Professor Stephen Lubben
On Corporate Governance and Business Ethics
Professor Stephen Lubben offered a “horizontal model” of corporate governance that posits a larger role for executives in analyzing how corporate power is shared in the Inaugural Harvey Washington Wiley Lecture in Corporate Governance and Business Ethics.
“In short, I reject the conception of corporate governance as a set of linear axes, as famously advanced by Stephen Bainbridge,” Professor Lubben said. “Instead, power within a corporation is balanced in three ways, with the officers holding the bulk, but monitored by a largely independent board, which itself is constrained at the outer margins by shareholders.”
The Harvey Washington Wiley Chaired Professorship in Corporate Governance & Business Ethics was established via a contribution from Bristol-Myers Squibb Co., and is intended to advance “ethical business practices in corporate law generally and in the health law arena in particular,” said Dean Eric Lilliquist in introducing Professor Lubben for the October 2 speech. “As the Harvey Washington Wiley Chair, Professor Lubben will host annual lectures dedicated to business ethics and corporate governance.”
Prof. Lubben said “the tendency [by scholars and practitioners] to ignore officers or managers is understandable, in that managers are not governed by ‘law’ as commonly understood by corporate law professors. Delaware corporate statues focus almost exclusively on the board, and the caselaw too has a heavy focus on directors.”
Still, this horizontal model “provides a pretty good description of the current reality of American corporate governance,” he said, and explains, for instance, “the rather limp duty of care, particularly in Delaware.”
Shareholders do not have anything like ownership power, so we should stop calling them “owners.” The board is powerful, but it’s not a full time institution…. Management, too often neglected, is really a key source of much day-to-day power, and consequently the holder of most, but not all, of corporate power.”
Should corporate governance be conceived differently? “I’m open to suggestions,” Professor Lubben said, “but I think we would be better served by more thoughtfulness in future attempts to address the issue. After all, the current model seems to have worked fairly well since its introduction almost a century ago here in New Jersey.”
Harvey Washington Wiley was Chief Chemist of the U.S. Dept. of Agriculture from 1883 to 1912, a professor of agricultural chemistry at Purdue University and was largely responsible for the passage and administration of the Pure Food and Drug Act of 1906.
Professor Lubben’s speech, Separation and Dependence: Explaining Modern Corporate Governance, will be published by the seton hall law review, and can be found on Professor Lubben's SSRN Website here.