The Transnationalization of Corporate Governance: Law, Institutional Arrangements and Corporate Power
53 Pages Posted: 15 May 2020
Date Written: May 14, 2020
This Article presents a critique of corporate governance theory against the background of a fundamental transformation of the political economy in which the corporation is embedded. This transformation is effectuated, on the one hand, by the denationalization and privatization of corporate governance rule making, which now encompasses a wide range of new transnational fora and actors. On the other hand, this transformation is a substantive one which touches on the core beliefs that have shaped corporate law and corporate governance for more than a century. The coalescence of these two driving forces places the current debate around “corporate purpose” and alternative visions of the corporation in the context of political economy changes which require a serious engagement with the question how it can be prevented that the corporation continues to become even further insulated from democratic political intervention.
With these two forces in mind, this Article makes a socio-legal intervention, exploring the actual, regulatory landscape of corporate governance norm production today. We study the connections between law and norm creation on both the nation-state and the global level – rather than treating transnational law as the exception – and seek to engage corporate governance as part of a larger critique of law’s troubled relationship with the business corporation as an entity that exists not only in legal doctrine but in a wealth of actual socio-economic relationships. Complementing this analysis, the Article engages with the question whether the corporation’s purpose can be exhaustively be captured by tying it to the maximization of shareholder value. In light of the global financial crisis and its devastating consequences not so long ago, particularly for retail investors, workers and mortgage debtors, and the present-day collapse of world-wide economic activity due to Covid-19, it would seem unlikely were we to find that the allegation, uttered some two decades ago, whereby the shareholder value maximization paradigm constituted the “end of history of corporate law”, was still seen to be true. But, this very belief seems alive and well so that when, in the spring of 2020, business appeals to government for “rescue” in an historically unknown fashion, we must take a closer look at the historical relationship between “the state” and “the market.” What becomes evident from a historical perspective is the linearity of how mainstream corporate law has over time prepared the ground for a far-reaching autonomization and insulation of corporate governance from “society at large.”
The Article analyzes the arguments and policies in support of this alleged autonomy of corporate governance and finds that the roots reach deeper than even the current debates over “stakeholderism” let on. While we are intrigued with the recent advances made in these debates and by important “players” such as the Business Roundtable, it is not at all clear what their lasting impact might be. Our analysis shows that corporate law’s distance from “non-shareholder” interests has long been tied into an economistic concept of the business corporation, from which all memory of the corporation as creature of law is eventually removed. By depicting the corporation through the concept of an in itself reductionist “nexus of contracts” that prioritizes investor-management relations at the exclusion of all other contractual and affected stakeholders of the firm, corporate governance can “take off” into Rudolf Ihering’s heaven of “pure legal concepts”, all the while betraying its deeply ideological character and actual economic and political power.
Keywords: Corporate Governance, corporate purpose, private power, financialization, privatization, public-private law making, lex mercatoria, nexus of contracts, spontaneous order, new institutional economics, norms, transnational corporations, shareholder value maximization, corporate social responsibility
JEL Classification: K12, K22, K33
Suggested Citation: Suggested Citation