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Deconstructing Corporate Governance: Absolute Director Primacy

Brooklyn Journal of Corporate, Financial & Commercial Law, Vol. 5, p. 341, 2011

Western New England University School of Law Legal Studies Research Paper No. 11-12

65 Pages Posted: 13 Dec 2011 Last revised: 28 Dec 2011

René Reich-Graefe

Western New England University School of Law

Date Written: 2011

Abstract

Microtheoretical models of the corporation which focus on corporate governance attempt to answer two deceptively simple, but fundamentally elusive questions: ‘Who are in control of the corporation?’ and ‘Whose interests ultimately control those in control of the corporation?’ Both questions remain partially unanswered within the models developed to date by corporate theoreticians. This Article proposes a radically new model: 'absolute director primacy.’ Existing microtheoretical models conceive that we only need to — and, indeed, can — determine the controlling interests guiding corporate decisionmaking in order to prove the existence of control over the decisionmaking latitude of corporate boards. The absolute director primacy model reverses this thinking: The corporate board — as the private sector equivalent of a modern Leviathan — has absolute and infinite decisionmaking latitude in order to control the business and affairs of the corporation. Nothing within corporate law provides any meaningful modicum of predictive ability regarding director behavior ex ante or director accountability ex post. As a result, model-immanent explanations of the phenomenon of general investor confidence pre-investment in the face of absent director accountability post-investment become logically impossible. Thus, the absolute director primacy model not only posits a complete absence of ex-post director accountability but accepts the complete ex-ante indeterminability of director decisionmaking. Accordingly, the absolute director primacy model further posits that largely unexplained and currently unaccounted-for protolegal variables control both director behavior and the microtheoretical models of the firm that attempt to explain and predict such behavior.

Keywords: absolute director primacy, corporate governance, corporation law

JEL Classification: K22

Suggested Citation

Reich-Graefe, René, Deconstructing Corporate Governance: Absolute Director Primacy (2011). Brooklyn Journal of Corporate, Financial & Commercial Law, Vol. 5, p. 341, 2011; Western New England University School of Law Legal Studies Research Paper No. 11-12. Available at SSRN: https://ssrn.com/abstract=1971298

René Reich-Graefe (Contact Author)

Western New England University School of Law ( email )

1215 Wilbraham Road
Springfield, MA 01119
United States
413.782.1451 (Phone)

HOME PAGE: http://www.law.wne.edu

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