the failure of cor p or ate l aw The Failure of Corporate Law fundamental flaws & pro g ressive p ossibilities ken t g reen fie ld the university of chicago press chicago & london kent greenfield is professor of law at Boston College Law School The University of Chicago Press, Chicago 60637 The University of Chicago Press, Ltd., London © 2006 by The University of Chicago All rights reserved Published 2006 Printed in the United States of America 15 14 13 12 11 10 09 08 07 06 isbn-13: 978-0-226-30693-3 (cloth : alk paper) isbn-10: 0-226-30693-3 (cloth : alk paper) Library of Congress Cataloging-in-Publication Data Greenfield, Kent The failure of corporate law : fundamental flaws and progressive possibilities / Kent Greenfield p cm Includes bibliographical references and index Corporation law—United States Corporate governance—United States Industrial management—United States I Title kf1416.g74 2006 346.73'066—dc22 2006018111 The paper used in this publication meets the minimum requirements of the American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ansi z39.48-1992 for my parents contents Acknowledgments ix part one Fundamental Flaws September 11 and Corporate Law Corporate Law as Public Law 29 Workers, Shareholders, and the Purpose of Corporations 41 Corporations and the Duty to Obey the Law 73 Democracy and the Dominance of Delaware 107 part two Introduction Progressive Possibilities 123 New Principles, New Policies 125 Corporate Governance as a Public Policy Tool 153 Workers and Corporate Fraud 187 Irrationality and the Business Judgment Rule 217 Postscript: Getting Real about New Possibilities 241 Notes 245 Index 277 ack n ow l e d g me n ts This book is the product of more than a decade of teaching and writing in the area of corporate law Throughout this time, I have been a member of the faculty of the Boston College Law School I could not have completed this work without the support and good counsel of my colleagues, many of whom have dedicated numerous hours assisting me in thinking through the issues discussed here I am proud to be associated with such a fine institution and with such an incredible group of colleagues I also want to acknowledge Boston College Law School Dean John Garvey, former Law Dean Aviam Soifer, and former Boston College Academic Vice President John Neuhauser, all of whom supported my research and writing throughout their tenure in leadership positions at Boston College Many of the arguments put forth in the book were first developed and tested in classrooms at BC Law School Insofar as my arguments are persuasive, it is because they were tested against the intellect of students who can be counted among the best, brightest, and most dedicated in the country Particular thanks go to my research assistants over the past several years: Michael Carney, Catalina Girald, Kate Devlin, Amanda Gordon, John Hong, Scott LaFranchi, Travis Norton, Samuel Price, Jason Radford, Lauren Schumer, Lawrence Sheh, and Christine Westbrook Thanks, also, to my editors at University of Chicago Press, particularly Alex Schwartz,who quickly recognized that something in this project was ix notes to pages 216–218 can easily diversify their risk of employee deceit and can substitute honest employees for deceitful ones at lower cost In addition, the scale of the harm to the efficiency of the labor market is likely to be greater when an employer deceives employees than when an employee deceives her employer That is, an employer’s misrepresentations will tend to affect a number of workers, and thus the labor market as a whole, while an individual worker’s deceit is unlikely to have significant impact beyond her own employment relationship In addition, employers would not face the preemption problems that workers are likely to face because any employee fraud is unlikely to concern collective bargaining agreements or ERISA plans Finally, the focus on employer, rather than employee, deceit finds an analogy in the securities laws A number of antifraud provisions of the securities laws focus only on the “issuer” or “seller” of securities: Section 12(2) of the 1933 Act applies to “any person who offers or sells a security”; section 11(a) of the 1933 Act focuses on “issuers”of securities; and section 17(a) concentrates on fraud by “any person in the offer or sale of any security,” which has always been interpreted to mean sellers See also Louis Loss and Joel Seligman, Fundamentals of Securities Regulation 743 (3d ed 1995) (discussing sections 9(a)(4) and 10(b) of the 1934 Act, 15 U.S.C § 78i(a)(4), j(b) (1994), which also focus on the issuer) The core idea that market participants should not lie in a market transaction in order to take value from others was thus first, and most firmly, applied against those who sought fraudulently to induce others to invest their resources in a venture, i.e., when the justifications for antifraud protection are at their highest The analogy in the labor market is to employer fraud When a company uses fraud to induce workers to invest their resources—that is, their labor—in a venture, the justifications for antifraud protection in the labor market are similarly at their highest 30 The calculation of damages under such a statute would in some circumstances entail much complexity In the securities context, however, several observers not find the system to be as chaotic as it initially appears See, e.g., Frank H Easterbrook and Daniel R Fischel, The Economic Structure of Corporate Law 315–16 (1991) For a further discussion of damages in the securities context, see Mahoney, supra note 14, at 627 and n.13 The details of this issue, however, lie beyond the scope of this chapter It is worth noting, in any event, that damages in a common law fraud action can be either contract (benefit-of-the-bargain) damages or tort damages See Restatement (Second) of Torts § 549 (1977); Louis Loss, Fundamentals of Securities Regulation 713, 875–76, 965–75 (2d ed 1988) The choice between them depends on a number of factors Depending on the case and facts at hand, courts could make similar judgments under the labor market fraud statute chapter nine irrationality and the business judgment rule Charles Dickens, Hard Times 10 (Kate Flint ed., Penguin Books 1995) (1854) Martha C Nussbaum, Poetic Justice: The Literary Imagination and Public Life (1995) Dickens, supra note 1, at 226 274 notes to pages 219–227 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Nussbaum, supra note 