PhD Student

Andrew Baker

JD ’17, PhD ’21
Photos by Kiefer Hickman
Photos by Kiefer Hickman
There’s a growing opportunity for people who want to see an economy that works more for people.
April 23, 2020

Andrew Baker was just 20 in 2008 when the American economy began melting down. He had no idea then that the ensuing years of hardship, recovery, and ongoing social acrimony would lead him to Stanford to study the broader impact of corporations on society.

Now 31, the Georgetown alumnus has a law degree from Stanford under his belt and is on track to graduate from Stanford Graduate School of Business in 2021 with a doctorate in accounting. His research focuses on ways that corporations can factor worker and social interests into their bottom-line accounting.

“There’s a general malaise within the population when thinking about corporations and the economy,” says Baker, a West Hartford, Connecticut, native. “A lot of people believe that corporations are not always acting in societal interests.”

We asked him to recount the path that led him to Stanford GSB, and how he hopes his work could help create a healthier business climate in the U.S.

Your career arc so far has taken you through the worlds of economics, law, and business. Connect those dots for us.

When I graduated from Georgetown [with a degree in international economics], I didn’t really know what to do with my life. A lot of my friends had jobs right out of college, but I traveled for a while and then moved to San Francisco and needed a job. I reached out to my undergrad alumni network and contacted someone out here who was doing litigation consulting.

And that got you interested in law?

Yes, and also in how businesses are run. Most of the cases I worked on arose out of the financial crisis. I didn’t know much about finance or business before that job, but I started reading books, and the 2011 Financial Crisis Inquiry Report, to get up to speed. That’s how I got interested in business and law and these questions about the broader impact of corporations on society. That’s true of a lot of people in my generation, to be honest, especially people in PhD programs in economics or finance. That has driven a lot of us to try to model an economy that gets us what we want rather than what we’ve been doing.

You’ve cited the gap between shareholders and management as a source of problems, because their interests don’t always align. Explain.

In America, corporations sell shares of stock to investors, and the owners of those shares are entitled to the residual profits. The issue is that these shareholders don’t manage the company on a day-to-day basis. That why we have CEOs and boards of directors. But their interests are not always aligned. A manager might prefer more perks, or they might want to make a company really large, because it will give them a higher profile. But that’s not always good for shareholders. The literature on corporate governance has really focused on trying to minimize those misaligned incentives.

You’ve also suggested that corporations have duties to other “natural” stakeholders. Name some of those other stakeholders, and explain why a corporation owes them anything.

Other corporate stakeholders are, first and foremost, employees of companies. They have a lot of stake in the company. This is their livelihood and where they work every day. And the laws of corporate governance that I just described are essentially agnostic to the interests of workers. We have some laws in place, such as minimum wage laws, that take into consideration the interests of workers. But in terms of large decisions that get made in the executive suite, workers don’t really have a say.

Any other “natural” stakeholders?

Members of the local community. If all you’re doing is maximizing the return to shareholders, you can certainly think of instances where what might be best for shareholders is to pollute more, which would be worse for the community. So that’s an area where the various stakeholder interests are not aligned.

Does a singular focus on shareholder-manager interests always work against the interests of society at large?

No. There’s nothing inherently wrong with a profit motive. And it’s certainly not the case that these things are always misaligned. There are a lot of times where more profitable companies are able to hire more and invest more in their workers and in training. You can’t do those things if you don’t have any spare cash left over.

How much support do you get in the business community when you argue that corporations should focus less on maximizing shareholder profit and more on worker and social responsibilities?

Support for this is much higher than it used to be. The question is whether businesses are just giving it lip service or really mean what they’re saying. But the fact that we’re having this debate at all is a good thing.

Is anyone on the national scene trying to address the misalignment problem?

A lot of people believe that corporations are not always acting in societal interests.
Andrew Baker

Elizabeth Warren has proposed the Accountable Capitalism Act and her thought process is exactly concerned with these issues — that this focus on shareholder primacy is detrimental to thinking about how to set up a healthy corporate society. She has proposed doing something very similar to what Germany does, which is called co-determination. That says companies of a certain size need to put workers or worker representatives on the board of the corporation. That gives them an explicit vote in the direction of the company. There are reasons people think that’s actually more efficient and more equitable.

How would that work in the U.S.?

It’s tricky because corporate governance is done at the state level. And the majority of large firms in the U.S. are incorporated in Delaware, because you don’t actually have to be located there; you just file a piece of paper. They do that because Delaware has management-friendly rules, and as a result that tiny state has an outsize role in the corporate governance landscape. What Warren is proposing is to make the system federal. Corporations would have to get a federal charter and there would be one set of rules nationwide. It’s a really complicated piece of legislation that on balance I support, but it’s contrary to what’s been going on in American corporate governance. It would allow workers to have a much larger say in what corporations do. It’s an idea that’s moved beyond progressive policy circles in recent years.

How so?

Historically those arguments would be more associated with somebody like Warren or Bernie Sanders, but if you think about the allure of Trump, his appeal to a large portion of the Republican base was with some of these same ideas: Corporations should not be off-shoring jobs. It suggests that people across the political spectrum no longer believe in extreme laissez-faire economics where you set property rights and everything will turn out OK. A lot of people think these corporations should also provide benefits to society, not just to the shareholders.

There’s been an increase in the demand for “ESG” (environmental, social, and governance) investing. To what extent is that actually driving corporate investment these days?

I think it’s really important, particularly to young investors. People my age, millennials, want to put money into things they feel good about. It’s still a small portion of the market, but it’s a fast-growing portion. In 10 years, if these trends continue, this is something managers will have to explicitly take into consideration.

As a researcher, how do you measure the impact of that sort of thing?

I’m working now with researchers from Brazil who have compiled the largest dataset in the world on human trafficking. Not sex trafficking, but labor trafficking — companies that are using workers in illegal conditions that are close to indentured servitude or slave labor. In Brazil, this is a large problem, so they created a task force in the early 2000s. If a firm is caught doing this, they get put on what’s called a dirty list. And there are consequences for using such labor. We’re trying to look at the decisions companies make when they decide to enter into something like this. What is the incentive structure? Is it more profitable? What are the consequences for being on the dirty list? So we’re focusing on something we can measure really well.

Do corporate realities like that ever make you cynical?

In 2020, if we’re being honest, a lot of things make me cynical. But you have to look at where we are now compared to where we were 15 years ago. The fact that we’re even having these conversations — and that corporate managers are at least giving lip service to the concerns — proves that there’s a growing opportunity for people who want to see an economy that works more for people. That’s promising.

Photos by Kiefer Hickman

Photos by Kiefer Hickman
Andrew Baker
JD ’17, PhD ’21
West Hartford, Connecticut, USA
JD, Stanford University, ’17
BS, International Economics, Georgetown University, ’09
Professional Experience
Academic Fellow, Arthur and Toni Rembe Rock Center for Corporate Governance
Summer Associate, Cravath, Swaine & Moore
Enforcement Intern, Securities & Exchange Commission
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