Corporate Law and Social Norms

Abstract

Corporate law serves both tofacilitate and to regulate the conduct ofthe corporate enterprise. Insofar as corporate law is regulatory, it provides incen? tives and disincentives to the major actors in the corporate enterprise?direc? tors, officers, and significant shareholders?through the threat of liability. In significant part, however, these actors are motivated not by the desire to avoid liability, but by the prospect of financial gain, on the one hand, and by social norms, on the other. Much work has been done on the way in which these actors are motivated by the threat of liability and the prospect of finan? cial gain, but relatively little work has been done on the operation of social norms. The purpose ofthis Article is to illuminate both corporate law specifi? cally, and the interrelation of law and social norms generally, by studying the ways in which that interrelation operates in the field of corporate law. The Article begins by describing three kinds of social norms?behavioral pat? terns, practices, and obligational norms?and considering the origins and effects of social norms. It then examines the critical role of social norms in several central areas of corporate law: fiduciary duties (specifically, care and loyalty), corporate governance (specifically, board composition and the role of institutional investors), and takeovers.