Deconstructing Corporate Governance: Absolute Director Primacy

Abstract

Microtheoretical models of the corporation which focus on corporate governance attempt to answer two deceptively simple, but fundamentally elusive questions: ‘Who are in control of the corporation?’ and ‘Whose interests ultimately control those in control of the corporation?’ Both questions remain partially unanswered within the models developed to date by corporate theoreticians. This Article proposes a radically new model: 'absolute director primacy.’ Existing microtheoretical models conceive that we only need to — and, indeed, can — determine the controlling interests guiding corporate decisionmaking in order to prove the existence of control over the decisionmaking latitude of corporate boards. The absolute director primacy model reverses this thinking: The corporate board — as the private sector equivalent of a modern Leviathan — has absolute and infinite decisionmaking latitude in order to control the business and affairs of the corporation. Nothing within corporate law provides any meaningful modicum of predictive ability regarding director behavior ex ante or director accountability ex post. As a result, model-immanent explanations of the phenomenon of general investor confidence pre-investment in the face of absent director accountability post-investment become logically impossible. Thus, the absolute director primacy model not only posits a complete absence of ex-post director accountability but accepts the complete ex-ante indeterminability of director decisionmaking. Accordingly, the absolute director primacy model further posits that largely unexplained and currently unaccounted-for protolegal variables control both director behavior and the microtheoretical models of the firm that attempt to explain and predict such behavior.

Keywords: absolute director primacy, corporate governance, corporation law

JEL Classification: K22