2, at 17 Id at 20 Dickens, supra note 1, at 215 See Nussbaum, supra note 2, at 22 Dickens, supra note 1, at 101 Id at 79 Nussbaum, supra note 2, at 30 Dickens, supra note 1, at 55 Dickens, supra note 1, at 95–96 Id at 287 Id at 288 Id at 226 John Rawls, A Theory of Justice 22 (1971) Id at 30 Dickens, supra note 1, at 74 Id at 161 Id at 74 Id at 62 Id at 154–55 Id at 55 Milton Friedman, The Social Responsibility of Business Is to Increase Its Profits, N.Y Times Magazine, Sept 13, 1970, at 32–33, 122, 124, 126 See Bartley A Brennan, Current Developments Surrounding the Business Judgment Rule: A “Race to the Bottom” Theory of Corporate Law Revived, 12 Whittier L Rev 299, 302 (1991) Brennan also adds what may be a socialresponsibility rationale for the business judgment rule: that it assures all parties that directors, not shareholders, will set policy and be accountable to all present and future investors Robert N Leavall, Corporate Social-Reform, the Business-Judgment Rule and Other Considerations, 20 Ga L Rev 565, 602 (1986) Frank H Easterbrook and Daniel R Fischel, The Economic Structure of Corporate Law 94 (1991) Id at 100 Daniel R Fischel, The Business Judgment Rule and the Trans Union Case, 40 Bus Law 1436, 1343 (1985) See Daniel R Fischel, The Corporate Governance Movement, 35 Vand L Rev 1259, 1264 (1982) Martha C Nussbaum, The Discernment of Perception: An Aristotelian Conception of Private and Public Rationality, in Love’s Knowledge: Essays on Philosophy and Literature 54 (1990) Id at 63 Id at 69 Id at 74 Id at 95 William J Brennan, Jr., Reason, Passion, and “The Progress of Law,” 10 Cardozo L Rev 3, (1988) 275 notes to pages 227–240 37 Id at 38 S Samuel Arsht, The Business Judgment Rule Revisited, Hofstra L Rev 93, 118 (1979) 39 Nussbaum, supra note 31, at 74 40 170 N.W 668 (Mich 1919) 41 237 N.E.2d 776 (Ill App Ct 1968) 42 See William A Klein and J Mark Ramseyer, Business Associations: Agency, Partnerships, and Corporations 270 (3d ed 1997) 43 In court, Ford was asked for what purposes Ford Motor Company was organized He answered that it was “[o]rganized to as much good as we can, everywhere, for everybody concerned And incidentally to make money.” A Nevins and F Hill, Ford, Expansion and Challenge, 1915–1933 99 (1957) In an interview with Detroit News, Ford also said,“I not believe we should make such an awful profit on our cars.A reasonable profit is right, but not too much.” Id at 97 44 Aristotle, The Nicomachean Ethics (Hugh Tredennick, ed., and J A K Thomson, trans., Penguin Books 1976) 45 Rawls, supra note 16, at 10 46 Aristotle, supra note 44, at 172; see also id at 175 (“[W]hen a man takes more than his share what actuates him is certainly some kind of wickedness (because we blame it): viz., injustice.”) 47 Id at 178 (and “[W]hat is just is proportional.”) 48 Id at 179 49 For example, H L A Hart adopts this notion of distributive justice wholesale, defining justice “as maintaining or restoring a balance or proportion.” H L A Hart, The Concept of Law 155 (1961) 50 Dickens, supra note 1, at 62 51 Nussbaum, supra note 31, at 73 52 Id at 69–70 53 Dickens, supra note 1, at 160–61 54 Adam Zagorin, Short-Shirted in Maine, Time, June 3, 1996, at 58 55 See id In fact, as of February, 1997, Warnaco’s stock had achieved a five-year average return of over 19%, the second-best within its industry group (apparelclothing and fabrics) See Industry-by-Industry, Who Leads the Field in Shareholder Returns, Wall St J., Feb 27, 1997, at R4 (table) 56 See Sara Rimer, Fall of a Shirtmaking Giant Shakes Its Hometown, N.Y Times, May 15, 1996, at A14 57 See Union Efforts to Increase Productivity Not Enough to Keep Warnaco Plant Open, Daily Labor Report, May 21, 1996 58 See Rachel Spevack, Hathaway Jobs in Jeopardy, Daily News Record, May 7, 1996, at 59 See Rimer, supra note 56 60 Dickens, supra note 1, at 217 276 index Acemoglu, Daron, 163–64, 266n55, 266n57 agency costs: broadening managers’ responsibilities seen as reducing individual responsibility, 136, 138–40; and corporate crime, 75, 88; external requirements adding, 38; monitoring as, 163; of shareholders, 47–50, 64, 70; ultra vires doctrine reducing, 78; of workers, 50–53, 66, 70, 71 airlines: government bailout after September 11, 2001, 20, 21; responsibility for airport security, 10–14 airport security: and externalities, 14–16; as market failure, 10–14 Albert, Michel, 23, 27–28 Alchian, Armen A., 248n3 Alexander, Cindy, 88, 255n42 Alien Tort Claim Act, 259n85 Alsop, Ronald, 255n41 altruism, 132, 173, 174, 175, 176 “American Dream,” 157 American Law Institute, 76–77, 253n16, 253n18, 257n64, 258n78 antifraud law, federal See federal antifraud law antitakeover laws, 180, 269n103 arbitrage, 201, 212 Aristotle, 226, 227, 228, 231–32, 233, 276n46 attorney general proceedings under ultra vires doctrine, 97–98 Basic Inc v Levinson, 273n24 Bebchuck, Lucian, 114–15, 260n19 behavioral economics, 173, 178 benefits, defining broadly, 128 Berle, Adolf, 4, 47 Bertrand, Marianne, 180, 269n101, 269n103 Black, Bernard, 56 Blair, Margaret M., 46, 144, 147–48, 149, 264n37 boards of directors See directors Bok, Sissela, 271n7 bondholders, 46 Brandeis, Louis, 36, 77, 115, 133–34, 254n20 Brennan, Bartley A., 275n25 Brennan,William J., Jr., 227 Bridgestone/Firestone, 91 Bryan,William Jennings, Buchanan, Pat, 243 Burma, 74–75, 104–5 Bush, George W., 20 business judgment rule: explanations of puzzle of, 224–26; good decision-making allowed by, 218, 226, 228; law and economics theorists’ rationale for, 225; new explanation for, 226–28; as permissive rather 277 index business judgment rule (continued) than mandatory, 230; and profit maximization, 218, 224, 225–26, 230; as secondbest, 228–30; social-responsibility rationale for, 275n25; traditional rationale for, 224–25 Business Roundtable, 77, 253n18 capital (securities) market: federal fraud protection as more important in labor market than in, 200–204; fraud protection in, 188, 189–92, 201, 209, 211–12; labor market as less fluid and efficient than, 52, 69, 118, 143, 200, 209, 268n86; and pricing of management-shareholder contract, 49, 64, 65, 143; risk aversion in, 196 See also shareholders Cardozo, Benjamin Nathan, 227 Caremark case, 96, 252n8 Cary,William L., 42, 248n2 Cases and Materials on Corporations (Cary and Eisenberg), 42, 248n2 charters of incorporation See corporate charters Chayes, Abram, 265n38 Chevron, 21, 75, 80 Chicago Cubs, 229–30 chief executive officers (CEOs), 156 child poverty rate, 