British business has lost the public’s trust. The distrust in business was one of the reasons the British people voted for Brexit. This series of lectures examine whether businesses exist to make profits or to serve a purpose. Contrary to conventional wisdom that there is a trade-off between purpose and profit, Alex Edmans, Gresham College's new Professor of Business, will present rigorous evidence showing that there doesn’t need to be a trade-off.
Executive pay is a controversial topic, that is arguably the primary cause behind mistrust in business. Various remedies have been proposed, however, just like in medicine, diagnosis precedes treatment. Many of the supposed inefficiencies that reforms are trying to solve are based on hand-picked examples and myths rather than rigorous data. The UK is considered a world leader in corporate governance, but governance failures are blamed for the loss of trust in business – hence the UK Corporate Governance Code is currently being reformed. Professor Edmans will discuss what optimal governance should look like – including issues such as boardroom diversity, independence of directors, employee representation, and whether directors’ fiduciary duty should be to shareholders or all of society.
Poor stewardship by investors has been argued to be a cause of poor corporate governance. Investors are not acting as owners, trading their shares rather than engaging with companies. Moreover, when investors do engage, they do so to increase short-term profit at the expense of long-run value. Professor Edmans will critically analyse the evidence on whether shareholder activism is beneficial for long-term value, address best practices for shareholder engagement, and suggest policies to promote the “good” type of shareholder engagement.
Since the financial crisis, there has been the strong view that the financial sector – which employs some of the highest-paid individuals – has little benefit for society. The stock market is not a net supplier of capital – as much money is spent on share buybacks as is raised from new issuance. Moreover, most stock market trading is speculative side-bets between investors, with no new money being raised by firms. Professor Edmans will show that share buybacks can create value and that stock market trading has a role in society even if does not lead to firms raising new capital.