Governance and Voting Structure Flashcards
Berle & Means
Influential book on corp
1) The idea of separation of ownership from control let to securities disclosure as critical in North America corp law thinking, and led to a focus on controlling agency cost.
2) Corp as a social entity: “Size alone tends to give these giant corp a social significance not attached to the small units of private enterprise”
- “new responsibilities towards stakeholders rest upon the shoulders of those in control”
- Picked up by progressives and stakeholder theorists.
Competing theories/visions of corp governance
Different visions driven by:
a) different normative conceptions of how the role of the state should intervene in business and affairs of the corp
b) different normative views of any public responsibility corporations should have to diff stakeholders
Implications
a) what role for directors and to whom should they be responsible
b) what aspects of corp governance to emphasize: voting rules, structure of board, social and environmental information.
c) court’s role and intervention
Nexus of contract view of corp
Corporation = nexus of complex contractual relationship btwn a variety of inputs that produce an aggregate of goods and services.
Role of corp law: enabling & facilitating - allow corp to function more easily - limited role for courts: determine enforceability of k
Shareholder primacy: SH are least able to contract to protect their inputs to the corp
- the role of directors and managers: maximize wealth of SH
CRITIQUE: fails to take account of other Stakeholders who are equally unable to fully contact their relationship with the firm and who depends on the firm’s solvency.
Team production theory
Corporation = the scope of beneficiaries is broader than shareholders: managers, employees, creditors, etc
Corp officers as mediating hierarchy, whereas other team members act as control on managerial shirking and rent seeking.
BoD as trustee for the corp [Blair& Stout]
CRITIQUE: parties that are vulnerable continue to be vulnerable to misconduct of officers, since allocation of surplus is a matter of power + competition to strike the best bargain with BoD
Progressive approaches to corp law
corporation = quasi-public entity at least
Corp law plays substantive role.
BoD as trustee for society
Role of director and officers: while acting in the best interest of the corp, consider the implications of decision on other stakeholders
Feminist legal theory - concentration of undemocratic power and to the extent that the power works put hardship on individuals in society, esp. women.
Power Coalition theory
Corporation = organic institution w its own internal structure and processes that impact on control of the firm.
Existing governance structures = a function of historical, cultural, political and eco factors where stakeholders all trying to position themselves for power within corp structure
Organizations are constrained by BUT also shape political, eco and legal environment
Interest group theory
Corp law as legal rules that entrench corp managers in power b/c corp managers are a concentrated constituency whose ability to make political contribution may buy them political clout.
Snider: views interest group pressure as a global phenomenon that affects the development of corporate law across multiple jurisdiction.
Agency Cost as analytical tools
Agency cost theory assumes managers are agents of undiversified SHs and that governance can be measured by control of agency costs as a means of enhancing economic efficiency.
The goal: develop strategies that best align the interests of managers and shareholders, i.e., reduce agency costs
Major strategies that have been developed:
- Disclosure of relevant financial information to the capital markets
- Executive compensation that is heavily performance based (i.e., stock options)
- “Bonding mechanisms:” E.g., companies and their managers cross-listing their shares in jurisdictions that require more disclosures
- Market for corporate control
- Governance strategies: attribute monitoring duties to claimholders
Dodge v Ford [1919, Mich SC] - come back later
D is minority SH of F, sue for payment of div and enjoin expansion of F.
The classic articulation of the shareholder primacy view of director duties.
- Directors have the power to declare div, unless fraud, misappropriation fo corp fund, or refuse to declare div when it can [i.e. to oppress minority SH]
- Cout have a duty to interfere where directors was to sacrifice interest of SH
- It is not within the lawful powers of a BoD to shape and conduct the affairs of a corp for the merely incidental benefit of SHs and for the primary purpose of benefiting others
But expansion was in the best interest of company and SH - BJR
Minority oppression: : when majority SHs take action that unfairly prejudices the minority i.e. with no corporate purpose
Corp social responsibility
CSR as a PR exercise or has substantive content?
