11 of 13 people found the following review helpful
on February 11, 2012
Prof. Bainbridge's book is a pleasure to read. As usual, he writes clearly and elegantly. And much can be learned about corporate governance in the U.S. But the reader should know that this book is mainly in the nature of a polemic, rather than a dispassionate analysis.
Prof. Bainbridge has long supported a director-centric, rather than a shareholder-centric, theory of the corporation. He reminds us that the Board of Directors has three functions (1) monitoring management (2) helping manage the corporation (3) relations with the outside world, including networking, finding resources, and so on. It is pretty clear that he thinks monitoring is a secondary role, subordinate to managing. Indeed, too intense monitoring constrains Directors' discretion, and hampers their ability to help manage the corporation. As a result, he thinks that independence of directors is over-rated, that the roles of CEO and Chairman of the Board can profitably be combined, and so on. Shareholder activism has no role in this model: Shareholders get to endorse the slate of directors that they are presented with, and collect dividends (if the Board feels like declaring them) and that's it.
It follows that Prof. Bainbridge finds that most of the corporate governance reforms in Sarbanes Oxley and in Dodd-Frank are wrong-headed and counter-productive -- "quack corporate governance". They are trying to beef up the monitoring function -- and it doesn't need beefing up.
Along the way, Prof. Bainbridge does refer to many empirical studies both supporting and opposing his position. But I think that he is overly kind when evaluating studies that support him, and overly harsh on opposing studies. Finally, he does not hesitate to make a big deal of anecdotes. For example, independence of the audit committee is over-rated -- after all the chair of Enron's audit committee was an accounting professor at Stanford, and that didn't help.
Now I share the view that Sarbanes-Oxley was not a success, and that Dodd-Frank is unlikely to be. Both statutes are at once much too detailed and too vague. But that just tells me that we haven't found a solution yet. It does not tell me that we don't have a huge, huge problem at the heart of corporate governance.