Controlling Systemic Risk Through Corporate Governance

CIGI Policy Brief No. 99 - February 2017

Duke Law School Public Law & Legal Theory Series No. 2017-23

12 Pages Posted: 16 Mar 2017 Last revised: 4 Apr 2017

Date Written: February 14, 2017

Abstract

Most of the regulatory measures to control excessive risk taking by systemically important firms are designed to reduce moral hazard and to align the interests of managers and investors. These measures may be flawed because they are based on questionable assumptions. Excessive corporate risk taking is, at its core, a corporate governance problem. Shareholder primacy requires managers to view the consequences of their firm’s risk taking only from the standpoint of the firm and its shareholders, ignoring harm to the public. In governing, managers of systemically important firms should also consider public harm. This proposal engages the long-standing debate whether corporate governance law should require some duty to the public. The accepted wisdom is that corporate profit maximization provides jobs and other benefits that exceed public harm. The debate requires rethinking for systemic economic harm. This policy brief rethinks that debate, demonstrating that a corporate governance duty can be designed to control systemic risk without unduly weakening wealth production.

Suggested Citation

Schwarcz, Steven L., Controlling Systemic Risk Through Corporate Governance (February 14, 2017). CIGI Policy Brief No. 99 - February 2017, Duke Law School Public Law & Legal Theory Series No. 2017-23, Available at SSRN: https://ssrn.com/abstract=2933045

Steven L. Schwarcz (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7060 (Phone)
919-613-7231 (Fax)

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