Why New Corporate Law Arises: Implications for the 21st Century
The Corporate Contract in Changing Times: Is the Law Keeping Up? (William Savitt, Steven Davidoff Solomon & Randall Thomas eds., University of Chicago Press Forthcoming)
21 Pages Posted: 1 Jun 2017 Last revised: 23 Jun 2017
Date Written: June 1, 2017
The corporate governance landscape is much different than a generation ago. Independent directors now hold a great majority of all board seats, institutional shareholders hold a supermajority of all shares in public corporations, and activist shareholders have become a recurring player in entity governance. In turn, other corporate stakeholders express increasing concern about shareholders’ use of their power for selfish reasons and the perceived pernicious impact of shareholder wealth maximization as a guide for corporate law. This chapter, part of a book on “The Corporate Contract in Changing Times” asks: Why does corporate law change and how it might change now?
Corporate law changed regularly in the first half of our country’s history. A series of innovations followed one after another during the nineteenth century — limited liability; general incorporation statutes; a strong shift to director-centric corporate governance; authorization of corporations holding stock in other corporations; and the disappearance of ultra vires and other limits on corporate behavior. By the arrival of the twentieth century all the key economic elements of the modern corporation were in view and corporate law settled into a stable pattern we still see today. State law abandoned its prior regulatory approach and its continual change in favor of a director-centric structure with expansive room for private ordering that has remained remarkably stable. Federal law stepped in to restrain economic concentration (antitrust law), to protect employees and consumers against corporate power (done by industry regulation, employment and consumer laws not corporate governance), to limit corporate political contributions, and to make recurring, if sporadic and non-comprehensive, efforts to enhance the role of shareholders against managers.
This chapter examines this history of change in corporate law in America, the dramatic and abrupt shift in the focus of state corporate law visible in last decade or so of the nineteenth century, the interactive pattern of state and federal law that has grown up over the second half of the country’s history and prominent theories explaining what leads to corporate law change. Together these various strands suggest there will be no fundamental change in state corporate law even in this time of visible stress to the now classic structure. Changes that we see is more likely to come from federal law or, as has been most visible in recent times, because of market and technological-driven changes outside of law.
Keywords: corporations, corporate governance
JEL Classification: G30, K00, K22, K23, O16
Suggested Citation: Suggested Citation