The Corporate Governance Obsession

Source: Mariana Pargendler, Stanford Law and Economics Olin Working Paper No. 470, December 1, 2014

From the abstract:
It is hard to overstate the preeminence of corporate governance in the contemporary academic and policy debates. For a variety of economic and social problems – from economic development and systemic risk to rising inequality and gender inequity – corporate governance reform has surfaced as a favored policy response. This Article traces the origins, examines the political preconditions, and scrutinizes the implications of the obsession with corporate governance as a solution to a constellation of economic and social ills.

The central claim is that the ascent of the corporate governance movement coincided with, and ultimately substituted for, the retreat of government in the last decades. And, ironically, it did so by treating the corporation as a metaphor for government and by transposing to the corporate context the framework and remedies typical of government, such as “checks and balances” and democracy. The compromise character of the corporate governance agenda explains its political palatability and resilience: it appeals to progressives as a path for social and economic change in the face of political resistance to greater state intervention, while pleasing conservative forces as an acceptable concession to deflect greater governmental intrusion in private affairs.

Although the costs and benefits of specific corporate governance practices have been the object of an extensive literature, the driving forces and general merits of this relentless emphasis on corporate governance have received much less attention. Any careful normative assessment of the corporate governance obsession must consider not only the effects specific corporate governance practices but also the extent to which such proposals crowd out the policy space. The Article then concludes by speculating on the future of the corporate governance obsession.