The Myth of Corporate Governance

Corporate law theory finds itself at an impasse, unable to explain or resolve the intense and frequent crises that beset modern capitalism. This impasse is currently expressed in a very public debate about the “purpose” of the corporation. Both sides of this debate – agency theory and stakeholder theory – trace their origins to the deeply problematic ninety-year-old claim of Berle and Means that there is a fundamental separation of ownership from control in the corporation. Both schools maintain that “corporate governance” can solve the problems that beset the modern corporation. Both schools, however, not only failed to anticipate the ongoing corporate crises but have also failed to explain them. They have certainly not managed to prevent them. The re-emerging debate about the purpose of the corporation offers an opportunity to reassess corporate law theory. Applying the insights of the Warwick School on strategic decision-making in firms, I test an alternative approach through a case study of Apple Inc.’s capital structure and dividend policy. I conclude that the corporation is governed by a relatively coherent capitalist class that carries out the dominant economic laws of the capitalist system.