In a post on the emissions scandal that's worth reading for lots of reasons, John Armour makes a point that I think undermines the basic premise of progressive corporate law insofar as it seeks to use corporate law to influence corporate governance to regulate the externalities created by corporate conduct:
What also emerges starkly from the VW affair is the importance of distinguishing between agency costs and externalities in discussions of corporate governance. Conflicts of interest between managers and shareholders are an agency cost. But so too are conflicts of interest between employees and shareholders. Harm caused to the environment, or any other interest external to the corporation, however, is an externality. Simply because a company’s structure is designed—as codetermination does in Germany—to minimise agency costs between shareholders and employees—does not necessarily imply that it will be less problematic in terms of externalities. Corporate conduct that harms the environment but leads to corporate growth benefits both investors and employees.
