For as long as corporations have existed, debates have persisted among scholars, judges, and policymakers regarding how best to describe their form and function as a positive matter, and how best to organize relations among their various stakeholders as a normative matter. This is hardly surprising given the economic and political stakes involved with control over vast and growing ‘corporate’ resources, and it has become commonplace to speak of various approaches to corporate law in decidedly political terms. In particular, on the fundamental normative issue of the aims to which corporate decision-making ought to be directed, shareholder-centric conceptions of the corporation have long been described as politically right-leaning while stakeholder-oriented conceptions have conversely been described as politically left-leaning. In the US context, however, when the frame of reference for this normative debate shifts away from state corporate law, a curious reversal occurs. In federal political and judicial contexts, one often finds actors associated with the political left championing expansion of shareholders’ corporate governance powers, and those associated with the political right advancing more stakeholder-centric conceptions of the corporation.
In a recent paper I aim to explain this disconnect and explore its implications for the development of US corporate governance, with particular reference to the varied and evolving corporate governance views of the political left – the side of the spectrum where, I argue, the more dramatic and illuminating shifts have occurred over recent decades. While the divide among right-leaning actors maps coherently onto the distinction between so-called ‘communitarian’ and ‘libertarian’ brands of conservatism (the former being more socially conservative and favoring stakeholders, while the latter favor shareholders), the divide among the political left is more difficult to explain. Accordingly, the bulk of the paper examines various legal, regulatory, and institutional frameworks, as well as important economic and cultural trends, that have played consequential roles in prompting and/or exacerbating the state/federal divide among left-leaning actors.
Some factors are well familiar to students of corporate federalism, including fundamental distinctions between state corporate law and federal securities regulation, and the differing postures of lawmakers in Delaware and Washington, DC. These distinctions do not, however, straightforwardly illuminate why such a divide might emerge among actors at a given end of the political spectrum. More telling, I argue, is the confluence of other regulatory and market dynamics, including the rise of institutional investors, the evolution of organized labor interests, certain unintended consequences of extra-corporate regulation, and the Democratic Party’s sharp rightward shift since the late 1980s.
Over time, as union membership has fallen and the ranks of union pensioners have grown (on which see Martin Gelter’s work), organized labor’s emphasis has shifted from traditional organizing to institutional pension management – and this naturally prompts an identity-shift from employee-orientation toward investor-orientation. This has been strongly reinforced by the Employee Retirement Income Security Act (‘ERISA’) fiduciary duties, which are widely interpreted not only to require singular focus on maximizing returns for beneficiaries, but also strong-form activism by union pensions themselves. Meanwhile, these trends have dovetailed with efforts to restructure the Democratic Party’s electoral coalition to compete more effectively in national elections. The party’s decided shift toward the political center since the late 1980s has prompted an electoral strategy involving concerted appeal to elite, highly educated professionals – notably financial professionals, who are often socially liberal and, of course, wealthy potential donors. The resulting alliance of organized labor and Wall Street proved extraordinarily effective (for a time, anyway), and it is critical to recognize that this electoral strategy has profoundly impacted corporate governance. Regardless of the marginal nature of corporate governance in broader party politics, this coalition essentially allied shareholders and employees against management, prompting anti-manager governance reforms as an alternative to more robust financial sector reforms opposed by a now-key electoral constituency (on which see John Cioffi’s work).
The latent instabilities of this electoral coalition, and the resulting tensions between traditional labor and finance-oriented commitments, came home to roost in the November 2016 election, and the paper closes with brief thoughts on potential consequences for the state/federal divide among the political left. Although it remains early days, it can be predicted with reasonable certainty that electoral imperatives will remain paramount, and that the center-left’s federal corporate governance politics will accordingly move in whatever direction the prevailing wind blows.
Christopher M. Bruner is the William Donald Bain Family Professor of Corporate Law at Washington and Lee University School of Law.