Harmony Or Dissonance? The Good Corporate Governance Ideas Of Academics And Worldly Players by SSRN
Harvard Law School
January 9, 2015
This article, originally delivered as a special lecture, asks questions concerning ideas about what constitutes good corporate governance that are espoused by academics, such as financial economists and law professors, and by more worldly players such as legislators, rule makers, governance rating firms, large institutional investors, and law firms that represent corporate clients. Are there discernible trends and patterns in the views espoused by these different categories of actors, despite all the differences among individual actors within each category? I propose that there are such patterns, offer some initial thoughts about the characteristic themes and differences, and hypothesize about the reasons for the differences. At the end I reflect on what a benign policy maker interested in increasing overall social welfare might do with these observations.
Harmony Or Dissonance? The Good Governance Ideas Of Academics And Worldly Players – Introduction
I am honored by this opportunity to speak at the Massey Prize Symposium. This occasion is of personal significance to me because I take delight in the fact that the prize will go to Henry Hu, who was a student of mine many years ago and later earned the status of a truly distinguished leading scholar, while continuing to focus on topics, such as the proper relationship between voting rights and economic ownership interests, that remind me of those that interested him as my student.
A couple of years ago, I was beseeched by another memorable former student to give a “corporate governance consultation” to a board of directors as part of its effort to show a considered and responsible reaction to Carl Icahn, the activist investor who was making a run on the company. Please advise the board, he said, on what you as corporate law scholar think are the best and most important good corporate governance practices that they should either have or consider adopting. I pointed out that I had sworn off all consulting and expert witness work long ago because my teaching and service on corporate boards were more than enough to keep me busy. But he persisted, and I made my first and only exception to my personal policy. Getting ready for the consultation was not hard because I was and am immersed in articles, reports, and memos about corporate governance. But the exercise of preparing remarks led me into a state of wonderment that continues until today. There are numerous players who have ideas about what are good or best corporate governance practices, but different players have different themes. They sing different tunes, so to speak – or, at the least, different players sing some tunes more loudly than others—and the tunes have different tonalities and feelings. Some feel like love songs to general ideals; others, like steady-rhythm rock or country songs moving to a preset conclusion; still others, like abolitionist marching songs demanding a shakeup of the system; and so on.
This lecture now gives me the opportunity to reflect more systematically on that sense of wonderment, and to ask questions concerning ideas about what constitutes good corporate governance that are espoused by different players. I’ll dwell briefly on seven categories of players: (1) academics, such as financial economists and law professors who resort heavily to empirical studies; and more worldly players such as (2) legislators, (3) governance rating firms, (4) large institutional investors, (5) corporate directors, (6) law firms that represent corporate clients on the defensive, and (7) courts.1 Are there discernible trends and patterns in the views espoused by these different categories of actors, despite all the differences among individual actors within each category? I believe there are such patterns, and will offer some initial thoughts about the characteristic themes and differences. I will then hypothesize about the reasons for the differences. My approach here will be to focus on the motives and incentives driving the different players. At the end I reflect on what a benign policymaker interested in increasing overall social welfare might do with these observations.
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