英文文化能够约束企业法的经济模式吗SSRN-id320882

Can Culture Constrain the Economic Model of Corporate Law? Mark J. Roe Summer 2002 Final version, with differing pagination, later published at 69 University of Chicago Law Review 1251 (2002). Available at http://ssrn.com/abstract=320882 Can Culture Constrain the Economic Model of Corporate Law? Mark J. Roe* With a few simple “moves,” we can see where the economic model of corporate law could bump up against cultural limits. Or, better put, the economic model works well in the United States because little until now impedes Coasian re-bargaining among shareholders and managers. Begin with the economic model without limit: Takeovers persisted in the face of anti-takeover law in the 1990s, one can argue, because many managers were paid to stop from strongly opposing most takeovers. But managers’ pay cannot be varied everywhere in the world as easily as it was raised in the Untied States. (The recent scandals show how wide that latitude has been here.). Where it cannot be so easily varied, re- splitting the corporate pie in managers’ favor is harder. More generally, culture could affect the economic model if it affects the relative cost of institutional substitutes, by, say, degrading one form of organization but not others. Basic structures of corporate law—indeed, one could imagine even the public firm with diffuse ownership—could be affected by the degree to which local culture allows parties to vary their deals smoothly. When local norms make key variations costly, boundaries to the economic model of a type seldom thus far confining the American corporation appear. I sketch out, with the help of a Symposium’s papers, where those boundaries can be glimpsed. __________________________________________________________________ * David Berg Professor of Law, Harvard Law School. Can Culture Constrain the Economic Model of Corporate Law? Mark J. Roe† TABLE OF CONTENTS Introduction......................................................................................1251 I. The Economic Model without Limit.....................................….1254 A. Antitakeover Law Pressure on the Three-Party Bargain…1254 B. The Coasean Bargain Redone.............................................1254 II. Cultural Limits to the Economic Model?...................................1256 A. As Affecting the Quality of Institutional Substitutes.....….1257 B. As Degrading the Organization...........................................1258 C. As Reconfiguring a Persisting Economic Model............…1259 D. As Distant in the United States, and Closer-in Abroad.…..1260 III. Can Culture Ever Affect CorporateLaw and Interested Party Transactions?…………………………………………..…..…1262 IV. Cultural Endogeneity: How Economics Constrains Culture.…1264 V. Political and Social Limits?……………………………...…....1265 Conclusion: Glimpses of Boundaries to the Economic Model of the Corporation...........................................................................….1268 INTRODUCTION Are there boundaries to the economic model of the structure of corporate law? If so, where do they begin? Much scholarship in this Symposium deepens the model of corporate law as a three-player con- tract among shareholders, managers, and the board. It is a model that Frank Easterbrook and Daniel Fischel used ten years ago here at The University of Chicago Law School in their book, The Economic Struc- ture of Corporate Law, which culminated and accumulated their work on the contractarian model of the corporate law.1 Corporate law is—or in its normative version should be—a contractarian arrangement be- tween and among managers, the board, and shareholders. Corporate law should be a set of default rules among these players, as the most likely rules the players would adopt, or as the rules that would be the easiest to contract away from (if the parties did not want them). Fidu- ___________________________________________________ † David Berg Professor of Law, Harvard Law School. 1 Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of Corporate Law (Harvard 1991). 1251 1256 The University of Chicago Law Review [69:1255 ciary duties in this model represent the ex ante contract that managers and shareholders would have reached. Corporate law and corporate law judges referee, in this view, that three-player game. Corporate structure results from players adapting their corporate institutions and decisionmaking to the economic task at hand. 2 In its positive form, the contractarian perspective saw Delaware as coming close to the economic model, with most of Delaware corpo- rate law (except probably for takeover barriers) conforming to the model. The Symposium articles fit this tradition. So the existence of barriers to takeover tell some that the resulting increase in managerial agency costs would drive up managerial compensation, 3 while it tells others that the higher agency costs increase the demand for other tools (such as more incentive-based compensation and more board independence), tools that would constrain these higher agency costs. 