The Corporate Governance Machine

78 Pages Posted: 1 Feb 2021 Last revised: 2 Feb 2022

See all articles by Dorothy S. Lund

Dorothy S. Lund

University of Southern California Gould School of Law

Elizabeth Pollman

University of Pennsylvania Carey Law School; Co-Director, University of Pennsylvania Carey Law School - Institute for Law and Economics; European Corporate Governance Institute

Date Written: 2021

Abstract

The conventional view of corporate governance is that it is a neutral set of processes and practices that govern how a company is managed. We demonstrate that this view is profoundly mistaken: in the United States, corporate governance has become a “system” composed of an array of institutional players, with a powerful shareholderist orientation. Our original account of this “corporate governance machine” generates insights about the past, present, and future of corporate governance. As for the past, we show how the concept of corporate governance developed alongside the shareholder primacy movement. This relationship is reflected in the common refrain of “good governance” that pervades contemporary discourse and the maturation of corporate governance as an industry oriented toward serving shareholders and their interests. As for the present, our analysis explains why the corporate social responsibility movement transformed into shareholder value-oriented ESG, stakeholder capitalism became relegated to a new separate form of entity known as the benefit corporation, and public company boards of directors became homogenized across industries. As for the future, our analysis suggests that absent a major paradigm shift that would force multiple institutional gatekeepers to switch their orientation, advocacy pushing corporations to consider the interests of employees, communities, and the environment will likely fail, unless such effort is framed as advancing shareholder interests.

Keywords: corporate governance, corporations, corporate purpose, shareholder primacy, stakeholder governance, ESG, environmental, social, CSR, corporate social responsibility, benefit corporations, boards of directors, independent directors, dual-class stock, corporate governance innovation

JEL Classification: D21, D23, D82, G30, G34, K22, L21, L22

Suggested Citation

Lund, Dorothy S. and Pollman, Elizabeth, The Corporate Governance Machine (2021). Columbia Law Review, Vol. 121, p. 2563, 2021, U of Penn, Inst for Law & Econ Research Paper No. 21-05, European Corporate Governance Institute - Law Working Paper No. 564/2021, USC CLASS Research Paper No. CLASS21-15, USC Law Legal Studies Research Paper Series No. 21-15, Available at SSRN: https://ssrn.com/abstract=3775846 or http://dx.doi.org/10.2139/ssrn.3775846

Dorothy S. Lund

University of Southern California Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

Elizabeth Pollman (Contact Author)

University of Pennsylvania Carey Law School; Co-Director, University of Pennsylvania Carey Law School - Institute for Law and Economics; European Corporate Governance Institute ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

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