23, 157 Coase, Ronald, 248n3 codetermination, 23–24, 149, 243, 265n38 Coffee, John, 86, 258n76 Cohen, Mark, 88, 255n42 collective action problems, 214 collective bargaining, 64, 181, 193, 201 “color of law,” 104, 259n88 commitment: compensation based on employee, 179; contracts and, 63; fiduciary duties to workers strengthening, 181 compensating wage differentials, 193, 199, 271n8 Conard, Alfred F., 265n38 conflict of laws doctrine, 99, 110, 112, 119, 122 Connecticut, 264n36 constituency (stakeholder) statutes, 179, 264n36 contracts: corporate charters as, 81; corporate law as contractarian, 20, 171; and economic justice, 146; enablingism, 16–19; law in creation of, 34, 142; legislative and judicial processes as part of, 59; Lochner v New York on, 29, 33–35;“nexus of con- tracts” of corporations, 15, 17, 29, 30, 36, 59, 81, 149; nonshareholding stakeholders dependent on, 16, 21, 24, 142, 167; as optimizing interests of parties to, 18; preexisting entitlements in, 18; private law governing, 2; in protecting workers from fraud, 205–6; purported private nature of corporate, 30–35; relational contracts with workers, 154, 166–70, 184; relational contract with shareholders, 59–60, 166; worker versus shareholder, 60–66 cooperation: building through fairness, 158–70; how corporate law can encourage, 178–82; people having tendency toward, 175; in public good games, 174–75; reciprocal, 176 Cooter, Robert, 100 corporate charters: contact with chartering state not required, 108; market pricing terms of contract in, 171; national regime for, 122; public interest in early, 35; states competing for, 82, 114; and ultra vires doctrine, 77, 78, 80–81, 81–94 corporate crime, 73–105; cost-benefit analysis in deciding to commit, 73–74, 236; courts as complicit in, 251n2; difficulty in discovering and constraining, 74; corporations have duty to obey the law?, 75–77; and international law, 102–5; long-term effects of, 85; and management ownership stake, 88; managers externalizing costs of, 86; penalties as costs of doing business, 73–74, 75, 102, 251n2, 252n13; personal liability for, 92–93; profit-making, 73–74, 76, 84, 92, 253n15; stock prices and, 255n42; ultra vires doctrine, 77–105; Unocal case, 74–75, 104–5, 251n5; why firm’s stakeholders don’t want corporations to break the law, 81–94 See also fraud corporate fraud See fraud corporate governance: Delaware dominating law of, 2–3, 22, 107–9, 111–12, 135, 136, 246n8; enablingism and, 16–19, 21; in Germany, 23–24, 42, 149; law standing aside in, 16–19; national regime for, 122; participatory democratic, 146–52; perceptual biases in pricing terms of, 65; possibility of bringing about change in, 241–43; as private matter, 31, 35; protecting from politics, 35; public interest and, 31; shareholder and management interests served in, 16, 18; third-party effects of, 68 See also 278 index fiduciary duties; internal affairs doctrine; shareholder supremacy; worker participation corporate law: building cooperation through fairness, 158–70; challenges to mainstream view of, 4; consequences of changing, 5; as contractarian, 20, 171; on corporate crime, 73–74; economic justice ignored in, 146; efficiency as regulatory tool, 141, 155, 182–85, 263n2; enablingism, 16–19; encouraging cooperation and sharing, 178–82; externalities created by, 14–16, 18–19; facilitating equitable sharing of corporate surplus, 170–78, 184; fairness as concern of, 158–59, 232; fundamental assumptions as stagnant, 125; as fundamentally flawed, 2; for furthering corporate contribution to societal good, 134–42; good decision-making principles ignored in, 152; how we could reorganize, 27–28, 123–24, 125–52; importance of, 4–5; in larger social and macroeconomic context, 27; market power reinforced by, 18–19; market values mimicked by, 143, 147; neutrality of, 19; New Deal insights for, 36–39; principles for reform of, 125–52; as private law, 2, 29, 30, 37; process as concern of, 158–59, 170; as public law, 29–39; as public policy tool, 153–85;“race to the top” in, 3, 84, 107–8, 114, 117, 119; for redistribution of wealth, 146; as regulatory tool, 3, 36–39, 140–42, 158–85; September 11 and, 9–28; shareholder supremacy unchallenged in, 2, 21–28, 41–42; ultra vires doctrine, 77; as untapped resource, 140; utilitarianism of, 17–18, 223–24; workers’ interests overlooked in, 42–43, 55 corporate surplus See profit corporations: agency relationships for defining, 30; challenges to mainstream view of, 4; changing face of corporate world, 125–52; characteristics that make them particularly successful in making money, 131; as collective enterprises, 142; corporate welfare, 21; dissolution, 97–98, 257n70; as distinctively able to contribute to societal good, 130–34; duty to obey the law, 73–105, 123; externalities created by, 15, 16; fair distribution of profits among stakeholders, 135, 141, 142–46, 147, 154–55, 170–78, 184; financial reporting by, 128–29, 135; government assistance to, 20–21; his- torical development of, 35–36; impersonal nature of, 120; law in creation of special characteristics of, 131; measuring their serving interests of society, 128–30, 261n3; metaphors for explaining, 36; narrow role attributed to, 125–26; naturalness of, 35–36; as “nexus of contracts,” 15, 17, 29, 30, 36, 59, 81, 149; ownership of, 43–47, 53; popular mistrust of, 7; power and ubiquity of, 153–54; private nature attributed to, 1–2, 30–35, 125; public, 1–2; relational contracts with employees, 154, 166–70, 184; separate legal existence of, 131; ultimate purpose as serving public interest, 127–30; as “voluntary adventure,” 15; wariness regarding, 133–34; wealth creation as special function of, 131–34 See also corporate charters; corporate crime; corporate governance; corporate law; stakeholders costs: defining broadly, 128; regulating corporate creation of social, 134, 135; of worker participation, 24 See also agency costs; externalities creditors: ultra vires doctrine opposed by, 79, 90; why they don’t want corporations to break the law, 90–91 customary international law, 104 Dahl, Robert A., 265n38 decision making: absence of supreme stakeholder in, 236–38; centralizing in management, 16; context in, 232–34; diversity leading to better, 151–52; employee concern about procedural fairness in, 161; nonfinancial factors as important in, 234–38; Nussbaum’s neo-Aristotelian model of, 226–28; priority of the particular in, 233–34; process-based review in, 238–40; in rational model of fiduciary duties, 231–40 See also