Has Corporate Law Failed? Addressing Proposals for Reform
The Failure of Corporate Law: Fundamental Flaws and Progressive Possibilities. By Kent Greenfield. Chicago: University of Chicago Press. 2006. Pp. ix, 288. $45.
Successful corporations create extraordinary wealth. The longstanding question is how this wealth should be distributed. The conventional answer has been shareholder primacy. Most stakeholders, such as customers, suppliers, creditors, and employees, must negotiate their portion ex ante, but everything left over, the residual interest, belongs to the corporation’s shareholders. The job of the board of directors is thus to maximize the residual interest, thereby creating shareholder value. Nobel Laureate Milton Friedman was perhaps the leading proponent of the shareholder-primacy model of corporate governance, famously arguing that “[f]ew trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible.” At least since the days of President Reagan, this laissez-faire approach has tended to prevail, not only among the educated elite but also on the Supreme Court.