Separation and Dependence: Explaining Modern Corporate Governance
14 Pages Posted: 10 Oct 2012
Date Written: October 10, 2012
I use the occasion of my inaugural Wiley lecture to set forth my understanding of corporate governance.
I will refer to my model of corporate governance as the “horizontal model” of corporate governance, because my central argument is that the key aspects of corporate governance – which I identify as officers, directors, and shareholders – have a shared role in exercising corporate power.
Each has a piece of the overall quantity of corporate power, but none alone can take significant corporate action independently. That is, each of the players in corporate governance has an incomplete piece of corporate power. In this way power is separated, and also codependent.
This is a conception of corporate governance that is in harmony with much of the existing academic literature. For example, in expressly rejecting the notion of shareholders as owners entitled as a matter of course to control the firm, I am adopting a contractual view of the corporation, which conceives of shareholders as one of many claimants in a firm.
On the other hand, I reject not only the shareholder supremacy model of the corporation, but also the director primary and officer primacy versions as well. While I acknowledge the importance of each, and do concede a central role to officers, unlike most, I ultimately describe each as equivalent parts of corporate governance.
Keywords: Corporate governance, director primacy, shareholder primacy, Delaware, board of directors, corporate law
JEL Classification: K22
Suggested Citation: Suggested Citation