In his new book, Corporate Governance after the Financial Crisis, UCLA law professor and popular blogger Stephen Bainbridge provides a longer historical perspective on one aspect of this choking proliferation of rulemaking. (The book doesn’t mention his blog,ProfessorBainbridge.com, in his bio, which is interesting.) The title of the book is mildly misleading. While Bainbridge is describing how we got to what he calls “quack corporate governance” after the financial crisis, he is really dealing with the post-2000 period, when Congress reflexively reacted to the Enron and WorldCom scandals with Sarbanes-Oxley, a significant increase in micro-managing boards and managers, and, after 2008, with Dodd-Frank. Bainbridge is pursuing several important themes here. He is skeptical of the so-called monitoring model of governance’s ability to function effectively and argues that the model’s inherent limitations have created a frenzy of federal rulemaking that attempts to “fix” it. He identifies “quack” corporate governance by several tendencies: lobbying by special interest, usually activist investors, or “policy entrepreneurs pursuing an agenda unrelated to the financial crisis”; very little empirical support as to effectiveness; and a strong impulse toward federalization through specific rulemaking, which has tended over time to expand the power of the federal government in corporate law over state courts, meaning mostly Delaware.
Thanks to Francis Pileggi!