Review: The History of Modern US Corporate Governance

CheffinsMODcorpgovThis unique “must have” two volume set traces the development of corporate governance thought around the core issue of the separation of ownership and control while also touching on the board of directors, executive pay, shareholder activism and the regulatory structures that shape corporate governance in the U.S. I include the index to both volumes at the bottom of this review for your reference. The word “modern” in the title refers roughly to the post 1970 world.

Although referenced, the set does not stem directly from The Modern Corporation and Private Property by Adolf Berle and Gardiner Means.  And of course, scholars continue to explore the consequences of this rift in books such as Citizens DisUnited: Passive Investors, Drone CEOs, and the Corporate Capture of the American Dream and papers, such as The Agency Costs of Agency Capitalism: Activist Investors and the Revaluation of Governance Rights.However, this set provides any reader with an excellent foundation concerning how shareowners came to occupy center stage (at least in discussions, if not in power), despite the fact that corporate law vests the board with the authority to manage the corporation.

Brian R. Cheffins begins the first volume with an introduction describing the scope of the work, providing some background history and how the articles were chosen, closing with an argument that “the owner/manager problem will continue to be the issue that defines U.S. corporate governance debates for the foreseeable future.” Part of  Cheffins’ succinct narrative of the history covered is worth repeating here and provides an example of pace and coverage:

During the 1970s, matters began to change. Executives and directors were beginning to struggle to maintain control over sprawling corporate empires built in the 1950s and the 1960s, a trend underscored by the 1970 collapse of Penn Central, a railway-based conglomerate. Revelations over the next few years that dozens of U.S. public companies had made bribes, kickbacks and other illicit corporate payments abroad and in the United States also prompted concerns about managerial accountability. In the 1980s and early 1990s concerns grew that managerial shortcomings symptomatic of weak corporate governance were contributing to America’s decline relative to countries such as Germany and Japan. Executives in U.S. public companies stood accused of forsaking the production of dependable, worthwhile products in favour of pursuing hasty growth by acquisition and relying on potentially counterproductive diversification to guard against the adverse effects of business setbacks.

By the early 2000s, with one of the proposed remedies for America’s purported corporate malaise – incentivizing allegedly overly bureaucratic senior executives with potentially lucrative performance-oriented managerial compensation – the cure arguably became worse than the disease as chief executive officer (CEO) pay sky-rocketed to unprecedented and highly controversial levels. Simultaneously, various major corporate governance scandals erupted, most prominently at Enron and WorldCom, with a common feature being that senior executives eager to benefit from stock options and related forms of incentive-oriented compensation tried to game the accounting numbers to ensure their companies met quarterly earnings targets. Finally, the financial crisis of 2008–09 was blamed partly on recklessly ambitious senior executives of major financial companies taking advantage of board and shareholder passivity to engage in aggressive deployment of capital unjustified by the potential downside consequences.

The historical synopsis of modern corporate governance continues in brief but dense form that touches the most important developments. With regard to articles included in the set, they were chosen in part for their historical dimension, although others are included because they highlight a ‘snap shot’ of pivotal governance trends at key moments in time.  What isn’t included and is important, such as Michael Jensen and William Meckling’s 1976 paper on agency costs, can easily be found elsewhere.

In a little over a thousand papers, these volumes deliver an excellent historical review of the central problem in corporate governance. No library on the subject is complete without The History of Modern US Corporate Governance (Corporate Governance in the New Global Economy series).


Volume I


Introduction Brian R. Cheffins

1. Mark J. Roe (2005), ‘The Inevitable Instability of American Corporate Governance’
2. Brian Cheffins and Steven Bank (2009), ‘Is Berle and Means Really a Myth?’

