Team Production and Securities Laws
13 Pages Posted: 6 Feb 2015
Date Written: 2015
In Team Production Theory of Corporate Law, Margaret Blair and Lynn Stout made two related points. First, that Delaware law does not require rigid shareholder primacy in public corporations. Rather, the broad deference afforded to the decisions of predominantly independent corporate boards of directors is consistent with a contrary theory, where the fundamental role of the board of directors is to mediate between the interests of various stakeholders that contribute to the corporation’s output. Second, Blair and Stout’s contend that such an arrangement is more efficient than narrow shareholder primacy.
This symposium contribution draws on a closely related area of law — securities regulation — to make two related points. First, unlike corporate law, and as a positive matter, securities regulation can be described as requiring shareholder primacy, or at least investor primacy. This is important because securities compliance takes up more of directors’ and officers’ time than compliance with corporate law, and thus likely influences and informs their day-to-day decisionmaking to a greater degree than does corporate law. If so, perhaps the persistent dominance of shareholder primacy in corporate governance should not be surprising. Second, as a normative matter, investor primacy in securities regulation and enforcement may produce efficient results for most securities activities, but produces suboptimal compliance and enforcement for the most heavily litigated and debated category of securities misconduct: accounting fraud. Theoretical and empirical evidence on the economic consequences of fraudulent financial reporting suggests that the nearly exclusive focus on shareholders in corporate law and governance is misplaced.
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