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41 Seattle U. L. Rev. 419 (2017-2018)
Long-Term Executive Compensation as a Remedy for Corporate Short-Termism

handle is hein.journals/sealr41 and id is 431 raw text is: 

    Long-Term Executive Compensation as a Remedy for
                      Corporate Short-Termism

                            Caroline  Flammer*

       It is often argued that corporations are too focused on the short term
 (i.e., they are  short-termist). For  example,  during  the  2016  U.S.
 presidential campaign,   candidate  Hillary Clinton  urged  companies   to
 escape the tyranny of short-termism.' Similarly, in the recent policy debate
 in the United Kingdom on the need to reform corporate governance and
 executive  compensation,   Bank   of England's   Chief  Economist   Andy
 Haldane  stated that [e]xecutive pay is a matter of profound and legitimate
 public interest. Pay practices can encourage short-term behaviour in ways
 which  harm both  firms and the economy.2
      In  this context, a  recent article by  Flammer and Bansal (FB)
 published  in the Strategic Management Journal argues that long-term
 executive compensation  can help mitigate short-termism.3 More  precisely,
 FB   show  that  the (quasi-random)   adoption   of  long-term  executive
 compensation  leads to an increase in firm value, an increase in long-term
 profits, and is conducive to long-term investments such as investments  in
 innovation and  stakeholder relationships. In this Article, I briefly review
 the core arguments and  main results of FB.

              I.       A TIME-BASED AGENCY CONFLICT
      In the economics   literature, the relationship between shareholders
 and managers   is often conceptualized as a principal-agent  relationship,

 * Assistant Professor of Strategy and Innovation at Boston University Questrom School of Business.
 This Article was prepared for the 9th Annual Berle Symposium, Investor Time Horizons, held at
 Georgia State University College of Law on June 5-6, 2017.
     1. Jennifer Epstein, Hillary Clinton Calls for Investors to Escape 'Tyranny'of Short Termism,'
 BLOOMBERG (July 23, 2015), https://www.bloomberg.com/news/articles/2015-07-24/hillary-clinton-
    2. David Oakley & Jim Pickard, Theresa May Suffers Backlash over Flagship Business Reforms,
FIN. TIMES (Nov. 24, 2016), https://www.ft.com/content/l e804da2-b l9b- 1l e6-a37c-f4aO 1 ft b0fa l.
    3. Caroline Flammer & Pratima Bansal, Does a Long-Term Orientation Create Value? Evidence
from a Regression Discontinuity, 38 STRATEGIC MGMT. J. 1827 (2017).


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