Enronitis: Why Good Corporations Go Bad

Abstract

The Enron problem - managers becoming extraordinarily wealthy while misleading shareholders, creditors and employees about the company's prospects and even driving it into the ground - is widely understood to be the result of too weak a legal mandate supporting the share-centered paradigm of corporate law. Paradoxically, it is also the predictable result of too strong a share-centered view of the public corporation. Share-centered corporate law creates the very problems it is meant to police. The single-valued profit maximization ethos of the share-centered corporation demands that managers teach themselves to exploit everyone around them: it is inevitable that some will learn this lesson so well that they will exploit even those for whose benefit they are supposed to be exploiting. Moreover, the very underpinnings of profit in a corporation require cooperation and mutuality, relationships that are threatened by the arms-length competitive market ethos of the share-centered view. Progress will require a more political, multi-valued understanding of the public corporation as a site in which we struggle over and create our collective existences.

Keywords: Corporate governance, managers, compensation, stock market, stakeholders

JEL Classification: G30, G34, K23, I29, M53