The Effects of Shareholder Primacy, Publicness, and Privateness on Corporate Cultures

My conundrum question is this: suppose managerialism triumphed in the governance wars so as to regain its desired level of autonomy from shareholder pressures for boards and managers—would we then expect to see a cultural shift inside corporations toward greater honesty and civil engagement, and if so, why? A helpful diagnostic question is to ask how managers currently construe shareholder and market primacy. Have they internalized it as a value or do they instead resent the demands? My argument here leans more toward resentment, though my contribution is more about how to develop a credible hypothesis than how to prove it, which is ultimately an empirical matter. My hypothesis is that corporate cultures ordinarily reflect an inward point of view wherein the perceived (and maybe mythical) imperatives of organizational survival and success become the dominating values, not serving shareholders or anyone else. Culture is deeply self-protective. If so, more unfettered managerialism in pursuit of better corporate cultures would not be such an appealing solution, and indeed might just produce a different form of rent-seeking. This then takes us to a second front in the governance wars. Many legal scholars recently (myself included) have written about the increasing demands of “publicness” on highly salient firms, especially those that are publicly traded. These are external, socially-generated pressures in the name of legitimacy, transparency, accountability, and outsider voice. As to these forces, sociologists and their legal kin are downright enthusiastic. After all, if shareholder primacy degrades corporate culture, then these pressures should have precisely the opposite effect, serving as a channel by which pro-social instincts are infused into them. This, arguably, is what would rush in to freshen the cultural climate once the swamp of shareholder primacy is drained. But for many of the same reasons that I question the deep normativity of shareholder primacy, I am skeptical of this inference as well. The remainder of this Article explains these doubts, which requires an introduction to the economics of corporate culture, a subject not yet well appreciated in corporate law. Accordingly, Part I introduces the battle over corporate cultures as part of a broader contestation about primacy in corporate governance, offering a perspective on the meaning of corporate culture, its place in political debates over corporate responsibility, and its usefulness to corporate law. This first Part also tries to define with more clarity the differences between the cultural norms of shareholder primacy and publicness. Part II is introductory as well, turning the reader’s attention to the overwhelmingly diverse scholarly perspectives on corporate culture (II(A)) and the essential place of corporate culture within the overarching canopy of social culture (II(B)). Part III moves on to ask about the work being done by corporate culture in terms of both law and governance, and the extent to which this can or should be thought of in functionalist terms. Parts IV and V are the main pay-off: an assessment of arguments in light of all the foregoing about the cultural causes and effects about shareholder primacy, publicness, and “privateness.” Part VI concludes with a closer look at the politics surrounding the corporate culture wars