Local Firm Governance

Abstract

Across the country, diverse cities – large and small, red and blue – have undertaken governance initiatives within firms. These novel initiatives range from requiring board diversity and promoting stakeholder governance, to supporting the establishment of worker cooperatives and constraining executive compensation, and beyond. These developments defy the conventional framework of firm governance which is taken primarily from state laws, and supplemented by federal law, laws from foreign jurisdictions, the rules of self-regulatory bodies and professional organizations, and, increasingly, contractual agreements. Within this vast body of guidance, there has been no meaningful role for local governments – until now. While many remain dissatisfied with the contemporary system of firm governance for a variety of reasons, economic and other forces have diminished states’ incentives and informal power to regulate firms differently. In contrast, localities have seized their growing informal power to render the established framework of firm governance newly incomplete.

This Article constitutes the only substantial theoretical treatment of firm governance by localities, despite localities’ vast number (approximately 90,000 as of the 2022 Census of Governments), financial influence (with local government direct expenditures comprising 8.6% of U.S. GDP in 2020), and political power. It is the first to surface and explore local initiatives and laws that directly affect relationships among firm insiders and other constituents. Because these issues concern firm governance, these local initiatives constitute what I call “local firm governance.” This Article also highlights theoretical implications for central questions of organizational law, local government law, and economic geography of interest to firm stakeholders. In what ways have one creature of the state attempted to influence another, despite the existing system of firm governance and inherent limitations upon localities’ authority? What new issues and possibilities emerge in firm governance and local government law as a result?

Keywords: Corporate Law, Local Government Law, Corporate Governance, Community Development, Social Enterprise