Public Law and Private Power

Public Law and Private Power: Corporate Governance Reform in the Age of Finance Capitalism

JOHN W. CIOFFI
Copyright Date: 2010
Edition: 1
Published by: Cornell University Press
Pages: 304
https://www.jstor.org/stable/10.7591/j.ctt7zfh2
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  • Book Info
    Public Law and Private Power
    Book Description:

    In Public Law and Private Power, John W. Cioffi argues that the highly politicized reform of corporate governance law has reshaped power relations within the public corporation in favor of financial interests, contributed to the profound crises of contemporary capitalism, and eroded its political foundations. Analyzing the origins of pro-shareholder and pro-financial market reforms in the United States and Germany during the past two decades, Cioffi unravels a double paradox: the expansion of law and the regulatory state at the core of the financially driven neoliberal economic model and the surprising role of center-left parties in championing the interests of shareholders and the financial sector.

    Since the early 1990s, changes in law to alter the structure of the corporation and financial markets-two institutional pillars of modern capitalism-highlight the contentious regulatory politics that reshaped the legal architecture of national corporate governance regimes and thus the distribution of power and wealth among managers, investors, and labor. Center-left parties embraced reforms that strengthened shareholder rights as part of a strategy to cultivate the support of the financial sector, promote market-driven firm-level economic adjustment, and appeal to popular outrage over recurrent corporate financial scandals. The reforms played a role in fostering an increasingly unstable financially driven economic order; their implication in the global financial crisis in turn poses a threat to center-left parties and the legitimacy of contemporary finance capitalism.

    eISBN: 978-0-8014-6032-6
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. I-VI)
  2. Table of Contents
    (pp. VII-VIII)
  3. List of Figures and Tables
    (pp. IX-X)
  4. ACKNOWLEDGMENTS
    (pp. XI-XIV)
  5. CHAPTER 1 Corporate Governance Reform and the Age of Finance Capitalism
    (pp. 1-21)

    Beginning in 2007, the most devastating economic crisis since the Great Depression undermined the economic, ideological, and political foundations of the neoliberal model of corporate governance and political economic organization. Although it was in many respects a banking and financial market crisis, with further probing one quickly finds underlying failures of corporate governance. The crisis cast a harsh light not only on the deficiencies of underregulated market-driven financial systems but also on the consistent failures of governance regimes to control the structurally entrenched agency problems, conflicts of interest, and rapacious opportunism within the large public corporation—particularly within the financial...

  6. CHAPTER 2 Corporate Governance as Juridical Nexus and the Politics of Reform
    (pp. 22-54)

    The corporation is a legal construct, and law is politically constructed. It follows from these two prosaic propositions that any understanding and explanation of corporate governance reform must integrate legal and political analysis. This synthesis of theoretical and analytical perspectives emphasizes and illuminates the central substantive concerns of this book. It situates corporate governance regimes—the formal rules, institutional arrangements, and norms that structure stakeholder power relations—in their juridical and political context and thus provides an excellent foundation for comparative analysis. The combined perspectives of law and politics sharpen our focus on the juridical foundations of governance and how...

  7. CHAPTER 3 Neoliberal Governance and the Neocorporatist Firm: Governance Models in the United States and Germany
    (pp. 55-96)

    During the postwar period, the American and German corporate governance regimes developed sharply differing juridical infrastructures reflecting the political forces that constituted their distinctive shareholder and stakeholder models. In each nation, corporate governance law continually evolved, sometimes quite dramatically, but these developments tended to reinforce established forms of legal ordering and corporate control while allowing for incremental change. American law relied primarily on market-enabling legal mechanisms within a disclosure-based regulatory regime buttressed by unusually pro-plaintiff litigation rules. This regime favored the protection of shareholders’ interests in the monetary value of their shares, rather than in enhancing direct shareholder or stakeholder...

  8. CHAPTER 4 U.S. Corporate Governance Reform: Boom, Bust, and Backlash
    (pp. 97-139)

    During the mid- to late 1990s, the American economy and stock markets were on an unprecedented roll. The accelerating growth rates, astonishing stock market returns, and business and technological innovations associated with the boom were the envy of the world. Perhaps at no time has the American model of capitalism exerted such fascination, envy, or influence. Shortly after the turn of the century, the financial boom turned to bust as the securities market bubble burst, mass media spotlighted vast corporate scandals and bankruptcies, and calls for regulatory reform dominated the political scene. The most important and visible product of this...

  9. CHAPTER 5 German Corporate Governance Reform: The Limits of Legal Transformation
    (pp. 140-189)

    Throughout the 1980s and into the 1990s, Germany was commonly portrayed as lagging other advanced industrial countries such as the United States, United Kingdom, and even France in reforming its corporate governance regime and securities markets. Between 1990 and 2005, however, Germany’s governance regime changed more than it had during the prior half century and arguably since the Industrial Revolution. This process of legal change has led some German commentators to speak of “permanent reform.”¹ The resulting corporate governance regime has remained distinctively German, with a pronounced stakeholder orientation that distinguishes it fundamentally from the American model, but it is...

  10. CHAPTER 6 Governing the Ruins: The Global Financial Crisis and Corporate Governance
    (pp. 190-228)

    On September 10, 2008, the Lehman Brothers investment bank collapsed. Unable to find short-term financing or a willing buyer in the absence of a government bailout or asset guarantees, one of Wall Street’s largest investment banks was dragged under by enormous losses on mortgage-backed securities and related derivatives. The speed of Lehman’s collapse, which was swiftly followed by the collapse of other major Wall Street banks, was breathtaking. Fear and uncertainty over the financial condition of major financial institutions around the world broke into open panic. Even prior to Lehman’s fall, the global financial crisis that had begun in mid-2007...

  11. CONCLUSION: Legal Form and the Politics of Reform
    (pp. 229-254)

    The global financial crisis of 2007–9 and the reform politics that it triggered in both the United States and Germany confirm the main arguments advanced in this book. The crisis not only demonstrated the increasing instability of modern finance capitalism, it also exposed the power relations underlying it. Pre-crisis patterns of deregulation and pro-shareholder regulatory expansion reflected, above all, managerial interests within large financial institutions. Post-crisis corporate governance reform initiatives indicated the increasing importance of structural regulation through shareholder empowerment, even as the crisis exposed the substantial flaws of the shareholder-centered firm governance and market-driven finance. The center-left parties’...

  12. REFERENCES
    (pp. 255-272)
  13. CASES
    (pp. 273-274)
  14. STATUTES, REGULATIONS, AND REGULATORY MATERIALS
    (pp. 275-278)
  15. INDEX
    (pp. 279-287)