New Game Plan or Business as Usual? A Critique of the Team Production Model of Corporate Law

Abstract:     
As elaborated by Margaret Blair and Lynn Stout, the Team Production Model of corporate law responds to special challenges presented by large-scale production. Because the output of public corporations typically is nonseparable, some mechanism for revenue allocation among the various contributors to production is necessary. Ex ante allocation techniques can encourage inefficient behavior but ex post allocation by one of the team members (such as the shareholders) threatens opportunistic self-dealing and therefore discourages firm-specific investment of human and financial capital by other team members. The TPM offers a solution to these challenges by designating the corporation's board of directors as an independent agency with the authority to mediate among the claims of the corporation's team members. No claims enjoy a priori privileged status, so the traditional "shareholder primacy" norm has no place in the TPM. This Essay first disputes Blair and Stout's claim that current corporate law already reflects the TPM's conception of board independence and its rejection of shareholder primacy. It then criticizes the TPM as a normative theory, arguing first that the TPM would generate new inefficiencies of its own and, second, that it would do nothing to improve distributional outcomes for nonshareholders vis-a-vis shareholders over those currently available through market interactions. The latter point should be of particular interest to critics of shareholder primacy who might otherwise be inclined to see the TPM as supporting a progressive corporate law reform agenda.

Number of Pages in PDF File: 45

Accepted Paper Series