Toward a Theory of Shareholder Leverage

On Friday, April 11, and Saturday, April 12, 2014, the UCLA School of Law Lowell Milken Institute for Business Law and Policy sponsored a conference on competing theories of corporate governance.Corporate law and economics scholarship initially relied mainly on agency cost and nexus of contracts models. In recent years, however, various scholars have built on those foundations to construct three competing models of corporate governance: director primacy, shareholder primacy, and team production.The shareholder primacy model treats the board of directors as agents of the shareholders charged with maximizing shareholder wealth. Scholars such as Lucian Bebchuk working with this model are generally concerned with issues of managerial accountability to shareholders. In recent years, these scholars have been closely identified with federal reforms designed to empower shareholders.In Stephen Bainbridge’s director primacy model, the board of directors is not a mere agent of the shareholders, but rather is a sui generis body whose powers are “original and undelegated.” To be sure, the directors are obliged to use their powers towards the end of shareholder wealth maximization, but the decisions as to how that end shall be achieved are vested in the board not the shareholders.Margaret Blair and Lynn Stout’s team production model resembles Bainbridge’s in that it is board-centric, but differs in that it views directors as mediating hierarchs who possess ultimate control over the firm and who are charged with balancing the claims and interests of the many different groups that bear residual risk and have residual claims on the firm. Although team production is not explicitly normative, many commentators regard it as at least being compatible with stakeholder theorists who promote corporate social responsibility.This conference provided a venue for distinguished legal scholars to define the competing models, critique them, and explore their implications for various important legal doctrines. In addition to an oral presentation, each conference participant was invited to contribute a very brief essay of up to 750 words (inclusive of footnotes) on their topic to this micro-symposium being published by the UCLA Law Review’s online journal, Discourse.Professor Fairfax’s contribution is Toward a Theory of Shareholder Leverage