Monday, August 10, 2009

Stephen Bainbridge

Stephen Bainbridge, a professor at UCLA School of Law, has written on "Shareholder activism in the Obama Era."

His thesis is that the financial crisis of last fall and the new administration it did so much to give us have allowed a certain theory of corporate governance to gain new traction -- an institutional-investor-centered theory would shift power toward pension fund managers and their like. Bainbridge is somewhat wary about the likely effects.

My own view is that in general Bainbridge is too enamoured of boards of directors. He is a believer in a board-centered theory of corporate management, one in which boards are possessed of enormous discretion, and any interference therewith is likely to be a bad thing because ... well, because it hampers them.

Such worries are misplaced. As I believe recent history shows, boards that are not held accountable from outside can become locked into disastrous strategies, as at LTCM, can trust untrustworthy managers, as at Enron, etc. There must be a disruptive influence. Andrew lo's work on the "path dependency" to which boards can become maladaptively prey may shine some light here, I think.

1 comment:

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