Edited by Claire A. Hill and Brett H. McDonnell
Chapter 3: Corporate Law and the Team Production Problem
Margaret M. Blair1 1. INTRODUCTION Should corporations be managed for the sole purpose of maximizing share value for corporate shareholders? While for much of the last three decades the dominant perspective in corporate law scholarship and policy debates about corporate governance has adopted this view, the corporate scandals of 2001 and 2002, followed by the disastrous performance of financial markets 2007–2009, has left many observers uneasy about this prescription. A number of strong shareholder value advocates have shifted their recommendations. Michael Jensen (2001), one of the leading advocates of share value maximization in the 1980s and 1990s, has recognized that shareholder value can be increased without adding to social wealth by extracting value from other corporate participants, such as creditors. He now argues that corporate managers should maximize ‘not just the value of the equity but also … the market values of all other financial claims including debt, preferred stock, and warrants’ (Jensen 2001). Likewise, former GE CEO Jack Welch, considered by some to be the ‘father of the “shareholder value” movement’ among corporate boards and managers now says that ‘shareholder value is a result, not a strategy … your main constituencies are your employees, your customers, and your products’ (Guerrera 2009). Among academics, Lucian Bebchuk, one of the most outspoken and prolific advocates of enhanced shareholder rights now concedes that ‘the common shareholders in financial firms do not have an incentive to take into account the losses that risks can impose on preferred shareholders, bondholders, depositors, taxpayers underwriting governmental guarantees...
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