The Shaping Force of Corporate Law in the New Economic Order

Abstract

This article, based on an invited lecture, argues that the current corporate governance regime plays an insufficiently appreciated role as a shaping force in the current U.S. economic framework. The dominant corporate law norms and the particular distribution of shareownership have combined to produce a responsiveness to capital market signals that has made U.S. firms especially strong worldwide competitors. This responsiveness, and the associated economic success, is at risk because of continuing state legislative and judicial changes that increase management's ability to resist a hostile takeover bid. Institutional investor ownership and activism is insufficient; legal rules matter because they set the framework within which institutions (and catalytic forces like control entrepreneurs) can act. The paper traces the emergence of this corporate governance regime in the 1980s and 1990s, explains its importance to the emerging economic order, and focuses specifically on the Virginia antitakeover statutes and cases as a particularly troubling development.