The Corporate Governance Obsession

Abstract

Corporate governance has become a central concern of our time. For a variety of problems – from corruption and economic development to systemic risk and rising inequality – corporate governance reform has surfaced as a favored policy response. But while 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. This Article explores the origins and scrutinizes the implications of the obsession with corporate governance as a solution to a constellation of economic and social ills. It suggests that the ascent of the corporate governance movement coincided with the growing distrust of government in the last decades. Ironically, one reaction was to treat the corporation as a metaphor for government, 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 growing governmental intrusion in private affairs. Corporate governance thus emerges as a midway solution between markets and government. Whether it is worth the candle, however, remains an open question. Any careful normative assessment of the corporate governance obsession must consider not only the effects of specific corporate governance practices but also the extent to which they crowd out alternative policy approaches. The Article then concludes by speculating on the future of the corporate governance obsession.