Choice, Progressive Values, and Corporate Law: A Reply to Greenfield

Abstract

In his recent book chapter, Corporate Law and the Rhetoric of Choice, Professor Kent Greenfield rejects contractarian justifications for existing corporate governance arrangements. This rejection is propelled by the contention that current governance arrangements entrench existing matrices of social and economic power, thus disadvantaging corporate stakeholders who are currently excluded from the corporate decision making process. Greenfield advances this critique on two grounds. First, relying on behavioralist scholars, he accepts the demise of the rational actor model and, accordingly, opposes the contemporary use of choice as a construct that legitimates current corporate governance approaches. Seeking to include additional stakeholders in corporate governance, he disputes the deduction that each person acts to maximize her own welfare through exchanges that make all parties to the deal better off. Second, Greenfield refracts his analysis through the prism of Progressive thought and values. His dependence on the New Deal and Progressive values represents an effort to constrain contractarian extensions of neoclassical economics in the corporate law arena but draws inspiration from the regulatory urge that characterized government experimentation during the 1930s. Arguing that Progressives have been part of modernity's inevitable march toward progress, Greenfield applies Progressive values to the nexus of contract model in order to expand the power of currently excluded stakeholders.

Greenfield's approach is disturbing for two reasons. First, he fails to notice that behavioralist scholars often rely on experimental data, while law and economics scholars rely on empirical data. Accordingly, Greenfield does not distinguish between experimental data showing cognitive biases and empirical studies investigating behavioralist claims. Law and economics scholars emphasizing empirical analysis demonstrate that there is little proof "that behavioral law and economics generates greater predictive power than standard price theoretic analysis." Thus, private decision making, which Greenfield castigates, typically results in better outcomes than the public/regulatory decision making that Greenfield prefers. Second, Greenfield's reliance on Progressive values is misplaced because in its origins and its consequences, the Progressive Era was both liberal and conservative: liberal in emphasizing economic uplift for some but conservative in concluding that certain people – African Americans, women, immigrants, and others – were defectives in need of social control and exclusion. The evidence shows that Progressive Era labor legislation, often sheltered by social justice rhetoric, succeeded in excluding large numbers of Americans from employment. Much contemporary evidence sustains the observation that the Progressive impulse continues to exclude the disadvantaged from labor markets today.

Properly evaluated, Greenfield's critique, offered in the name of the disadvantaged, produces a number of claims that may ultimately advantage those in power. Denouncing existing corporate governance architecture (which is justified by the contractarian claim that people know and protect their interests when they bargain, purchase stocks, and voluntarily enter into agreements that establish corporations), he ignores special interest groups who protect their own interest by seizing the power of the state. Majoritarian seizure gains traction by invoking social justice rhetoric but allows powerful interest groups to exclude their weaker competitors from the labor markets they wish to dominate. Greenfield's effort to diminishrespect for choice and liberty of contract correlates with paternalistic efforts to enlarge the power of government. As both the New Deal and the contemporary economic record show, enlarging government's scope predicated on Progressive values risks government failure as well as the sub-ordination of more citizens. This is so because such values, when stripped of the patina of progress, consist of contradiction and coercion that reduce the number of beneficial consensual avenues available to most Americans.

Keywords: Delaware, Journal, Corporate Law, Corporate, Greenfield, Corporate Law and the Rhetoric of Choice