Progressive Corporate Governance Reforms

This blog post is part of a larger series on “Stock-Market Short-Termism” (see also my entry onshare-buybacks). I will be assessing one proposed cure, corporate governance reforms, and will argue that it is likely to be iatrogenic. I.On August 15, 2018, Senator Elizabeth Warren formally introduced her “Accountable Capitalism Act”, that would,inter alia,require of all firms generating $1 billion or more in revenue that “no fewer than 40% of its directors are selected by the corporation’s employees.” In mandating that corporations include employeesquastakeholders in the firm ’s major decisions, government would be putting its thumb on the scale in shifting the balance of power away from the corporate governance outcome that has emerged in the free-market: shareholders today exclusively determine the composition of the board of directors. Moreover, progressive politici ans and academics would be putting a thumb in the eye of their long-standing bete-noir, the “shareholder value paradigm”.Employee representation on the board is known as “co-determination”, part of a larger constellation of corporate governance institutions that comprise the “Rhenish model” of capitalism. Its primary exemplar, Germany, is trumpeted as the prepossessing poster child of this alternative toshareholderüber alles“Anglo-capitalism”. In her press release, Senator Warren makes this inspiration explicit, claiming that she is “borrowing from the successful approach in Ger...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs