Organic Corporate Governance

50 Pages Posted: 24 Mar 2017 Last revised: 29 Jan 2018

See all articles by Robert C. Bird

Robert C. Bird

University of Connecticut - School of Business

Stephen Park

University of Connecticut - School of Business

Date Written: January 27, 2018

Abstract

A publicly-held corporation maintains a system of governance through separation of ownership and control of the firm. Under this framework, corporations attract capital and repatriate profits to their shareholders under the authority vested in the board of directors. However, significant evidence exists that Chief Executive Officers (“CEOs”) are commonly driven by self-interest, boards often indulge CEOs, and shareholders find it difficult to monitor management. Many recent reforms have sought to improve corporate governance through regulatory interventions that empower shareholders. This Article identifies the limitations of this approach and advances a new model that looks within the “black box” of the firm. Integrating legal analysis with insights from organizational management and finance scholarship, this Article argues that corporations can overcome weak governance practices through forces that are driven by self-interested behavior of internal corporate actors. Three distinct, yet interrelated, internal forces generate what this Article calls organic corporate governance: (1) compliance systems that establish and enforce internal rules of conduct, (2) firm-specific human capital that binds actors to the firm, and (3) mutual monitoring by superiors and subordinates that constrains the self-interested behavior that erodes firm value. This Article applies this model to the responsibilities of the Chief Legal Officer (“CLO”), also known as the firm’s general counsel, who is an indispensable generator of organic corporate governance.

Keywords: corporate governance, corporate compliance, mutual monitoring, chief legal officer, general counsel, professional responsibility, securities regulation, shareholder activism, shareholder empowerment

Suggested Citation

Bird, Robert C. and Park, Stephen, Organic Corporate Governance (January 27, 2018). Boston College Law Review, Vol. 59, No. 1, 2018, Available at SSRN: https://ssrn.com/abstract=2940057

Robert C. Bird

University of Connecticut - School of Business ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

HOME PAGE: http://businesslaw.business.uconn.edu/robert-bird/

Stephen Park (Contact Author)

University of Connecticut - School of Business ( email )

Storrs, CT 06269
United States

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