Corporate Governance Reform for the 21st Century: A Critical Reassessment of the Shareholder Primacy Model

46 Pages Posted: 3 Nov 2012 Last revised: 29 Nov 2018

See all articles by Carol Liao

Carol Liao

Peter A. Allard School of Law

Date Written: November 2, 2012


This article questions the efficiency of the shareholder primacy model of corporate governance in light of the financial calamities that have plagued the first decade of the 21st century. Reform efforts following the global financial crisis have focused on failures in securities regulation, but that is only part of the story. Effective reform measures must also address the legal and normative prescriptions found within existing governance structures, and the collateral effect those prescriptions have on political and regulatory inaction.

There was strong ideological support for the shareholder primacy model at the start of the century. Following the corporate and accounting scandals of 2001 and 2002, three scholarly perspectives emerged addressing the effectiveness of the model. This article continues the dialogue on those perspectives and examines two factors that contributed to the collapse of the US subprime mortgage market: the repeal of the Glass-Steagall Act and the originate-to-distribute model of lending. The examination reveals how the shareholder primacy model played a key role in the onslaught of the global financial crisis by incentivizing the obstruction of efficient regulation. Alongside this analysis is an interwoven account of the evolution of law and economics scholarship. The article provides a timely outlook on how the shareholder primacy model encourages corporate behaviour that perpetuates the likelihood of future crises. It concludes by offering potential solutions for reform.

Keywords: corporate governance, shareholder primacy, global financial crisis, Glass-Steagall act, originate-to-distribute model of lending, subprime mortgage crisis, Chicago school law and economics, institutional law and economics, new institutional economics

Suggested Citation

Liao, Carol, Corporate Governance Reform for the 21st Century: A Critical Reassessment of the Shareholder Primacy Model (November 2, 2012). Ottawa Law Review, Vol. 43(2), Forthcoming. Available at SSRN:

Carol Liao (Contact Author)

Peter A. Allard School of Law ( email )

University of British Columbia
1822 East Mall
Vancouver, British Columbia V6T 1Z1


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