The New Corporate Governance in Theory and Practice

Contents......Page 6
Preface......Page 10
Acknowledgements......Page 14
Introduction......Page 16
On the Necessity of Models......Page 17
The Basic Dichotomy: Consensus Versus Authority......Page 18
The Separation of Ownership and Control......Page 19
The Survival Value of the Separation of Ownership and Control......Page 21
Theories of Corporate Governance......Page 23
The Domain of Director Primacy......Page 27
Is a Unified Field Theory of Corporate Governance Possible?......Page 29
The Plan of the Work......Page 31
1. The Means and Ends of Corporate Governance......Page 38
The Corporation as Person......Page 40
The Corporation as Entity......Page 41
The Corporation as Nexus of Contracts......Page 43
The Hypothetical Bargain Methodology......Page 45
Implications of the Contractarian Model......Page 47
Locating the Nexus......Page 48
The Shareholders’ Deal......Page 50
The Bargain over the Means of Corporate Governance......Page 52
On the Necessity of Fiat......Page 53
The Inefficiency of Multiple Constituencies......Page 60
Allocating Control: Why Do Only Shareholders Vote?......Page 65
Why Not Shareholder Primacy?......Page 68
The Bargain over the Ends of Corporate Governance......Page 72
Director Primacy Versus Team Production......Page 75
Incorporating Shareholder Wealth Maximization into Director Primacy......Page 80
The “Problem” of Agency Costs......Page 88
2. Why a Board?......Page 92
Groups and Individuals......Page 93
The Board as Production Team......Page 94
Groups v. Individuals: Experimental Evidence......Page 97
Groups and Bounded Rationality......Page 104
Individual v. Group Decision-Making Biases......Page 109
Agency Costs......Page 115
3. Director Primacy in the Courts......Page 120
The Business Judgment Rule......Page 121
Judicial Review of Operational Decisions......Page 123
First Principles......Page 126
Encouraging Risk-Taking......Page 129
Judges Are Not Business Experts......Page 135
Impact on the Board’s Internal Dynamics......Page 139
Corporate Decisions Affect Nonshareholder Constituencies, But So What?......Page 141
The Limits of Abstention......Page 142
The Rule of Undivided Loyalty......Page 144
The Presumption in Favor of Authority......Page 145
The Academics’ Balance(s)......Page 149
Delaware’s Balance......Page 151
Why Not Passivity?......Page 156
Summation......Page 168
4. The Shift from Managerialism to Director Primacy......Page 170
The Evolving Role of the Board of Directors......Page 172
The Emergence of the Monitoring Board......Page 175
Boards Today......Page 176
Best Practices......Page 178
Compensation Practices......Page 182
Reputational Concerns......Page 186
Judicial Insistence on Informed Decision Making......Page 188
Judicial Pressure for Director Independence......Page 190
Sarbanes-Oxley and the Board of Directors......Page 191
The Majority Independent Board and Its Committees......Page 192
Is an Independent Board Essential for Director Primacy?......Page 202
The Bottom Line: Are Boards Becoming More Effective?......Page 213
5. The Future of Corporate Governance: Director or Shareholder Primacy......Page 216
Shareholders Are Rationally Apathetic......Page 217
Institutional Passivity......Page 218
Why Are Institutions Passive?......Page 222
Exit......Page 224
Proxy Contests......Page 225
Withholding One’s Votes in Director Elections......Page 227
Shareholder Proposals......Page 229
Communication......Page 234
Litigation......Page 235
Reforming the Director Nomination Process......Page 237
Proposals to Reform the Mechanics of the Voting Process......Page 239
Should the Shareholder Franchise Be Expanded?......Page 240
Pathologies of Voting......Page 241
The Revealed Preferences of Shareholders......Page 242
The Risk of Private Rent Seeking......Page 243
The Case for Preserving the Board of Directors’ Authority......Page 248
B......Page 252
C......Page 253
E......Page 254
H......Page 255
M......Page 256
P......Page 257
S......Page 258
T......Page 259
Z......Page 260