Comment – Corporate Governance and the Coase’s Legacy: A Reply to Henry Manne
Comment – Corporate governance and Coase’s legacy: a reply to Henry Manne Alessio M. Pacces Professor Manne makes a fundamental statement, which he articulates in the domain of three major items of corporate governance. The statement is that ‘there is no aspect of corporate governance that is not better left to private contracting and the play of market forces’ (p. 190 of this volume).1 This is applied to boards of directors, the market for corporate control, and insider trading. I do not think that Professor Manne would maintain his fundamental statement even in those circumstances that most evidently call for regulatory intervention. That he admits, implicitly, when he supports the ‘need for courts to deal with real acts of misbehavior by directors’ (p. 197 of this volume). By speculating on the limits of contracting and the meaning of misbehavior, I will try to illustrate why – maybe unfortunately – there is more need for regulation in corporate governance than Professor Manne suggests. Incidentally, my considerations are based on a framework not very different from his. While I am honored to be cited by the very pioneer of corporate law and economics, I am afraid I do not fully share his trust in the unfettered functioning of markets and private contracting for efficient corporate governance. 1. It is in the tradition of law and economics that regulation must be justified by market or contracting failures. This goes back to Ronald Coase (1960), whose views – as he also made clear in his Nobel Prize...
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