business judgment rule default rules, 16, 17 Degoey, Peter, 159 Delaware, 107–22; Caremark case, 96, 252n8; on corporate dissolution, 257n70; deferring to as undemocratic, 3, 110, 122; on directors’ obligation to shareholders, 113, 260nn14–15; dominance in corporate law, 2–3, 22, 107–9, 111–12, 135, 136, 246n8; as externalizing costs of its corporate governance regime, 114, 136, 246n8; as insulating itself from democratic pressures, 119; 279 index Delaware (continued) and internal affairs doctrine, 2, 108–9, 111–12;“race to the top” explanation of dominance of, 3, 107–8, 259n2; on shareholder suits, 257n66; stakeholder statute absent in, 179; and ultra vires doctrine, 80, 83, 257n64; as unaffected by corporate behavior at issue, 110, 260n13 delegated control, 47–50 democracy: choosing democratic values to govern corporations, 243; deferring to Delaware as undemocratic, 3, 108, 110, 122; internal affairs doctrine as undemocratic, 110, 111, 119–21; participatory, democratic corporate governance for sustainable creation and distribution of wealth, 146–52; substituting democratic decisions for market decisions, 70 Demsetz, Harold, 248n3 derivative actions, 95, 96, 147, 148, 238 Diamond, Michael, 273n25 Dickens, Charles, 217–24, 229, 230, 232–33, 235, 240 directors: as balancing stakeholders’ interests, 147–48; board pluralism, 150–52; and corporate crime, 75, 77, 96, 252n8; fiduciary obligation to all stakeholders, 148–49, 154, 158, 181, 264n37; freeing from profitmaximization norm, 178–80; homogeneity of, 152, 262n29; obligation to shareholders only, 109, 135; representing all stakeholders on boards, 149–51; and shareholder ownership, 43, 44–45, 54; shareholders electing, 43, 49, 67, 70, 144, 148, 150; why they don’t want corporations to break the law, 92; workers as not represented on boards, 109, 121; and workers’ interests, 44–45; workers on boards, 150, 154, 158, 159, 181, 182, 242 discussion: corporate law not encouraging, 180–81; in good decision-making, 151–52; sharing encouraged by, 154, 175–76, 180 dissent, better decision making resulting from, 151 dissolution, 97–98, 257n70 distribution of wealth: fair distribution of profits among stakeholders, 135, 141, 142–46, 147, 154–55, 170–78, 184; participatory, democratic corporate governance for sustainable creation of wealth and, 146–52; popular support for equality of, 145–46; redistribution, 141, 146 See also income inequality distributive justice, 162, 276n49 diversification, 26, 27, 56, 203, 210, 272n18 diversity, 151–52 Dobbs, Lou, 243 Dodge v Ford, 41, 229, 276n43 Dow, Greg, 51 duty of care: and broadening management responsibilities, 139; and fair allocation of corporate surplus, 149; for keeping corporations focused on wealth creation, 135; procedural standards for, 158–59, 161; to shareholders only, 109; ultra vires doctrine adding to, 95–96 duty of loyalty: and broadening management responsibilities, 139; and fair allocation of corporate surplus, 149; for keeping corporations focused on wealth creation, 135; procedural standards for, 158, 161; to shareholders only, 109 Easterbrook, Frank: on business judgment rule, 225; on corporate crime, 73–74, 75, 76, 252n10, 255n39; on corporation as voluntary adventure, 15; The Economic Structure of Corporate Law, 4; on fiduciary duties to workers, 60; on internal changes in corporate structure and wealth creation, 136; on management-shareholder relationship, 60, 166; on market protection for capital investors, 66; on pricing shareholder-management contract, 65, 171; on risk aversion, 57, 250n31; on thirdparty effects of governance choice, 68 economic justice, 146, 157, 162 economic rationality: in Dickens’s Hard Times, 217–24, 229, 230, 232–33, 235, 240; experiment to mimic corporate setting, 176–78; nonrational economic behavior, 172–75; Nussbaum’s neo-Aristotelian critique of, 226–28; stakeholders seen as rational actors, 171–72 economic stimulus package of 2001, 21 Economic Structure of Corporate Law, The (Easterbrook and Fischel), 4, 65 efficiency: allocational efficiency in labor market, 195, 201–2; and codetermination model, 24; in contractarian model of corporate law, 171–72; of corporate law as regulatory tool, 141, 155, 182–85, 263n2; Delaware’s dominance attributed to, 3, 280 index 107, 108; market pressure on managers to improve, 48; in regulating corporations externally versus internally, 136, 140; resentment of nonshareholders leading to inefficiency, 177–78; shareholder supremacy based on, 66–70, 71, 126; values other than, 172 effort: management and shareholder interests diverging regarding, 48; shirking, 160, 177; wages and level of, 168–69 Eisenberg, Melvin Aron, 42, 248n2 Elster, Jon, 175 employees See workers (employees) employee theft, 266n56 enablingism, 16–19, 21, 22 Engel, David L., 252n12 Enron, 55, 204 environment, the, 2, 73, 100, 129 equality: for informing corporate law, 18, 38 See also income inequality ERISA, 193, 207, 272n19 exit options, 203 experience: and business judgment rule, 228; in Nussbaum’s neo-Aristotelian model of decision making, 227 externalities: as argument for government intervention, 37, 114; corporate contract seen as not creating, 15; corporations as externality machines, 16; corporations as not internalizing on their own, 134; Delaware externalizing costs of its corporate governance regime, 114, 136, 246n8; enablingism and, 18–19, 38; making it easier for corporations to know about, 135; measuring, 129; September 11 and, 14–16; shareholders and management externalizing costs onto workers, 68–69; unlawful activities contrasted with, 82 166–70; relaxing profit-maximization norm for increasing, 178–80; in ultimatum games, 173–74; utilitarianism contrasted with, 18, 232 Falk, Armin, 169 Fama, Eugene, 47 Farnsworth, Alan, 101 federal antifraud law: absence of in labor market, 192–93, 216; benefits of an antifraud law, 210–13; costs of an antifraud law, 208–10; fraud protection as more important in labor than in capital market, 200–204; market and common law as unable to protect workers from fraud, 204–7; materiality, 208–9; proposed statute, 215–16, 273n29, 274n30; in securities market, 188, 189–92; versus state regulation, 213–15 Fehr, Ernst, 168, 169, 267n75 Fidelity Investments, 49 fiduciary duties: absence of supreme stakeholder in decision making, 236–38; expanding, 30–33; fairness as in conflict with, 179; fairness as measuring stick for, 231–33; imposition by the state, 60, 167; new, rational model for, 231–40; nonfinancial