Designing Corporate Governance Regimes

Abstract

This paper approaches the problem of corporate governance from an engineering perspective. It argues that one should design and test corporate governance regimes using formal techniques similar to those developed by engineers to design, test, and update complex concurrent systems. These are systems that are composed of multiple agents or components that interact over time and must synchronize their individual and joint activities to properly share resources, avoid conflicts, and produce the desired system behavior. Concurrent systems are highly complex because the interconnections between the various components change over time in an indeterminate fashion. Nonetheless by using a set of “governance rules” to govern the design and testing of concurrent systems, engineers have been able to build large, extremely complex, safety critical systems that are robust and reliable. As a general matter, a system is robust if it behaves reasonably well even when it encounters unforeseen contingencies. The paper develops a theory of concurrent corporate governance and argues that some of the governance mechanisms created by the Sarbanes-Oxley Act can be seen as examples concurrent governance.

Keywords: corporate governance, corporate law, complexity