Team Production Theory and Private Company Boards

31 Pages Posted: 13 Feb 2015 Last revised: 14 Feb 2015

Date Written: February 12, 2015

Abstract

In their path-breaking article, A Team Production Theory of Corporate Law, Margaret Blair and Lynn Stout provided a new theory of the board of directors in a corporation. Drawing on the economic theory of team production, Blair and Stout argued that the board of directors serves as a mediating hierarchy for the firm as a whole, encouraging firm-specific investments from team members and reducing shirking and opportunistic behavior. While Blair and Stout provided a dramatically different view of the corporation from the conventional principal-agent account, they also delineated limitations to their proposed theory. Most importantly, they suggested that the mediating hierarchy model does not apply to private corporations. They explained this caveat by contrasting the concentrated stock ownership of private corporations with the widely dispersed share ownership of public corporations, which they argued frees directors from the control of shareholders, executives, and employees.

This Essay, written for the Sixth Annual Berle Symposium, takes the stated limitations of Blair and Stout’s work as a starting point. Through an examination of private company boards, both of startup corporations and other private corporations, this Essay shows that Blair and Stout’s theory need not be limited to public corporations. Specifically, it examines the following ways that the mediating hierarchy model is reflected in some, but not all, private company boards: the “hiring” of the board, the use of independent directors, and the mediating function of the board. Although the board of directors does not act as a mediating hierarchy in all private corporations, Blair and Stout’s theory furthers our understanding by providing special insight into some.

Keywords: corporate law, private corporations, private company boards, start-ups, corporations, team production theory, board of directors

Suggested Citation

Pollman, Elizabeth, Team Production Theory and Private Company Boards (February 12, 2015). Seattle University Law Review, Vol. 38, No. 2, 2015; Loyola-LA Legal Studies Paper No. 2015-05. Available at SSRN: https://ssrn.com/abstract=2564323

Elizabeth Pollman (Contact Author)

Loyola Law School Los Angeles ( email )

919 Albany Street
Los Angeles, CA 90015-1211
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
88
rank
277,886
Abstract Views
952
PlumX Metrics