Responses to Leo E. Strine, Jr., Who Bleeds When the Wolves Bite?
This collection is a response to Judge Strine’s Feature published in Issue 6.
Their Bark Is Bigger Than Their Bite: An Essay on Who Bleeds When the Wolves Bite
Delaware Chief Justice Leo Strine is of the view that America is in terrible shape. Specifically, he identifies deep problems in the fabric of American society, which include “growing income inequality, inflated executive pay, job losses, [and] wage stagnation.” Having noted these problems, Strine lays a portion of the blame at the feet of activist hedge funds and the apparently misguided pension plans and university endowments that invest in such hedge funds. In this Essay, I articulate Strine’s worldview and argue that while his Feature in this issue of the Yale Law Journal is ostensibly about hedge fund activists, his real complaint is with modernity itself. Hedge funds are merely piling on. Accordingly, his proposed solutions, which focus largely on disclosure and reporting requirements, are misplaced in the current debate.
Hedge Fund Activism, Short-Termism, and a New Paradigm of Corporate Governance
Chief Justice Strine’s important article, Who Bleeds When the Wolves Bite?, brings a much-needed perspective to the modern corporate governance debate. Chief Justice Strine looks at the corporate governance world through the lens of what he calls the “human investors,” i.e., the ordinary individuals who are the ultimate beneficiaries of the mutual funds, pension funds, and other aggregators of investment capital that control a sizable portion of today’s public company equity securities. As the Feature emphasizes, human investors have an overriding interest in the long-term health of business enterprises, both as equity and debt investors and as wage earners. Through their lens, Chief Justice Strine raises a number of significant issues. These include the disconnect between the money managers focused on short-term performance and the long-term horizons of the human investors whose funds they manage, as well as the opportunism of activist hedge funds that seek to make quick profits through financial engineering rather than long-term investment. He also focuses on the growing evidence that equity gains realized by financial engineering pushed by activist hedge funds, to the extent those gains exist, are likely the result of diverting value from debt holders, workers or other constituencies. Short-term pressures that suppress investment in research and development, productive assets and future business opportunities are hurting our corporations and our broader economy. Chief Justice Strine is right to raise these issues, and addressing them is vital.