Stakeholder Governance: A Bad Idea Getting Worse

Calls for a stakeholder voice in corporate governance never end, as evidenced by the Symposium Corporations and Their Communities to which this paper is a contribution. The demise of labor unions and explosion of executive compensation while the income of most Americans has stagnated over the last several years has precipitated cries for remedial action, some of which include stakeholder governance. Although complaints about deepening inequality are just, other remedies should be pursued. The traditional objections to stakeholder governance remain valid: the interests of stakeholder groups clash not only with those of the shareholders but also with each other, and acceptable means for choosing representatives of stakeholders other than employees have not been discovered. Stakeholder governance would impair economic efficiency: maximization of shareholder wealth remains the best proxy for maximizing the benefits of private enterprise to society. Beyond the traditional problems with stakeholder governance, economic developments make it an even worse idea. Capital has become more mobile, and the U.S. is no longer so dominant a venue for investment; many countries (notably China and India) have now entered the competition for capital, and corporate governance in many countries now treats investors better than the U.S. does. Instituting a serious stakeholder role in corporate governance now would send capital fleeing abroad, with great resulting damage to the American economy

Academics In Wonderland: The Team Production and Director Primacy Models of Corporate Governance

This paper examines the Team Production and Director Primacy Models of corporate governance, finds them wanting, and explains why corporate governance is moving toward shareholder primacy and why this will benefit not only investors but the whole American economy. The director primacy model posits that shareholders are so ill-informed and so divided in their interests that they would self-destruct if they controlled the firm. Accordingly they tie their own hands by ceding control to a board of independent directors. Advocates of the team production theory often agree with the foregoing but stress the importance to the firm of other constituencies, or stakeholders, including suppliers, customers, creditors and, especially, employees. To obtain the needed commitments from these stakeholders firms must credibly promise to treat them well, but these arrangements are too complex to be specified in contracts. If shareholders controlled the firm, they could renege on their implicit promises to stakeholders. Accordingly, firms hand control to a board of disinterested directors who act as mediating hierarchs to balance the interests of all constituencies. These theories are riddled with internal contradictions and fail many tests of empirical verification. In my article I expose these problems and show that the current reality of corporate governance is not control by independent, disinterested directors but by CEOs. I then discuss why the alternative -- shareholder primacy -- has not been achieved. I describe both the obstacles to shareholder control and current trends that are facilitating a stronger investor voice. Finally, I suggest that these trends and new ideas may soon lead to real shareholder primacy, and that this will benefit not only investors but the whole American economy

Corporate Governance: The Sweedish Solution

The optimal allocation of authority among executives, directors, and shareholders of public companies has been debated as long as there have been public companies, and the issue now seems further from resolution than ever. In recent years Sweden has changed its corporate governance system by delegating the nomination of corporate directors (and thus, in effect, ultimate control) to committees typically comprising representatives of each company’s largest shareholders. This system gives shareholders a degree of power “that only the most daring corporate governance initiatives in the rest of the world could even imagine.”1 The change is a big success—it has pleased many corporate constituencies without upsetting any. Part I of this Article describes that change and some similar developments in other countries. Part II discusses whether the Swedish model can work in America and concludes that it can. Part III offers two promising ways to move toward shareholder primacy

Traditional Marriage: Still Worth Defending

A few years ago, I wrote an article entitled The Defense of Traditional Marriage.1 I began with the topic of same-sex marriage but soon saw that all the arguments for gay marriage were also arguments for polygamy, endogamy (or incestuous marriage), etc., so the article became a defense of traditional marriage against all these other types. The pertinent law and jurisprudence are constantly changing, so this conference offers an excellent opportunity to reconsider my views in light of new learning and thinking. A review shows the case for traditional marriage is even stronger now than it was before. As evidence has mounted and the glib arguments for same-sex marriage have drawn closer scrutiny, support for traditional marriage has expanded from its initial base, which was heavily concentrated in religious conservatives, by attracting growing numbers of religious and political moderates and liberals

Lawyers and Trust in Business Alliances

This Article attempts a first step in filling the gap in the legal literature about lawyers and strategic business alliances. Part I describes the distinctive nature of strategic alliances. Part II discusses why strategic alliances pose unique problems for lawyers. Part III considers how lawyers\u27 negotiation tactics can enhance rather than erode trust between the parties in alliances. Part IV suggests how lawyers can draft substantive contract terms that foster trust and cooperation in alliances. Part V explores how law schools and continuing legal education can train lawyers to perform better not only in strategic business alliances but in all situations where trust and cooperation are important

The Defense of Traditional Marriage

This article reviews the possible justifications for legal recognition of marriage and finds some, such as encouraging stable, loving relationships, unpersuasive. However, other rationales-including protecting children, socializing adults, and promoting individual happiness-are valid, and these rationales apply only to traditional marriages. Accordingly, society has strong reasons to favor traditional marriage and to deny such treatment to the unmarried and to homosexual, endogamous and bestial relationships