Rethinking U.S. corporate governance reform in the wake of the global financial crisis
University of British Columbia
Master of Laws - LLM
Recent financial events indicate it may be time to pose a new challenge to the assumed efficiencies of the shareholder primacy (or market-centered) model of governance practiced in the United States. Reform efforts in the wake of the global financial crisis are currently underway. While the shareholder primacy model may be ideologically entrenched in American society, the severity of the crisis has created a window of opportunity to revisit alternative models of governance. This thesis first contends that if the causes of the global financial crisis are identified solely as failures of securities regulation, without addressing the legal and normative prescriptions found within existing governance structures, then proposed solutions will be impermanent. Reform efforts targeted at the financial market level are indeed necessary, but there is a disservice in classifying the crisis as a one-off event resulting from specific failures in financial regulation, since legislative changes become limited to addressing only those concerns. The ideological support of the existing governance model has laid the groundwork for corporate behaviour that heavily influences political and regulatory (in)action and creates opportunities for crises in the future. Next, building upon theoretical approaches in corporate legal scholarship, this thesis constructs a framework of four structure-altering recommendations to reform the existing model and promote a new type of corporate existence and behaviour. These recommendations are: (1) deeply entrench stakeholder interests; (2) increase board responsibility and control; (3) expand beyond traditional shareholder value; and (4) normatively embed social responsibility. Situating these recommendations in current corporate practice, grassroots initiatives in the U.S. are examined which have translated into state corporate laws creating new and innovative corporate structures. Finally, complex issues surrounding the governance of financial institutions are highlighted, providing ways in which structure-altering reform can reach fruition in the financial sector.
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