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Blair, Margaret M. --- "Corporate Law and the Team Production Problem" [2012] ELECD 458; in Hill, A. Claire; McDonnell, H. Brett (eds), "Research Handbook on the Economics of Corporate Law" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on the Economics of Corporate Law

Editor(s): Hill, A. Claire; McDonnell, H. Brett

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848449589

Section: Chapter 3

Section Title: Corporate Law and the Team Production Problem

Author(s): Blair, Margaret M.

Number of pages: 19

Extract:

3. Corporate law and the team production problem
Margaret M. Blair1



1. INTRODUCTION
Should corporations be managed for the sole purpose of maximizing share value for corpo-
rate shareholders? While for much of the last three decades the dominant perspective in
corporate law scholarship and policy debates about corporate governance has adopted this
view, the corporate scandals of 2001 and 2002, followed by the disastrous performance of
financial markets 2007­2009, has left many observers uneasy about this prescription. A
number of strong shareholder value advocates have shifted their recommendations. Michael
Jensen (2001), one of the leading advocates of share value maximization in the 1980s and
1990s, has recognized that shareholder value can be increased without adding to social wealth
by extracting value from other corporate participants, such as creditors. He now argues that
corporate managers should maximize `not just the value of the equity but also ... the market
values of all other financial claims including debt, preferred stock, and warrants' (Jensen
2001). Likewise, former GE CEO Jack Welch, considered by some to be the `father of the
"shareholder value" movement' among corporate boards and managers now says that `share-
holder value is a result, not a strategy ... your main constituencies are your employees, your
customers, and your products' (Guerrera 2009). Among academics, Lucian Bebchuk, one of
the most outspoken and prolific advocates of enhanced shareholder rights now concedes that
`the common shareholders in financial firms do not have an incentive to take into account the
losses that risks can ...