May 14, 2013
Colin Mayer Is Against Shareholder-Oriented Governance
Posted by David Zaring

Over at HBR, Mayer, the former dean of the Said Business School at Oxford, decries British best-in-breed corporate governance.  A taste:

The form of capitalism that has emerged in Britain is the textbook description of how to organize capital markets and corporate sectors. It features dispersed shareholders with powers to elect directors and remove them with or without cause, large stock markets, active markets for corporate control, a good legal system, strong investor protection, a rigorous anti-trust authority — the list goes on.

...

The downside, though, is that exemplary as a form of control the British financial system might be, it systematically extinguishes any sense of commitment — of investors to companies, of executives to employees, of employees to firms, of firms to their investors, of firms to communities, or of this generation to any subsequent or past one. It is a transactional island in which you are as good as your last deal, as farsighted as the next deal, admired for what you can get away with, and condemned for what you confess.

While incentives and control are center-stage in conventional economics, commitment is not. Enhancing choice, competition, and liquidity is the economist's prescription for improving social welfare, and legal contracts, competition policy, and regulation are the toolkit for achieving it. Eliminate restrictions on consumers' freedom to choose, firms' ability to compete, and financial markets' provision of liquidity and we can all move closer to economic nirvana.

Worth a look, at any rate.  We can surmise that Lucian Bebchuk will be unconvinced; the question, to my mind, is whether Stephen Bainbridge will be persuaded?  HT: Matthew Yglesias

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