Those who, like me, spend much of their time focused on corporate law know that over the past decade or so there has been a serious re-examination of the traditional American understanding that corporate directors and officers should focus exclusively on advancing the interests of their shareholders. Many in the field will also be aware of a related debate over the conventional consensus that securities regulation should focus on protecting financial investors. Fewer corporate law scholars, though, may have paid as much attention to questioning within antitrust law of the focus on protecting consumers or within bankruptcy law on protecting creditors.
And fewer still will have pondered the connections between the debates going on within these separate though related fields. Aneil Kovvali explores those connections in his recent article, Stakeholderism Silo Busting. In corporate law, securities regulation, antitrust, and bankruptcy law, a decades-old consensus maintains that the law should focus exclusively on protecting one specific group. But within each field, rebels are now calling upon decision makers to consider the interests of various stakeholders. In his article, Kovvali describes shared arguments that are made by traditionalists and by those questioning traditions within each of the four fields. He further argues that considering developments in the fields together could yield new insights and practical suggestions.
Kovvali starts with a brief historical recounting of the four fields. He argues that during the Progressive era of the turn of the previous century, corporate law, antitrust, and disclosure developed as ways to check the power of large corporations and their leaders. This includes a take on the classic Dodge v. Ford Motor Co. case as being aimed at limiting the power of Henry Ford. In the New Deal and post-war periods, regulators searched for ways to stabilize the economy. Beginning in the 70s, influenced both by the law and economics movement and by a focus on economic efficiency, the current orthodoxy focused on protecting one specific group within each of the four areas of law came into being. In our new(ish) century, the financial crisis and the pandemic have helped create serious pressure on that seventies paradigm.
Next, Kovvali lays out a series of arguments that are being made across the four legal fields. He first presents a variety of arguments that stakeholderists make. His subheadings express the arguments nicely: “Businesses have the power to create dire problems unless they are constrained…. Businesses have the power to address important problems, and so they should…. Because of its flexibility, business law can address important problems at lower cost…. The political system is unable to provide adequate solutions.” Kovvali then presents leading arguments from defenders of the single-constituency orthodoxy, again well-described in the subheadings: “Properly understood, the single criterion already addresses the problems that stakeholderists are concerned about to a satisfactory degree…. Because of the generally voluntary nature of business law, a different approach would lead only to perverse consequences…. Trying to integrate more stakeholder interests would mean sacrificing analytical clarity and clear prescriptions…. There are no agents who can be trusted to manage the resulting trade-offs and complexity…. This is the responsibility of some other area of the law…. Using business law in this way could reduce the likelihood of more meaningful external reforms.” These arguments all look familiar, and Kovvali is fair and thorough in presenting many of the best arguments and counter-arguments from each side.
The paper’s final section explores possible benefits that could be realized by pursuing the stakeholderism debate across the four legal areas. Some of these benefits would appear as improved scholarly theories. Comparative analysis could show how contingent developments have led to different systems of business law across different countries. A general equilibrium approach could try to analyze developments across a variety of kinds of markets. Another approach could be rooted in a Coasean analysis of how the law treats different kinds of coordination rights (this draws upon the work of antitrust scholar Sanjukta Paul).
Kovvali finishes with suggestions for practical techniques and solutions which could be developed across the four fields. Stakeholderism would benefit if its advocates could come up with measures and methods for comparing the relative size of impacts of decisions on different kinds of stakeholders. Tools from the different fields could be used together to address broad problems such as climate change and empowering workers. Considering the impact of policies across the legal fields may help avoid unintended consequences.
Linking the debates over the role of stakeholders in corporate law, securities regulation, antitrust, and bankruptcy seems like a natural project as soon as one reads this paper’s abstract. The summary and analysis of shared leading arguments for and against stakeholderism is on its own worth the price of admission (which isn’t high, the paper is an enjoyable read). The suggestions for future theoretical and practical explorations in the final section are more speculative and tentative. But they could prove very fruitful.
