The Evolution of U.S. Corporate Governance

Abstract

This paper describes and explains changes in corporate governance in the United States since 1980. The 1980s was a period of unprecedented takeover activity. This activity was distinguished by the prevalence of LBOs and raiders. The paper first considers why LBOs and raiders were prominent in the 1980s and, also, what drove takeover activity in the 1980s. The paper then describes U.S. corporate governance today, and argues why LBOs and raiders have not reappeared despite the recent resurgence of takeovers. A large part of the explanation is that today’s shareholders, boards, and managers have applied the insights and strengths of 1980s LBOs. In that sense, we are all Henry Kravis now. * Leon Carroll Marshall Professor of Finance, Graduate School of Business, University of Chicago and National Bureau of Economic Research. This article is an expanded and revised version of a paper published in the Journal of Private Equity. The paper was originally prepared for the Conference on the Power and Influence of Pension and Mutual Funds at New York University on February 21, 1997. I thank Luigi Zingales for helpful comments. Address correspondence to Steven N. Kaplan, Graduate School of Business, University of Chicago, 1101 East 58th St., Chicago, IL 60637.