Regulatory Competition as Regulatory Capture: The Case of Corporate Law in the United States of America
WILLIAM W. BRATTON AND JOSEPH A. McCAHERY*
America has a standing agenda of corporate governance reform items. All the items pursue a common, but elusive goal--the institutionalization of effective contractual regulation of corporate managers. The goal appeared to be within easy reach twenty years ago. It was then thought that transactions in markets for corporate control, corporate products, and corporate employment imported sufficient discipline. But intervening business cycles and regulatory barriers have reduced prospects for corporate control through the indirect means of discrete market contracts. Accordingly, the focus of reform initiatives has shifted to the field of relational contracts. There strategies have been mapped out to establish a shareholder role in the ongoing negotiation and monitoring of corporate contracts as the means to the end of reducing the costs of management influence1 within the firm. The strategists look to activist agents of shareholding investment institutions to execute these plans. The plans thereby confront, and purport to surmount, longstanding economic and legal barriers to collective action by shareholders.
This shareholder participation movement has had modest successes. Activist institutions have challenged the authority of managers of unsuccessful firms by making use of a federally-mandated privilege to have shareholder governance proposals included in management's annual proxy statement and submitted for a vote.2 The institutions submit proposals for____________________