Comment: Corporate Governance andthe "D-Word"

After some seventy years, most corporate law academics have come to agree with Berle and Means' famous descriptive argument that corporate decisionmaking power is denied to shareholders and is instead heavily concentrated in the board of directors and upper management.1 As with most issues in corporate law academia, the normative discourse about this concentration of power consists mainly of debating whether this arrangement is "economically efficient." That is, "corporate democracy" is both descriptively inaccurate and normatively marginalized. Outside the ivory tower, however, the law continues to use the concept both descriptively and normatively. The Delaware Supreme Court, for example, has invoked the term in a number of prominent cases.2 The United States Supreme Court has treated some corporate political spending as protected political speech on the theory that such spending is the product of "the procedures of corporate democracy."3 Many reformers who disagree with this rosy descriptive view call for increased shareholder power in order to make corporate governance more "democratic."4Dalia Tsuk Mitchell's contribution to this Symposium, Shareholders as Proxies: The Contours of Shareholder Democracy,5 is an intellectual history of the changing views of regulators, reformers and scholars as to the meaning of "corporate democracy." Tsuk Mitchell identifies three theories that reformers have invoked to justify increased shareholder participation in corporate governance. These theories make varying assumptions about the relationship between corporations' role in society (in Tsuk Mitchell's terminology, "corporate power") and the allocation of control rights between shareholders and management ("corporate hierarchy"). First, Tsuk Mitchell argues, Progressive Era reformers believed that reforming hierarchy to increase shareholder participation would enable shareholders to tame corporate power for the benefit of society.6 Second, Tsuk Mitchell contends that the primary concern, from the New Deal Era through the 1970s, was protecting the rights of the individual shareholder against potential abuses of power by management.7 Third, neoclassical economists since the 1970s have argued that shareholder participation empowers shareholders to "shape their own economic (and political) destinies."8 In sum, she argues, the focus of analysis has shifted from corporate power in society to internal corporate hierarchies to the market.9Although I have a different view of the Progressives' approach, I otherwise agree with Tsuk Mitchell's insightful intellectual history. In this Comment, I would like to expand upon the normative implications of her account. After the Progressive Era, as Tsuk Mitchell argues, the corporate problem was redefined as corporate hierarchy rather than corporate power.10 The focus on this problem, and the ostensible solutions to it, played an important role in legitimating corporate power by portraying it as the result of a "democratic" process. Today, the neoclassical economic model assumes that all outcomes are the voluntary result of market mechanisms. I agree with Tsuk Mitchell's conclusion that the law has come to see the market as "democracy's sustaining and legitimating force."11 Most corporate law academics, however, have been relatively frank about their narrow focus on "efficiency" and their lack of interest in "democracy" as a normative value. To the extent that the nonacademic discourse about corporations remains interested in democracy, academics' efficiency-minded analyses of corporate governance have limited relevance. Policymakers and corporate reformers must resist the temptation to conflate "democracy" with either that old favorite, shareholder power, or the current academic darling, the market.In the late 1800s and early 1900s, the "corporations problem" was the emerging potential of large businesses to affect social conditions such as prices and wages, primarily through the formation of trusts. …