4 Or it could tell others that the economic model could be better ap- plied if the board had less authority to decide on a takeover and shareholders had more. 5 Or it could tell others that the three-player contract might be readjusted by giving the board yet more authority— via three-year terms—subject to a “campaign financing” law that would have the company pay the expenses for (some) shareholder- initiated proxy fights: more security for managers in the short run, with lowered costs to shareholders who challenge managers in the medium run. 6 These views let us know that there is more to be said—and de- bated—on how best to implement the economic model of corporate law, a model that focuses on the three-player game of allocating deci- sionmaking authority among managers, the board, and shareholders. It is the model that has dominated corporate law scholarship and that continues to dominate it. And it is a good model for us in the United 2 The corporation is, in this view, a more complicated contract, one that contracts with suppliers, employees, and so on; but corporate law focuses on the three-player contract. Here I show how culture could affect that three-party contract. American culture does not constrain it, but it is imaginable that culture could—and probably other cultures do. 3 See Lucian Arye Bebchuk, Jesse M. Fried, and David I. Walker, Executive Compensation in America: Optimal Contracting or Extraction of Rents?, 69 U Chi L Rev 751 (2002). 4 See Marcel Kahan and Edward B. Rock, How I Learned to Stop Worrying and Love the Pill: Adaptive Responses to Takeover Law, 69 U Chi L Rev 873 (2002). 5 See Lucian Bebchuk, The Case Against Board Veto in Corporate Takeovers, 69 U Chi L Rev 975 (2002). Similarly, Victor Brudney and Allen Ferrell would apply an economic model to reallocate the power to make charitable gifts from managers to shareholders. See Victor Brud- ney and Allen Ferrell, Corporate Charitable Giving, 69 U Chi L Rev 1995 (2002). And Fischel ar- gues that the judges should resolve corporate disputes by using stock market prices, sometimes reconstructed, whenever possible. Daniel Fischel, Market Evidence in Corporate Law, 69 U Chi L Rev 943 (2002). 6 See William T. Allen, Jack B. Jacobs, and Leo E. Strine, Jr., The Great Takeover Debate: A Meditation on Bridging the Conceptual Divide, 69 U Chi L Rev 1069 (2002). 2002] Cultural Constraints 1257 States because the constraints that the articles impose on the model are attenuated, weak, and unimportant here. But to see why the model works so well, we should look for its boundaries; and the Symposium articles show us where we should be exploring if we wanted to find those boundaries. That is, can we trace the lines in the articles to discern the boundaries of that contractarian model? Is there a limit, where other factors outside of the three-player contractarian model kick in, factors that we would have to understand if we were to explain the corporation well? There is such a limit, and if we look at the bigger picture that the Articles sketch out, we can catch glimmers of how culture could limit the economic model. So here, I use the articles from this Symposium to sketch out an outer limit, a boundary, to the economic model, where that model starts to do less well as a positive matter in explaining what institutions we see and which ones are effective (and where those of us who think as a normative matter that the economic model in the end usually best maximizes welfare might seek to roll back these lim- its even farther). In Part I of these Remarks, I trace out the economic model of how takeovers, if impeded, should induce substitute institutions that keep the corporate pie from diminishing too much in size, but that divide up that corporate pie differently. In Part II, I sketch out how culture, such as attitudes toward wealth, can facilitate or retard that Coasean re- structuring; almost automatic in the United States, that new division of the pie still would encounter resistance elsewhere. Culture can vary the costliness of substitutes in the economic model. And by varying costs, culture can vary the efficacy of the substitutes. Culture could limit this Coasean restructuring, but in the United States, it does not. In Part III, I expand this notion of cultural boundaries: even basic corporate law characteristics, such the efficacy of controls on inter- ested party transactions, could