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The Dystopian Potential of Corporate Law

D. Gordon Smith

Brigham Young University - J. Reuben Clark Law School

March 2007

Univ. of Wisconsin Legal Studies Research Paper No. 1040

The community of corporate law scholars in the United States is fragmented. One group, heavily influenced by economic analysis of corporations, is exploring the merits of increasing shareholder power vis-a-vis directors. Another group, animated by concern for social justice, is challenging the traditional, shareholder-centric view of corporate law, arguing instead for a model of stakeholder governance. The current disagreement within corporate law is as fundamental as in any area of law, and the debate is more heated than at any time since the New Deal.

This paper is part of a debate on the audacious question, Can Corporate Law Save the World? In the first part of the debate, Professor Kent Greenfield builds on his book, THE FAILURE OF CORPORATE LAW: FUNDAMENTAL FLAWS AND PROGRESSIVE POSSIBILITIES, offering a provocative critique of the status quo and arguing that corporate law matters to issues like the environment, human rights, and the labor question.

In response, Professor Smith contends that corporate law does not matter in the way Professor Greenfield claims. Corporate law is the set of rules that defines the decision making structure of corporations, and reformers like Professor Greenfield have only two options for changing corporate decision making: changing the decision maker or changing the decision rule. More specifically, he focuses on board composition and shareholder primacy. Professor Smith argues that changes in corporate law cannot eradicate poverty or materially change existing distributions of wealth, except by impairing the creation of wealth. Changes in corporate law will not clean the environment. And changes in corporate law will not solve the labor question. Indeed, the only changes in corporate law that will have a substantial effect on such issues are changes that make the world worse, not better.

Number of Pages in PDF File: 22

Keywords: corporate law, corporate social responsibility

JEL Classification: K22, M14

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Date posted: March 28, 2007  

Suggested Citation

Smith, D. Gordon, The Dystopian Potential of Corporate Law (March 2007). Univ. of Wisconsin Legal Studies Research Paper No. 1040. Available at SSRN: https://ssrn.com/abstract=976742 or http://dx.doi.org/10.2139/ssrn.976742

Contact Information

D. Gordon Smith (Contact Author)
Brigham Young University - J. Reuben Clark Law School ( email )
422 JRCB
Provo, UT 84602
United States
801.422.3233 (Phone)
801.422.0390 (Fax)

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