I recently received an e-mail update about an initiative of Harvard Law School’s Shareholder Rights Project (SRP). This SRP initiative concerned ongoing efforts to “declassify” corporate boards of directors so all directors will be up for reelection every year instead of “staggered” director terms that allow some directors to continue to serve for one or two additional years until they are replaced in another shareholder election.
Sometimes I agree with positions taken by SRP, particularly its encouragement of proxies that give shareholders a choice among different candidates instead of simply being asked to retain incumbent directors (I have signed onto at least one amicus brief connected to SRP initiatives). At other times, I am concerned that SRP emphasizes the shareholder primacy norm too much -- corporations after all have a responsibility to creditors, employees and society at large that may not always be consistent with short term shareholder wealth maximization. I am also not sure about “declassifying” corporate boards. Declassification makes it a lot easier for a majority of shareholders to quickly get control of corporate decision making and replace entrenched management, but can also bring about instability, short term rather than long term thinking, and subordination of interests of other constituencies to shareholders’ immediate view of what is best. Declassified boards also make hostile tender offers a lot easier, which may be a good or bad thing, depending on the circumstances. Board declassification may be good for one company and bad for another. There are definitely two sides of the debate.
My broader concern is whether SRP, an affiliate of Harvard Law School that uses the Harvard name, should take a position on controversial issues such as board classification, and whether this is consistent with the mission of a university, which is teaching and research, not advocacy. Harvard Law School’s faculty includes Lucian Bebchuk, presently one of the most highly regarded corporate law professors in the world, and his research clearly supports many of the conclusions advocated by SRP which he also directs. Other present and future researchers, including some at Harvard, however, will make different observations, based on the same or different data, and might reach different conclusions. For a Harvard affiliated program to endorse a particular conclusion puts researchers who reach different conclusions at an unfair disadvantage in the scholarly community and in the public policy arena. Not only are prominent Harvard faculty members against them, but so is a program affiliated with Harvard itself. The institutional endorsement from SRP also adds weight to arguments made by particular parties, including hedge funds and institutional investors, to judges and policy makers, who are already influenced by the individual reputation of Professor Bebchuk and other researchers who agree with these arguments. The difference is that Professor Bebchuk’s advocacy is backed up by his own established reputation for high quality research, which he properly uses to advance his viewpoint, whereas SRP’s advocacy is backed up by Harvard’s reputation. Harvard’s reputation was created over many years by a community of teachers, students, researchers and financial supporters representing many different viewpoints about corporate governance, among other topics.
SRP’s publicity campaign is also unusual because generally universities do not endorse, or allow an affiliate using their name, to endorse particular conclusions from scholarly research, particularly if the conclusions are controversial. Universities may celebrate the research having taken place on their campus, or a faculty member winning a Nobel Prize, but stop far short of institutionally endorsing particular conclusions. Universities and their institutional affiliates also do not advocate for particular research conclusions before courts, legislative bodies and other branches of government, except in the few instances where the University’s own interests are at stake, for example in issues such as affirmative action and immigration reform.
The fact that Harvard Law School expressly disclaims endorsement of SRP’s viewpoint does little to mitigate the problem when SRP uses Harvard’s name, buildings, students and faculty as well as money raised by Harvard, to endorse a particular viewpoint and there is no other affiliate of Harvard endorsing the opposing viewpoint.
Law schools are different from other university units in that they must train students to be advocates. Part of this education involves representing clients in law school clinics, externships and other contexts. The ABA is encouraging more such work, and so are prospective employers. In most of these programs the supervising lawyers and supervised students are representing outside clients. Their representation of clients does not constitute an endorsement of the clients’ views or activities (see ABA Model Rule 1.2) and in an adversary proceeding it is improper for a lawyer to state a personal opinion as to the justness of a cause (see ABA Model Rule 3.4). A law school clinic thus does not itself advance the client’s views except for the legal arguments made in the particular advocacy setting – usually a court or arbitration – where the client is represented. Publicity campaigns are not conducted, mass emails are not sent out, research is not conflated with advocacy and clinic web sites usually do not claim that there is support for clients’ positions in scholarly research done at the same law school or anywhere else. The roles of researcher and legal advocate are appropriately distinct in most law school settings, and both of these roles are appropriately distinct from the views and objectives of clients. There are a few exceptions – particularly with some environmental law clinics – but with these exceptions comes controversy, and deservedly so.
Finally there is no reason why the SRP cannot continue its work while observing reasonable boundaries separating its advocacy from the Law School’s mission of education and research. There are several options. SRP could be moved off campus and drop the Harvard name, and then continue to advocate for its own viewpoint as well as the views of institutional investors who are its nominal clients. Harvard students could get credit working for SRP on the same terms available to students who work in externships with lawyers in other outside advocacy organizations representing a range of ideological viewpoints (hopefully). Alternatively, SRP could stay on campus and keep the Harvard name, but like most other law school clinics focus on representing clients – here shareholders with grievances against corporate management – while dropping its publicity campaign explaining to a broader audience why research at Harvard shows that the clients’ cause is a just one. If Harvard retains such a clinic, it should also use its generous resources to open a separate clinic to provide representation to non-shareholder constituencies such as creditors, employees and communities concerned about unfair subordination of their interests in a corporate governance regime dominated by the shareholder primacy norm. Such a clinic also should focus on advocacy for clients, not publicity campaigns asserting that Harvard faculty members’ research supports the justness of the clients’ cause.