factors as important in decision making, 234–38; priority of the particular in decision making, 233–34; process-based review in, 238–40; profit-maximization duty requiring irrational decisions, 218, 226, 227, 229; toward shareholders, 43, 49, 59–60, 62, 63–64, 66, 68, 109, 135, 166–67, 177, 227; toward workers, 63–66, 148–49, 154, 158, 159, 162, 181, 264n37 See also duty of care; duty of loyalty financial reporting, 128–29, 135 firm-specific investments, 143–44 firm-specific skills, 52, 55, 57, 62, 63, 210–11 First Amendment, 241–42 Fischel, Daniel: on business judgment rule, 225; on corporate crime, 73–74, 75, 76, 252n10, 255n39; on corporation as voluntary adventure, 15; on corporations as private, 30, 31; The Economic Structure of Corporate Law, 4; on fiduciary duties to workers, 60; on fraud protection in labor market, 202; on fraud protection in securities market, 191, 202; on internal changes in corporate structure and wealth creation, 136; on management-shareholder relationship, 60, 166; on market protec- fairness: building cooperation through, 158–70; corporate law as concerned with, 158–59, 232; determinants of, 161–62; in distribution of profit among stakeholders, 135, 141, 142–46, 147, 154–55, 170–78, 184; effects of in workplace, 160–61; freedom to contract outweighed by, 18; giant corporations as threat to, 243; as lowering monitoring costs, 154, 162–66, 183–84; nonshareholder retribution for unfair treatment, 177–78; in rational model of fiduciary duties, 231–33; relational contracts with workers resulting from, 154, 281 index Fischel, Daniel (continued) tion for capital investors, 66; on pricing shareholder-management contract, 65, 171; on risk aversion, 57, 250n31; on thirdparty effects of governance choice, 68 fixed claimants, 55 Ford, Henry, 41, 229, 276n43 Ford Motor Company, 21, 41, 229, 276n43 Fortune 500 companies, 107, 108 401(k) accounts, 55 Fourteenth Amendment, 29, 33 France, 157 fraud: absence of federal protection in labor market, 192–93, 216; accurate information as important in labor market, 193–99; benefits of an antifraud law, 210–13; in capital market, 188, 189–92, 201, 209, 211–12; cases of, 270n2; common law as unable to protect workers from, 205–7; consequences of not penalizing, 190; core idea of, 189; costs of an antifraud law, 208–10; exploring regulatory response to, 207–15; federal protection as more important in labor than in capital market, 200–204; market as unable to protect workers from, 204–5; materiality, 208–9; as number one corporate crime, 85; proposed statute for labor market, 215–16, 273n29, 274n30; state versus federal regulation, 213–15; U.S Steel Corporation case, 187–89, 194–95, 202, 206, 272n19; workers and, 187–216 free market: corporate law mimicking, 143, 147; corporate law reinforcing market power, 18–19; enablingism as rhetoric of, 19; government intervention for repairing market defects, 37–38; law in creation of, 34, 142, 143; Lochner v New York on, 29, 33–35; New Deal on government and, 29–30; September 11 and myth of, 19–21; September 11 as market failure, 10–14; state antifraud legislation competition as, 213–15; substituting democratic decisions for market decisions, 70 See also capital (securities) market; labor market Friedman, Milton, 43–45, 47, 223–24 fungibility, attributing to workers, 220, 222, 223 Gächter, Simon, 168, 169, 267n75 Gates, Bill, 157 General Electric, 21, 49 General Motors, 21, 22 Germany: corporate governance in, 23–24, 42, 149, 265n38; labor productivity in, 157; ratio of managers to workers in, 164 Gilded Age, 36 globalization: and corporate crime, 103–4; populist critique of, 7; shareholder supremacy model and, 25 Gordon, David, 164–65, 267n66 government intervention: in airport security, 11, 14, 15; assistance to corporations, 20–21; in corporate creation of social costs, 134, 135; externalities as argument for, 37, 114; goals of corporate regulation, 134–35; Lochner v New York on, 29; markets created by, 34, 142; as necessary for giving people what they want, 20; New Deal on markets and government, 29–30; nonshareholding stakeholders dependent on, 16, 21, 24, 142;“race to the bottom” in eliminating, 35; for repairing market defects, 37–38; two approaches to regulation, 141; and values other than efficiency, 172 Greenfield, Kent, 176 group exchange, 174 group identity, 175, 176, 179, 180, 181 Hansen, Charles, 264n36 Hansmann, Henry, 21–22, 24, 25, 261n2 Hard Times (Dickens), 217–24, 229, 230, 232–33, 235, 240 Hart, H L A., 276n49 Hathaway shirts, 237 Hendren, David F., 256nn60–61 human dignity, for informing corporate law, 18, 38 human rights: corporations violating, 73, 74; reporting violations of, 129; treaties regulating private behavior, 259n87 IBM, 21 identity, group, 175, 176, 179, 180, 181 income inequality: differential between workers and management, 156, 165; existing policy tools failing to solve, 183; flaws of corporate governance law and, 3; in Germany, 24; as increasing in U.S., 23, 154, 155–58, 247n27, 262n16; lowering monitoring costs for lowering, 164–66; popular concern with, 145–46 injunctive actions, shareholder, 94–96, 257n64 In re Caremark case, 96, 252n8 282 index institutional investors, 48–49, 211–12 insurance industry, 20 internal affairs doctrine, 109–12; in Delaware’s corporate governance dominance, 2, 108–9, 111–12; economic argument against, 114–19; as exceptional, 110–11, 120–21; externalization allowed by, 114, 246n8; foundational status of, 110; hypothetical statute challenging, 112–21; nonshareholding stakeholders excluded by, 114–17, 121; as not required, 121–22; and state concern with corporate illegality, 84; as undemocratic, 110, 111, 119–21; as unquestioned, 110, 113 international law, using ultra vires to reinforce, 102–5, 259n85 Iraq war, Japan, 164 Jensen, Michael C., 248n3, 249n15 job security: collective bargaining restrictions regarding, 64; contracts for, 63; corporate fraud regarding, 193, 211, 212, 215, 216; as implicit worker claim against company, 55; versus wages, 193–99, 271n9 See also plant closings justice: Aristotle on, 231–32; contracts as not always just, 18; distributive, 162, 276n49; economic, 146, 157, 162; procedural, 158–59, 161, 162, 238–40, 266n54 Kadic v Karadzic, 259n85 Karpoff, Jonathan, 255n42, 269n103 Kostant, Peter, 176 Kraakman, Reinier, 21–22, 24, 25, 261n2 labor See workers (employees) labor market: absence of federal fraud protection in, 192–93, 216; accurate information as important in, 193–99; corrections as