Misalignment: Corporate Risk-Taking and Public Duty

50 Pages Posted: 15 Aug 2015 Last revised: 20 Dec 2016

Date Written: December 19, 2016


This Article argues for a “public governance duty” to help manage excessive risk-taking by systemically important firms. Although governments worldwide, including the United States, have issued an array of regulations to attempt to curb that risk-taking by aligning managerial and investor interests, those regulations implicitly assume that investors would oppose excessively risky business ventures. That leaves a critical misalignment: because much of the harm from a systemically important firm’s failure would be externalized onto the public, including ordinary citizens impacted by an economic collapse, such a firm can engage in risk-taking ventures with positive expected value to its investors but negative expected value to the public. The Article analyzes why corporate governance law should, and shows how it feasibly could, take the public interest into account.

Suggested Citation

Schwarcz, Steven L., Misalignment: Corporate Risk-Taking and Public Duty (December 19, 2016). Notre Dame Law Review, Vol. 92, pp.1-50 (2016), Duke Law School Public Law & Legal Theory Series No. 2015-40, Available at SSRN: https://ssrn.com/abstract=2644375 or http://dx.doi.org/10.2139/ssrn.2644375

Steven L. Schwarcz (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7060 (Phone)
919-613-7231 (Fax)

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