Resisting the Return to Managerialism: Institutionalizing the Shareholder Voice in the Monitoring Model

There are many lessons to be drawn from the sweep of history. In law, the compelling story repeatedly told is the observable co-movement of law on the one hand and economic, social and political changes on the other hand. Aberrations, however, do arise, but generally do not persist in the long term. Contemporary corporate law seems to be on the cusp of such an abnormality as legal developments and proposed reforms for corporate law are currently conflicting with the direction in which the host environment is moving. This article identifies a series of contemporary judicial and regulatory corporate governance developments that are at odds with multiple forces unleashed by today’s ownership of public companies being highly concentrated in the hands of various types of financial institutions. Our purpose is not to focus on these developments as such but to address a much larger question that lies behind them: should courts and regulators have interceded to retard the forces created by such concentration of ownership of public companies? To address this question, we travel back in time to post WWII America and the widely practiced model of managerialism when shareholders were analogous to children, seen but not heard. That model was replaced by today’s monitoring model which empowers oversight of management in the hands of outside directors whose obeisance, at least on paper, is anchored in the firm’s residual claimants, the stockholders who elect the directors. But as we discuss, the monitoring board has something of a checkered history in serving this function. We argue that from its inception, the monitoring board was incomplete because it was formed in an era where the received model was dispersed, not concentrated, ownership. We next challenge the emerging New Paradigm that is being advanced as the future model for corporate governance. We conclude the article with a set of recommendations we believe will bolster the heretofore incomplete monitoring model for corporate governance.