Abstract

http://ssrn.com/abstract=1436555
 
 

Citations (5)



 
 

Footnotes (64)



 


 



Agency Problems, Legal Strategies, and Enforcement


John Armour


University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Henry Hansmann


Yale Law School; European Corporate Governance Institute (ECGI)

Reinier Kraakman


Harvard Law School; European Corporate Governance Institute

July 20, 2009

Oxford Legal Studies Research Paper No. 21/2009
Yale Law, Economics & Public Policy Research Paper No. 388
Harvard Law and Economics Research Paper Series No. 644
ECGI - Law Working Paper No. 135/2009

Abstract:     
This article is the second chapter of the second edition of "The Anatomy of Corporate Law: A Comparative and Functional Approach," by Reinier Kraakman, John Armour, Paul Davies, Luca Enriques, Henry Hansmann, Gerard Hertig, Klaus Hopt, Hideki Kanda and Edward Rock (Oxford University Press 2009). The book as a whole provides a functional analysis of corporate (or company) law in Europe, the U.S., and Japan. Its organization reflects the structure of corporate law across all jurisdictions, while individual chapters explore the diversity of jurisdictional approaches to the common problems of corporate law. In its second edition, the book has been significantly revised and expanded. "Agency Problems and Legal Strategies" establishes the analytical framework for the book as a whole. After further elaborating the agency problems that motivate corporate law, this chapter identifies five legal strategies that the law employs to address these problems. Describing these strategies allows us to more accurately map legal similarities and differences across jurisdictions. Some legal strategies are "regulatory" insofar as they directly constrain the actions of corporate actors: for example, a standard of behavior such as a director's duty of loyalty and care. Other legal strategies are "governance-based" insofar as they channel the distribution of power and payoffs within companies to reduce opportunism. For example, the law may accord direct decision rights to a vulnerable corporate constituency, as when it requires shareholder approval of mergers. Alternatively, the law may assign appointment rights over top managers to a vulnerable constituency, as when it accords shareholders - or in some jurisdictions, employees - the power to select corporate directors. We then consider the relationship between different enforcement mechanisms - public agencies, private actors, and gatekeeper control - and the basic legal strategies outlined. We conclude that regulatory strategies require more extensive enforcement mechanisms - in the form of courts and procedural rules - to secure compliance than do governance strategies. However, governance strategies, for efficacy, require shareholders to be relatively concentrated so as to be able to exercise their decisional rights effectively.
In addition to Chapter 2, Chapter 1, "What is Corporate Law?," is available in full text on the SSRN at http://ssrn.com/abstract=1436551

Number of Pages in PDF File: 23

Keywords: Agency, agency cost, agency problem, appointment rights, decision rights, control rights, regulation, corporate governance, equal treatment, trustee, mandatory disclosure, enforcement, private enforcement, public enforcement, gatekeeper control

JEL Classification: D23, G32, G34, G38, K22, M14

Accepted Paper Series


Download This Paper

Date posted: July 21, 2009 ; Last revised: February 1, 2010

Suggested Citation

Armour, John and Hansmann, Henry and Kraakman, Reinier, Agency Problems, Legal Strategies, and Enforcement (July 20, 2009). Oxford Legal Studies Research Paper No. 21/2009; Yale Law, Economics & Public Policy Research Paper No. 388; Harvard Law and Economics Research Paper Series No. 644 ; ECGI - Law Working Paper No. 135/2009. Available at SSRN: http://ssrn.com/abstract=1436555

Contact Information

John Armour (Contact Author)
University of Oxford - Faculty of Law ( email )
Oriel College
Oxford, OX1 4EW
United Kingdom
+44 1865 286544 (Phone)
University of Oxford - Said Business School ( email )
Park End Street
Oxford, OX1 1HP
Great Britain
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Henry Hansmann
Yale Law School ( email )
P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-4966 (Phone)
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Reinier H. Kraakman
Harvard Law School ( email )
1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-496-3586 (Phone)
617-496-6118 (Fax)
European Corporate Governance Institute ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
Feedback to SSRN


Paper statistics
Abstract Views: 15,108
Downloads: 3,099
Download Rank: 1,501
Citations:  5
Footnotes:  64

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.328 seconds