The Inconvenient Truth about Corporate Governance: Some Thoughts on Vice-Chancellor Strine's Essay

Abstract

Vice Chancellor Strine's contribution to the corporate governance debate is a welcome reminder that the fundamental and final goal of corporation law is social prosperity, broadly conceived. Wealth creation, job creation, and a long-term investment perspective need to be brought back to the forefront. These have been the traditional aims of corporation law. They have been implemented through a legal framework that locates initiative and decision making power in management and the board of directors. The director-centric governance structure has created the most successful economy the world has ever seen, unequalled in its ability to reward employees as well as investors by raising overall standards of living through the mobilization of large pools of capital over a long-range time horizon.

We believe Vice Chancellor Strine is right to suggest that there can be much common ground between management and labor when it comes to corporate governance issues. The basic reason for this harmony of interest is that both management and labor have a common adversary - the governance lobby made up of Institutional Shareholder Services (ISS)-type advisers, short-term hedge fund "activists," and Bebchuk-style academics. These pressure groups are seeking to destroy the director-centric model of corporate governance, in which boards moderate and balance the interests of management, employees, creditors, and shareholders. They seek to replace this model with a ruthless and simplistic rule that the shareholders own everything and therefore have the power to decide everything in their own interests.