Special Interests at the Gate: The ALI Corporate Governance Project, 1978-1992

Abstract

The field of corporate governance was still in an early stage when, in 1978, the American Law Institute launched a Corporate Governance Project that produced its Principles of Corporate Governance: Analysis and Recommendations, finally approved fourteen years later. The Principles pursue the goal of enhanced management accountability with an innovative fusion of extra-legal governance principles and restatements or revisions of the parts of corporate law that bear most directly on governance. This Chapter recounts the Principles’ origins and evolution, a famously controversial process. The Project’s reporters confronted a direct attack spearheaded by agents of the Business Roundtable and their sympathizers. The attackers insisted that corporate governance is about efficient production as well as legal accountability and that the Principles’ progenitors were short on expertise respecting the former and so excessively weighted their output to the latter. This Chapter concludes that history lies on the side of the Project and its reporters. The Principles, viewed with the benefit of hindsight, got a lot of things right. They stood (and continue to stand) head and shoulders above the rest of the literature as the best treatise ever produced on corporate law. They also stood (and continue to stand) as the formal source of the monitoring model of the corporate board of directors, the model that continues to dominate thinking both in corporate law and corporate governance.

This is a draft of a chapter that has been accepted for publication by Oxford University Press in the forthcoming book, American Law Institute Centennial History, edited by Robert Gordon and Andrew Gold and due for publication in 2023.

Keywords: Corporate governance, corporate law, fiduciary duty, board of directors, takeovers, derivative actions

JEL Classification: K22