difficult in, 205; elasticity of labor supply, 271n9; exploring antifraud regulation for, 207–15; federal fraud protection as more important than in capital market, 200–204; gaining information about employers, 212–13; inefficiency in pricing worker-management contract, 65–66, 67–68, 69, 71, 268n86; as less fluid than capital market, 52, 68, 118, 143, 200, 209; market and common law as unable to protect workers from fraud, 204–7; proposed fraud statute for, 215–16, 273n29, 274n30 labor productivity, 157 labor unions See unions laissez-faire: enablingism as rhetoric of, 19, 21; of Gilded Age, 36; Lochner v New York and, 29, 33, 34; regulatory view of corporate law and, 38 See also free market law: as-price versus as-sanction, 99–102, 258n78; corporations and duty to obey, 73–105, 123; in creation of property and contract rights, 34, 142; in creation of special characteristics of corporations, 131; corporations have duty to obey?, 75–77; international, 102–5, 259n85; why firm’s stakeholders don’t want corporations to break, 81–94 See also corporate crime; corporate law; federal antifraud law law and economics school, 15, 47, 100, 115, 225 Levi Strauss & Company, 90 liberty, giant corporations as threat to, 243 limited liability, 131, 137 Lochner v New York (1905), 29, 33–35, 36, 248n15 Lott, John, 255n42 low wages: of airport security workers, 11, 12, 13; corporations paying if possible, 16; flaws of corporate law and, 2, 3; monitoring required for low-wage employees, 164–65; at Wal-Mart, 137; working poor, 156 Macey, Jonathan R., 31, 47, 54, 59, 67, 167 Madison, James, 150 Mahoney, Paul, 201 Malesta, P H., 269n103 management: actions against those responsible for illegalities, 96–97; as agents, 43, 126; assumption of consent of, 15; broadening corporate responsibilities seen as reducing individual responsibility, 136, 138–40; as bureaucratic, 165, 267n66; centralizing power in, 16; and corporate crime, 75–76, 85, 86, 87–89, 96–97; delegated control and agency costs, 47–50; expertise of managers compared with bureaucrats, 141; external requirements for, 38, 39; fiduciary duties toward shareholders, 43, 49, 59–60, 62, 63–64, 66, 68, 109, 135, 166–67, 177, 227; fiduciary duties toward workers, 63–66, 148–49, 154, 158, 159, 162, 181, 264n37; freeing from profit-maximization norm, 178–80; identification with employees, 181, 182; income differential between workers 283 index management (continued) and, 156, 165; interests diverging from shareholders’, 26, 48, 86; law privileging interests of, 16, 18; market protections for, 48, 64; monitoring function of, 160, 162–66; owing duty to firm as a whole, 149; participatory, 62; ratio of managers to workers, 164, 267n61; relational nature of contract with shareholders, 59–60, 166; risks and costs thrown off on others by, 16; and shareholder ownership, 43–44, 126; shareholders as having little say in, 14, 85; why it doesn’t want corporations to break the law, 91–94 See also directors market See free market Marshall, John, 35 materiality, 208–9 Means, Gardiner, 4, 47 Meckling,William H., 248n3, 249n15 Mervyn’s Department Store, 90 Michigan, 41 minimum wage, 18, 32–33, 183, 201, 251n54 Mitchell, Lawrence, 16, 114, 273n25 Model Business Corporation Act, 80 Modern Corporation and Private Property, The (Berle and Means), 4, 47 monitoring: of compliance with law, 96; of employees, 154, 160, 162–66, 183–84, 266n55; of fraud in capital market, 201, 211–12; of fraud in labor market, 208–9, 212; by large shareholders, 49; in rational model of fiduciary duties, 239–40 Mullainathan, Sendhil, 180, 269n101, 269n103 multinational corporations, 102 Nader, Ralph, 243 National Labor Relations Act, 271n5 natural rights, 126 “net loss” rule, 76, 97 New Deal: insights for corporate law, 36–39; on markets and government, 29–30; populism of, 7; securities laws, 191 New Jersey, 35 Newman, Andrew F., 163–64, 266n55, 266n57 New York State, 80, 108, 255n32, 257n68 Nike, 90 nonrational economic behavior, 172–75 Nussbaum, Martha, 217, 220, 226–28, 233 Occupational Health and Safety Act, 130, 261n3 O’Connor, Marleen A., 52, 62–63, 264n37 Organization for Economic Cooperation and Development, ownership: corporate crime and management stake in, 88; of corporations, 43–47, 53, 70, 125–26; shareholders’ sense of, 26; state ownership, 241 participatory management, 62 particularity: in Nussbaum’s neo-Aristotelian model of decision making, 226–27; priority of the particular in decision making, 233–34 Paust, Jordan J., 258n84, 259n87 pension plans, 55, 193 Pepper, Stephen, 100–101 performance requirements, 168 personal liability for corporate crime, 92–93 plant closings: no law on management misrepresentation regarding, 216; preemption doctrine and, 193; U.S Steel case, 187–89; Warnaco case, 237 pluralism, board, 150–52 politics: alliances for reforming corporate governance, 243; contractarians on redress for corporate misdeeds through, 31–32; protecting corporate governance from, 35 populism, positive reciprocity, 26–27, 155, 169, 170, 184 Pound, Roscoe, 35 poverty, 23, 156, 157, 251n54 preemption doctrine, 192–93, 207 principal-agent relationships, 30, 50 principles for reform of corporate law, 125–52; corporate law for furthering corporate contribution to societal good, 134–42; corporations as distinctively able to contribute to societal good, 130–34; fair distribution of profits among stakeholders, 142–46; participatory, democratic corporate governance for sustainable creation and distribution of wealth, 146–52; ultimate purpose of corporations as serving public interest, 127–30 Principles of Corporate Governance (American Law Institute), 76–77, 253n16, 253n18, 257n64, 258n78 private-public distinction, 29, 31, 32 procedural justice, 158–59, 161, 162, 238–40, 266n54 productivity, labor, 157 284 index profit: business judgment rule and maximization of, 218, 224, 225–26, 227, 230; correlation between wages and, 169; externalities resulting from desire for, 16; fair distribution among stakeholders, 135, 141, 142–46, 147, 154–55, 170–78, 184; fiduciary duty to maximize requiring irrational decisions, 218, 226, 227, 229, 237; increases in 1990s, 156; management duty to maximize, 14, 224; profit-making corporate crime, 73–74, 76, 84, 92, 253n15; relaxing profitmaximization norm, 154, 158, 178–80, 264n36; shareholder supremacy and maximization of, 166 promotion policies, 55 property: law in creation of, 34; ownership of corporations, 43–47, 53, 70; private law governing, 2; regulation