Introduction

The financial crisis that the global economy has endured since 2008 has led to a renewed focus on the corporate governance of banks and related financial institutions. Boards of directors of large financial institutions have been justly criticized in some instances for paying insufficient attention to the operations of their firms, especially to the financial risks that their business models engendered and to the incentive that their compensation practices created. Indeed these criticisms particularly were cited by US Senator Charles Schumer in introducing his Shareholders Bill of Rights Act in May 2009, which would have imposed a host of mandated corporate governance practices or structures on all US public companies. They were emphasized too by the Chair of the Securities and Exchange Commission [SEC], Mary Shapiro, in announcing a revised version of the SEC’s proposed rule change that would, under stated circumstances, permit shareholders access to company proxy solicitation statements for purposes of nominating a limited number of company directors. While, given the significant governmental policy failures that stood behind the crisis, one might conclude that such attributions by public officials were merely opportunistic, or meant to deflect public attention, nevertheless they do remind us that control over the internal affairs of large scale business corporations is a matter of substantial public concern.

Even considered apart from the unique public concerns that surround the operation of the banking and finance industry, the modern business corporation is an institution of immense public significance. The business corporation is the instrumentality within which the greatest part of our economic activity occurs, a major locus of jobs and wealth creation, and through which, to a large extent, our national competitiveness is maintained. It is largely within the corporate form that all of the great scientific discoveries from the time of the second industrial revolution forward have been shaped into useful products or services and brought to markets to improve human lives. The legal rules and practices and the economic techniques we deploy to incentivize and to control the various individuals playing roles within these institutions matters to their efficiency and thus matters to our wealth production. Thus to the extent corporate governance rules and practices affect the productivity of these instrumentalities they deserve our close attention.