Judging Corporate Directors by the Companies They Keep: Results from An Interactive Simulation about the Motivations of Corporate Directors

University of Pennsylvania Journal of Law & Public Affairs 2020

39 Pages Posted: 7 Feb 2021

See all articles by Bill Tomlinson

Bill Tomlinson

University of California, Irvine; Victoria University of Wellington

Andrew W. Torrance

University of Kansas - School of Law

Rebecca Black

University of California, Irvine

M. Six Silberman

IG Metall

Yaqi Xie

University of California, Irvine

Paramdeep Singh Atwal

University of California Irvine

Date Written: November 30, 2020

Abstract

The directors of major corporations are hugely powerful in charting the course of industrial civilization. Who selects those directors, and how those directors make decisions, are therefore both topics of critical importance. Various legal frameworks, such as the Accountable Capitalism Act currently under consideration by the United States Congress, have proposed that shareholders and/or employees should have a say in the director-selection process. We conducted an interactive simulation experiment, based on the Accountable Capitalism Act and Delaware corporate law, with human participants acting as three different types of directors: shareholder-selected directors, employee-selected directors, plus a third, novel form of director, “environment-selected directors.” In this paper, we integrate quantitative and qualitative findings from this experiment to provide novel results about the behaviors of these participants, and the deeper motivations underlying their behaviors. We found a range of potential motivations that could affect directors’ behavior, including obeying regulations, being responsive to changes unfolding in the world, feelings of obligation to the stakeholders that selected them, and pre-existing biases toward or against particular stakeholders. We also found a strong penchant on the part of directors to engage in balancing of interests, even when instructed to favor only one interest, suggesting tension between existing corporate law and the preferences of individual directors. By providing experimental evidence into the motivations that may influence such directors’ behaviors, and in particular exploring the possibility of environment-selected directors, this paper seeks to lay the legal groundwork for broader stakeholder representation on corporate boards.

Suggested Citation

Tomlinson, Bill and Torrance, Andrew W. and Black, Rebecca and Silberman, M. Six and Xie, Yaqi and Atwal, Paramdeep Singh, Judging Corporate Directors by the Companies They Keep: Results from An Interactive Simulation about the Motivations of Corporate Directors (November 30, 2020). University of Pennsylvania Journal of Law & Public Affairs 2020, Available at SSRN: https://ssrn.com/abstract=3740154

Bill Tomlinson (Contact Author)

University of California, Irvine ( email )

Bren Hall
Irvine, CA 92697-3440
United States

Victoria University of Wellington ( email )

P.O. Box 600
Wellington, 6140
New Zealand

Andrew W. Torrance

University of Kansas - School of Law ( email )

Green Hall
1535 W. 15th Street
Lawrence, KS 66045-7577
United States

Rebecca Black

University of California, Irvine ( email )

Campus Drive
Irvine, CA 62697-3125
United States

M. Six Silberman

IG Metall ( email )

Wilhelm-Leuschner-Straße 79
Frankfurt am Main, Hessen 60329
Germany

Yaqi Xie

University of California, Irvine ( email )

P.O. Box 19556
Science Library Serials
Irvine, CA 62697-3125
United States

Paramdeep Singh Atwal

University of California Irvine ( email )

Division of Nephrology, University of California I
101 City Drive South, City Tower, Suite 400-ZOT;40
Orange, CA California 92868-3217
United States

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