of, 45 public corporations See corporations public good games, 173, 174–75, 180, 182, 268n90 public interest: in early corporate charters, 35, 36; private corporations insulated from concerns of, 30–31; public companies prohibited from considering, 1; shareholder supremacy versus, See also societal good public-private distinction, 29, 31, 32 Putterman, Louis, 51 rationality, economic See economic rationality Rawls, John, 152, 222, 231 reciprocity: corporate law policy initiatives based on, 183; human beings as reciprocators, 144; positive, 26–27, 155, 169, 170, 184; reciprocal altruism, 170, 176; among states, 84 redistribution of wealth, 141, 146 reference transaction, 179 regulation, governmental See government intervention Reich, Robert, 262n15 reliance interests, 46 rent-seeking, 150, 266n55 reputational harm, 84, 85, 90–91, 204, 213, 255n41 residual claims: shareholders’ equity as, 53–54, 56, 166; workers’ claims as, 54–59, 66, 71 Restatement (Second) of Conflicts, 113, 121–22 retirement benefits, 55 retraining, 202–3 Revised Model Business Corporation Act, 80, 253n16, 257n64, 257n66 Revlon, Inc v MacAndrews and Forbes Holdings, Inc., 260n15 rights: contractarian theory as based on, 29, 32, 33; Lochner v New York on, 29, 33–35; metaphors for corporations based on, 36; versus regulatory view of corporate law, 37; of shareholders, 35–36, 125, 126, 142–43; of workers, 50, 61 See also human rights risk aversion: in capital market, 196; in labor market, 195; management and shareholder interests diverging regarding, 26, 48; worker and shareholder interests diverging regarding, 56–59 Roosevelt, Franklin, 155 Roosevelt, Theodore, Roth v Robinson, 257n68 rule of law, 236 rules: as guides, 227, 233, 234; worker compliance with, 27, 160–62, 184, 266n44 Ryan, Patrick J., 74, 87, 253n14 safety, workplace See workplace safety scandals, corporate: Enron, 55, 204; flaws of corporate law and, 2, 9; political process seen as solution to, 31; public concern over, 7; support for securities laws increased by, 192 See also corporate crime Schwab, Stewart J., 273n27 Securities and Exchange Commission Rule 10b-5, 188, 190, 215, 216 Securities Exchange Act (1934), 188, 190, 196 securities market See capital (securities) market self-dealing, 139, 158, 232 self-interest: in Dickens’s Hard Times, 221; discussion reducing, 175–76; duties of care and loyalty versus, 135; economic rationality and, 172 September 11, 2001, 9–28; and building connections, 28; and externalities, 14–16; as market failure, 10–14; and myth of free market, 19–21 shareholders: actions against those responsible managers under ultra vires doctrine, 96–97; advancing wealth of seen as advancing societal wealth, 136–37; agency costs of, 47–50, 64, 70; and airport security market failure, 13–14; as citizens, 89; conflicts of interests with other stakeholders, 138; corporate crime affecting, 75, 76, 85; 285 index shareholders (continued) delegated control by, 47–50; directors elected by, 43, 49, 67, 70, 144, 148, 150; directors’ obligation to, 109, 135; equity as residual claim, 53–54, 56, 166; exit options for, 203; fiduciary duties toward, 43, 49, 59–60, 62, 63–64, 66, 68, 109, 135, 166–67, 177; fraud protection for, 188, 189–92; as having little say in management, 14, 85; as indifferent to any particular corporation, 25–26, 56–57, 59; injunctive relief under ultra vires doctrine, 94–96, 257n64; institutional investors, 48–49, 211–12; making money seen as sole concern of, 14–15; management interests diverging from those of, 26, 48, 86; market protections for, 49, 64; and regulatory view of corporate law, 37, 38; relational nature of contract with management, 59–60, 166; rich holding majority of stock assets, 58, 70, 156, 250n30, 251n54; rights of, 35–36, 125, 126, 142–43; and risk aversion, 26, 48, 56–59; ultra vires doctrine serving interests of, 78–79, 84–89; as voluntarily accepting risk-return ratio, 14–15, 20; why they don’t want corporations to break the law, 84–89; workers’ agency costs compared with those of, 51–52; workers’ contracts compared with those of, 60–66 See also shareholder supremacy shareholder supremacy, 21–28; arguments for, 22, 70–71, 123; as basic underpinning of corporate law, 22; as better for corporations, 24–25; versus broader view of corporate responsibilities, 135; and business judgment rule, 218; codetermination model versus, 24; consequences of, 2; efficiency-based argument for, 66–70, 71, 126; and enablingism, 17; fairness discouraged by, 179; in mainstream corporate law, 16, 18, 22, 128, 147; versus other stakeholder interests, 2, 16, 21, 142–43; ownership as basis of, 43–47, 53, 70, 125–26; private nature of corporation and, 32–33; as recent event, 126; relational nature of shareholder-management contract and, 166; and social welfare, 22–23, 27; as unchallenged in corporate law, 2, 21–28, 41–42 sharing: how corporate law can encourage, 178–82; what makes people share?, 175–76 See also distribution of wealth shirking, 160, 177 Shlensky v Wrigley, 229–30 Singer, Joseph, 44, 46 slavery, 258n84, 259n85 Smith, Adam, 136 socialism, 241 societal good: corporate law for furthering corporate contribution to, 134–42; corporations as distinctively able to contribute to, 130–34; shareholder supremacy and, 22–23, 27; ultimate purpose of corporations as serving, 127–30 See also public interest Souter, David, 248n15 Spiro, Peter, 102, 103 stakeholders: absence of supreme stakeholder in decision making, 236–38; advancing shareholder wealth seen as advancing wealth of, 136–37; broadening managers’ responsibilities seen as reducing individual responsibility, 136, 138–40; conflicts of interests between shareholders and other, 138; directors seen as balancing interests of all, 147–48; enforcement power for, 149; fair distribution of profits among all, 135, 141, 142–46, 147, 154–55, 170–78, 184; holding directors to fiduciary obligation to all, 148–49, 154, 158, 181, 264n37; nonshareholders as dependent on contracts and regulation, 16, 21, 24, 142, 167; as rational actors, 171–72; representing all on boards of directors, 149–51; retribution for unfair treatment, 177–78; shareholder supremacy versus interests of other, 2, 16, 21, 142–43; why they don’t want corporations to break the law, 81–94 See also management; shareholders; workers (employees) stakeholder (constituency) statutes, 179, 264n36 state, the: ultra vires doctrine serving interest of, 77–78 See also government intervention; law; states state incorporation