be a function not just of finance, eco- nomic rationality, and institutional capacity, but also of cultural back- ground. Identical institutions could produce widely varying results if we vary just one cultural consideration: varying attitudes toward wealth can vastly vary the efficacy of these institutions, the ease of ownership separation, and whether the Berle-Means firm will domi- nate an economy or be a minor, secondary business institution. In Part IV, I look at the interaction between culture and econom- ics, how and when economics dominates culture, and how and when each is independent. In Part V, I trace out two political limits to the economic model—one known and revealed in the Symposium—of how legislative politics and judicial sympathies can cap and limit the economic model. 1258 The University of Chicago Law Review [69:1255 I. THE ECONOMIC MODEL WITHOUT LIMIT A. Antitakeover Law Pressure on the Three-Party Bargain Let us start with the perspective that takeovers reduce manage- rial agency costs to shareholders. It is the usual perspective but not a unanimous one. But let us pass on that debate here. And let us posit that we operate in the “space” where product, capital, and labor mar- ket competition do not fully constrain the managers to work for share- holders. (No need to sketch out limits to these markets: We all know those limits exist, although opinions differ as to where the line is.) In that “space,” we posit, takeovers make managers work for sharehold- ers. But then antitakeover structures (such as poison pills), legislation, and court decisions (which the legislature does not overturn) impede takeovers. (One limit to an economic model might be right here. Why do courts constrain takeovers, and why do legislatures let those deci- sions stand or add to the barriers? 7 Three-party efficiency might be an answer. But the shape of the corporation is partly determined by why the polity validates antitakeover mechanisms, such as the pill. It is not economically foreordained 8 —more on that below.) So antitakeover structures make managers less loyal to share- holders. Managerial agency costs rise, so the demand for takeovers persists and, indeed, increases. If managerial agency costs rise, players would then pay “more” for takeovers. B. The Coasean Bargain Redone In Marcel Kahan and Edward Rock’s model, with the gates open for high compensation, we see an institution that “buys” managers off from opposing takeovers. True, managers can now “just say no” (most 7 Compare Moran v Household International, Inc, 500 A2d 1346 (Del 1985) (holding that the directors’ poison pill defense was within the business judgment rule), with Smith v Van Gorkom, 488 A2d 858 (Del 1985) (holding that the business judgment rule did not protect deci- sions by directors who were not reasonably informed). The former validated the poison pill and was upheld. The latter lambasted directors and was effectively repealed. See 8 Del Code Ann § 102(b)(7) (1991 & Supp 1993) (permitting corporations to eliminate personal liability of direc- tors for breach of fiduciary duty). 8 So it is logically possible that Bebchuk, 69 U Chi L Rev 975 (cited in note 5) (arguing that it is preferable to give boards less veto power over takeovers), sketches out the appropriate economic model but that politics trumps it. Or, via Coase, there are several possible models, and the political muscle of managers determines which one of the plausible models wins out. Indeed, this might constitute one of the boundaries to economic analysis: the political muscle of manag- ers has implications here. And managers may win if they have political allies. Is the result wealth- maximizing or do managers win because they “have the votes”? One answer is that legislatures listen to managers, especially when the bystanders (employees, consumers, average citizens) are wary of hostile takeovers. Let us put this potential limit aside for now, although it potentially cabins the pure economic model. 2002] Cultural Constraints 1259 of the time). But money can change their minds. It would be awk- ward—and visibly in violation of corporate law duties—if the offering company directly presented managers a check for $20 million on con- dition that those managers drop their opposition to a hostile bid and managers cashed that check. But if there are preexisting options in place with a value of $20 million if the takeover vests, then the man- agers see the personal value to them of the bid going forward. And then they often acquiesce. The economic model, in a first cut at the issue, is vindicated. Managers have a “property” right to resist takeovers, but in a Coasean bargain—indirect, to be sure, and perhaps not the perfect way for the three parties to do these things—the managers get paid to give up their property right. If the value and efficiency of the transaction is large enough, it goes forward, as it would have before the antitakeover laws, devices, and decisions arose, but managers get a bigger piece of the pie than they did before. One need not evaluate here whether the increased managerial compensation is “incentive” compensation or “rent extraction.” 