The Corporate Governance Machine

58 Pages Posted: 1 Feb 2021 Last revised: 5 Feb 2021

See all articles by Dorothy S. Lund

Dorothy S. Lund

University of Southern California Gould School of Law

Elizabeth Pollman

University of Pennsylvania Law School; Institute for Law and Economics; European Corporate Governance Institute

Date Written: January 28, 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, advocacy pushing corporations to consider the interests of employees, communities, and the environment will likely fail if such effort is not 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 (January 28, 2021). U of Penn, Inst for Law & Econ Research Paper No. 21-05, European Corporate Governance Institute - Law Working Paper No. 564/2021, Available at SSRN: https://ssrn.com/abstract=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 Law School; Institute for Law and Economics; European Corporate Governance Institute ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

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