3. Alfred Rappaport (1990), ‘The Staying Power of the Public Corporation’
4. Allen Kaufman and Lawrence Zacharias (1992), ‘From Trust to Contract: The Legal Language of Managerial Ideology, 1920–1980’
5. Henry Hansmann and Reinier Kraakman (2001), ‘The End of History for Corporate Law’
6. Adam Winkler (2004), ‘Corporate Law or the Law of Business?: Stakeholders and Corporate Governance at the End of History’

7. William C. Greenough and Peter C. Clapman (1980), ‘The Role of Independent Directors in Corporate Governance’
8. Victor Brudney (1982), ‘The Independent Director – Heavenly City or Potemkin Village?’
9. Barry D. Baysinger and Henry N. Butler (1984), ‘Revolution Versus Evolution in Corporation Law: The ALI’s Project and the Independent Director’
10. Jeffrey N. Gordon (2007), ‘The Rise of Independent Directors in the United States, 1950–2005: Of Shareholder Value and Stock Market Prices’

11. David Kraus (1976), ‘The “Devaluation” of the American Executive’
12. Arch Patton (1985), ‘Those Million-Dollar-a-Year Executives’
13. Michael C. Jensen and Kevin J. Murphy (1990), ‘CEO Incentives – It’s Not How Much You Pay, But How’
14. John Balkcom and Roger Brossy (1997), ‘Executive Pay – Then, Now, and Ahead’
15. Lucian A. Bebchuk and Jesse M. Fried (2005), ‘Pay Without Performance: Overview of the Issues’
16. John E. Core, Wayne R. Guay and Randall S. Thomas (2005), ‘Is U.S. CEO Compensation Broken?’

Volume II


An introduction to both volumes by the editors appears in Volume I

1. Bayless Manning (1958), ‘Review: The American Stockholder. By J.A. Livingston’
2. Bernard S. Black (1992), ‘Institutional Investors and Corporate Governance: The Case for Institutional Voice’
3. Michael E. Porter (1992), ‘Capital Disadvantage: America’s Failing Capital Investment System’
4. Robert C. Pozen (1994), ‘Institutional Investors: The Reluctant Activists’
5. Franklin R. Edwards and R. Glenn Hubbard (2000), ‘The Growth of Institutional Stock Ownership: A Promise Unfulfilled’
6. Marcel Kahan and Edward B. Rock (2007), ‘Hedge Funds in Corporate Governance and Corporate Control’
7. Lynn A. Stout (2007), ‘The Mythical Benefits of Shareholder Control’

8. Henry G. Manne (1965), ‘Mergers and the Market for Corporate Control’
9. (1985), ‘The Market for Corporate Control’
10. Peter F. Drucker (1986), ‘Corporate Takeovers – What is to Be Done?’
11. Allen Kauffman and Ernest J. Englander (1993), ‘Kohlberg Kravis Roberts & Co. and the Restructuring of American Capitalism’
12. Marcel Kahan and Edward B. Rock (2002), ‘How I Learned To Stop Worrying and Love the Pill: Adaptive Responses to Takeover Law’
13. Brian Cheffins and John Armour (2008), ‘The Eclipse of Private Equity’

14. Bengt Holmstrom and Steven N. Kaplan (2001), ‘Corporate Governance and Merger Activity in the United States: Making Sense of the 1980s and 1990s’
15. Ronald J. Gilson (2006), ‘Catalysing Corporate Governance: The Evolution of the United States System in the 1980s and 1990s’
16. Donald E. Schwartz (1984), ‘Federalism and Corporate Governance’
17. Robert B. Thompson (2003), ‘Collaborative Corporate Governance: Listing Standards, State Law, and Federal Regulation’
18. Roberta S. Karmel (2005), ‘Realizing the Dream of William O. Douglas – The Securities and Exchange Commission Takes Charge of Corporate Governance’
19. Steven A. Ramirez (2007), ‘The Special Interest Race to CEO Primacy and the End of Corporate Governance Law’
20. Frank H. Easterbrook (2009), ‘The Race for the Bottom in Corporate Governance’

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