January 17, 2019

Elizabeth Warren’s Misguided Corporate Reform

“American corporate law provides that boards of directors are chosen solely by shareholders, to whom the directors owe an exclusive fiduciary duty to maximize shareholder value. That simple proposition has generated benefits not only for shareholders but also for workers, suppliers, customers, bondholders and communities.

This historical success is not good enough for Massachusetts Sen. Elizabeth Warren. She believes that corporate boards should owe fiduciary duties to all these other “stakeholder” groups. She proposes to fix that supposed defect in the current legal setup through her Accountable Capitalism Act, which would mandate that every new and existing corporation with $1 billion or more of annual revenue obtain a federal charter.

That charter would come at a steep price. The corporation would be required to hold elections in which employees would fill 40% of board seats—enough to give them a blocking position on any major transaction. Similar protections could easily extend to other stakeholders.”

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