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11 Harv. Bus. L. Rev. 233 (2021)
The Power of the Narrative in Corporate Lawmaking

handle is hein.journals/hbusrew11 and id is 245 raw text is: THE POWER OF THE NARRATIVE IN CORPORATE LAWMAKING MARK J. ROE & ROY SHAPIRA* The notion of stock-market-driven short-termism relentlessly whittling away at the American economy's foundations is widely accepted and highly salient. Presidential candidates state as much. Senators introduce bills assuming as much. Corporate interests argue as much to the Securities and Exchange Com- mission and the corporate law courts. Yet the academic evidence as to the prob- lem's severity is no more than mixed. What explains this gap between widespread belief and weak evidence? In this Article, we explore the role of narrative power. Some ideas are bet- ter at being popular than others. The concept of pernicious stock market short- termism has three strong qualities that make its narrative power formidable: (1) connotation-the words themselves tell us what is good (reliable long-term commitment) and what is not (unreliable short-termism); (2) category confu- sion-disparate corporate misbehavior, such as environmental degradation and employee mistreatment, are mislabeled as short-term, when they in fact primar- ily emanate from other misalignments, thereby making us view short-termism as more rampant and pernicious than it is; and (3) confirmation-the idea is regu- larly repeated, because it is easy to communicate, and often boosted by powerful agenda-setters and interests that benefit from its repetition. The Article then highlights the real-world implications of narrative power-powerful narratives can make decisionmakers be more certain than the underlying evidence is, thereby leading policymakers astray. For example, a fa- vorite remedy for stock-market-driven short-termism is to insulate executives from stock market pressure. If lawmakers believe that short-termism is a pri- mary cause of environmental degradation, anemic investment that holds back the economy, employee mistreatment, and financial crises-as many state-then they are likely to support insulating corporate executives further from stock mar- ket accountability. Doing so, however, may do little to alleviate the underlying problems, which would be better handled by, say, stronger environmental regu- lation and more astute financial regulation. Powerful narratives can drive out good policymaking. INTRODUCTION .................................................. .234 I. THE DOMINANT NARRATIVE: STOCK MARKET SHORT-TERMISM CAUSES SERIOUS ECONOMIC-WIDE DEGRADATION ........... . 241 A. Public Consensus..................................... 241 B. Evidentiary Uncertainty ............................... 242 H. CONNOTATION ............................................. 244 A. The Vocabulary of Short-Termism ...................... 244 * Harvard Law School and Harry Radzyner Law School, respectively. Thanks go to Michal Barzuza, Lucian Bebchuk, Jesse Fried, Jeffrey Gordon, Robert Jackson, Adi Libson, Geoffrey Miller, David Hirshleifer, Christophe Moussu, Holger Spamann, Michael Troege, Andrew Tuch, Joshua White, and participants in workshops at Cambridge University, the Corporate Law Webinar Series (CLAWS), ESCP-Europe, the European Law & Economics Association, Harvard Law School, IIAS-Israel, Oxford Law School, and Vanderbilt Law School for com- ments, and to Marcelo Moreno Bonassa, Raffaele Felicetti, Abdurrahman Kayiklik, Jessica Ljustina, and Kathy Zhang for research assistance.

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