9 The check could be seen as tribute to powerful managers, who extract value from the firm, or it could be seen as a payment contingent on takeover, thereby aligning managerial incentives with shareholder value. All we need to know at first is that it is high enough to induce managers to accede to what would otherwise be a hostile takeover. 10 The takeover-induced pie is, we can believe, about the same in size, but its division changes. (We pass over how much this Coasean rebar- gain re-creates the incentives ex ante: Some takeovers do not go for- ward even with the option-vesting “pay-off” because managers resist or the offeror withdraws a takeover offer that the increased compen- sation made more costly. 11 And takeovers’ incentive effects on manag- ers are reduced by the antitakeover institutional structure, because managers know that a takeover will put them out of a job but will pay them handsomely, so there is less for them to fear ex ante, when run- ning the firm. Yet they presumably compete more heavily for that big piece of the pie that the CEO can extract. How it all sorts out—more efficient overall, less efficient overall, or a change in orientation—is not fully clear in the model. The reequilibration possibly is not the 9 Compare Kevin J. Murphy, Explaining Executive Compensation: Managerial Power ver- sus the Perceived Cost of Stock Options, 69 U Chi L Rev 847 (2002) (arguing that increased managerial compensation is based on incentives), with Bebchuk, Fried, and Walker, 69 U Chi L Rev 751 (cited in note 3) (arguing that increased managerial compensation is due to rent- extraction by managers). 10 Or, managers are in fact getting incentive compensation. The incentive, though is not day-to-day compensation, but an incentive to sell the firm to the highest bidder. 11 See Reinier Kraakman, The Best of All Possible Worlds (or Pretty Darn Close), 69 U Chi L Rev 935 (2002). 1260 The University of Chicago Law Review [69:1255 best way for the players to handle corporate control transfers, but is just a second or third best. But the point that we get some substitution effect, and possibly a large substitution effect—Kahan and Rock’s ba- sic point—is well taken. We will stick with it.) 12 Thus sketched out, we see the economic model in action. The rule changes, and there is a Coasean reequilibration. 13 (The only “bound- ary” to the economic model thus far is the question of why managers win so often in getting antitakeover decisions legislation, the question we have put aside. But once we take that political boundary as “given,” as exogenous, the maximizing economic model is back in play. 14 ) If the substitute is close enough, Coase once again shows us how parties can contract around the rules to make the result effi- cient—conceivably as efficient as where we started. That’s enough. And we could stop there. But . . . II. CULTURAL LIMITS TO THE ECONOMIC MODEL? Not so fast. Imagine that costs afflict the substitute. If the substi- tutes were highly costly—for some firms or in varying degrees for all firms—then a Coasean reequilibration would be harder. Large, mana- gerial-run firms would be less subject to takeover, and probably run less well. Some, maybe many, larger managerial-run firms would be less effective and in time out-competed by smaller ones. The substitute here for the pure hostile takeover is the quasi- friendly offer with vesting of heavy stock options that buy off manag- ers from their opposition. No other substitute, remember, works as well (we have assumed), and this substitute, even if imperfect, is pretty good. 12 And for this parenthetical reason, Kahan and Rock’s optimistic variation—with com- pensation perfectly offsetting the pill—seems possible, but only if serendipity reigns. See Kahan and Rock, 69 U Chi L Rev 873 (cited in note 4). The question would be how big a loss the three players suffer—that is, how imperfect the compensation substitute is. A reservation here is that the new equilibrium, even one with an identical number of takeovers, could be—indeed, should be, theoretically—at a lower level of shareholder welfare. But this reservation does not implicate their main claim that there are substitutes, and they implicitly claim that the substitutes are (nearly) perfect substitutes, or at least good enou