statutes: on corporate dissolution, 97; market pricing terms of contract in, 171; ultra vires doctrine in, 80 state ownership, 241 states: attorney general proceedings under ultra vires doctrine, 97–98; competing for corporate charters, 82, 114; encouraging worker participation by, 242–43; versus federal fraud regulation, 213–15; internal 286 index affairs doctrine and corporate governance regimes of, 112–21; why they don’t want corporations to break the law, 82–84 See also state incorporation statutes; and states by name Stevens, Robert, 254n28 stock market booms, 155–56 Stone, Katherine Van Wezel, 264n37, 265n38 Stout, Lynn, 46, 144, 147–48, 149, 270n4 Sunstein, Cass, 34, 151–52 suppliers: and ownership of corporations, 46; ultra vires doctrine opposed by, 79, 90; why they don’t want corporations to break the law, 90–91 surplus, corporate See profit sustainability: fair allocation of profit for, 144; fixation on, 130; stakeholder representation for, 149–50 sweatshops, 90, 92 team production, 144, 147, 148, 149 terrorist attacks, flaws of corporate law and risk of, Thaler, Richard, 268n89 theft, employee, 266n56 time horizon, management and shareholder interests diverging regarding, 48, 86 tort law of fraud, 206 trade unions See unions transferability of shares, 131 treaty obligations, 104 trickle down, 22, 137 trust: how people are treated determining, 159; as lowering monitoring costs, 163, 165, 183; relational contracts and, 166, 167, 170; rule compliance increased by, 162, 184 Tyler, Tom R., 159, 160, 161, 162, 166, 256n55, 266n44 ultimatum games, 173–74, 175, 178–79, 180, 182, 268n89 ultra vires doctrine, 77–79; actions against managers responsible for ultra vires acts, 96–97; attorney general proceedings under, 97–98; creditors’ interests served by, 90–91; erosion of, 79; implications for corporate practice, 94–98; managers’ and employees’ interests served by, 91–94; objections to, 98–102; and problem of law-as-price, 99–102; and problem of unclear law, 98–99; for reinforcing international law, 102–5; shareholder injunc- tive relief provided by, 94–96, 257n64; shareholder interests served by, 78–79, 84–89; state’s interest served by, 77–78; surviving vestige of, 79–81; why states require, 82–84 unclear law, ultra vires doctrine and problem of, 98–99 unions: collective bargaining, 64, 181, 193, 201; corporate law overlooking, 42; decline of, 66, 212; detecting employer fraud, 212; and pricing worker-management contract, 66; as prohibited from bringing fraud suits, 192–93 United Kingdom, 157, 164 Unocal, Inc., 74–75, 80, 104–5, 251n5, 251n7 Unocal Corp v Mesa Petroleum Co., 260n15 U.S Steel Corporation, 187–89, 194–95, 202, 206, 272n19 utilitarianism: central philosophical components of, 222; of corporate law, 17–18, 223–24; in Dickens’s Hard Times, 217–24, 229, 230, 232–33, 235, 240; efficiency norm as rooted in, 66, 67, 69–70; enablingism and, 17–18; fairness contrasted with, 18, 232; irrationality of, 222–24; rationality of, 219, 223; regulatory view of corporate law and, 38; shareholder supremacy and social welfare, 23; versus tangled complexity of business decisions, 228 wages: antitakeover laws increasing, 180, 269n103; correlation between profits and, 169; decline in real wages since 1970s, 23, 247n28; effort level and, 168–69; German, 24; group identity for increasing, 182; versus job security, 193–99, 271n9; lowering monitoring costs for raising, 163–64, 266n57; managerial bureaucracy and slow growth of, 165; minimum wage, 18, 32–33, 183, 201, 251n54; real wages as stagnant, 154, 155–58, 183 See also low wages Wal-Mart, 108, 109, 137, 260n7 Warnaco Group, Inc., 237, 276n55 wealth: advancing shareholder wealth seen as advancing societal, 136–37; concentration of, 157; corporations as engines of creation of, 131–34; values more important than, 132–33, 172, 175 See also distribution of wealth; wages Weiler, Paul C., 273n27 Weinberger v UOP, Inc., 265n39 white collar crime See corporate crime 287 index Williams, Cynthia A., 252n10, 252n13, 253n16 Wilson,Woodrow, 77–78 Worker Adjustment and Retraining Notification (WARN) Act (1994), 270n5 worker participation: codetermination model, 23–24, 149, 243, 265n38; inefficiency attributed to, 24; participatory management, 62; socialism contrasted with, 241; state encouragement of, 242–43; workers on boards of directors, 150, 154, 158, 159, 181, 182, 242 workers (employees): agency costs of, 50–53, 66, 71; airline layoffs after September 11, 2001, 21; assumption of consent of, 15; on boards of directors, 150, 154, 158, 159, 181, 182, 242; continuing relationships with their firms, 26–27, 46, 64, 71; contract as only protection for, 60–66, 167; and corporate fraud, 187–216; corporate law overlooking interests of, 42–43, 55; directors and interests of, 44–45; employment relationship as not zero-sum game, 27, 155; exit options for, 203; fair distribution of profits to, 135, 141, 142–46, 147, 154–55, 170–78, 184; fair treatment of, 27, 159–70; fiduciary duties toward, 63–66, 148–49, 154, 158, 159, 162, 181, 264n37; firm-specific skills, 52, 55, 57, 62, 63, 210–11; fungibility attributed to, 220, 222, 223; illegal profits from exploiting, 92; incentives to make their companies survive, 26, 56; income differential between management and, 156, 165; information acquisition as difficult for, 192; management identification with, 181, 182; nonfinancial factors as important in decision making regarding, 235–36; as not represented on boards of directors, 109, 121; positive reciprocity with their firms, 26–27; property interests in the firm, 46; ratio of managers to, 164, 267n61; relational contracts with, 154, 166–70, 184; reliance interests in their jobs, 46; residual nature of claims of, 54–59, 66, 71; retribution for unfair treatment, 177; as risk averse, 57; rule compliance by, 27, 160–62, 184, 266n44; shareholders and management externalizing costs onto, 68–69; in shareholder supremacy model, 24; successful companies sharing knowledge and power with, 151; why they don’t want corporations to break the law, 91–94 See also job security; labor market; unions; wages; worker participation; workplace safety working poor, 156, 263n16 workplace safety: allocational efficiency in labor market, 195; as implicit worker claim against company, 55; Occupational Health and Safety Act, 130, 261n3; profit and, 16; regulating to protect against social costs, 135 World Trade Organization, Wrigley, Philip, 229–30 Youngstown (Ohio), 187–89, 194–95, 202, 206 288