholder Governance, and the Duty of the Corporation

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