Reconstructing the Corporation: From Shareholder Primacy to Shared Governance

by Grant M Hayden, Matthew T Bodie

Modern corporations contribute to a wide range of contemporary problems, including income inequality, global warming, and the influence of money in politics. Their relentless pursuit of profits, though, is the natural outcome of the doctrine of shareholder primacy. As the consensus around this doctrine crumbles, it has become increasingly clear that the prerogatives of corporate governance have been improperly limited to shareholders. It is time to examine shareholder primacy and its attendant governance features anew, and reorient the literature around the basic purpose of corporations. This book critically examines the current state of corporate governance law and provides decisive rebuttals to longstanding arguments for the exclusive shareholder franchise. Reconstructing the Corporation presents a new model of corporate governance - one that builds on the theory of the firm as well as a novel theory of democratic participation - to support the extension of the corporate franchise to employees.

284 pages, Hardcover

Published January 31, 2021

Reviews

[Olivia Lebo-Planas · Rating 4 out of 5]

considering i don’t believe corporations should exist, this was pretty good. really liked when they went in on bainbridge!

[Stanisław · Rating 4 out of 5]

A powerful critique of shareholder primacy in corporate governance. The authors have published some of the arguments presented here earlier as articles, but this book-length exposition only adds to their force.

What is especially admirable here is that it is an immanent critique - law and economics arguments for shareholder primacy are deconstructed using law and economics tools. The nexus-of-contrat metaphor is dissected, the misapplication of Arrow's argument regarding nontrasitive voting outcomes is analyzed in depth and classic theories of the firm, from Coase to GHM are invoked as supporting the inclusion of workers in governance. The authors also throw in a good measure of theory of democratic representation, since, as one could expect, there is a good deal of similarities between elections in corporations and democracies.

They also point out that other legal scholars championing shareholder primacy, were often applying L&E (or economics in general) in a rather sloppy way, and, therefore the authors are careful not to repeat these mistakes. Because of that, for example, authors do not fall into a well-meaning but ultimately meaningless embrace of overinclusive stakeholderism - they argue only for involving labor (apart from shareholders) in corporate governance, not customers or local communities (in that aspect, a fair critique is also levied at some stakeholderists).

As corporate governance theory is reinvigorated by recent surge in ESG capital, this book shows us how to advance a more progressive vision of the corporation using the tools of the trade.