Milhaupt, Curtis J. --- "Takeover law and managerial incentives in the United States and Japan" [2014] ELECD 584; in Shishido, Zenichi (ed), "Enterprise Law" (Edward Elgar Publishing, 2014) 177

Book Title: Enterprise Law

Editor(s): Shishido, Zenichi

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781781004449

Section: Chapter 9

Section Title: Takeover law and managerial incentives in the United States and Japan

Author(s): Milhaupt, Curtis J.

Number of pages: 14

Abstract/Description:

In their seminal work The Corporate Contract, Frank H. Easterbrook and Daniel R. Fischel conceptualized the interaction among corporate actors as a series of contractual agreements. Easterbrook and Fischel argued that through these contractual agreements, “managers and certain other participants exercise a great deal of discretion that is ‘reviewed’ by interactions with other self-interested actors.” In this conception of corporate law, formal legal rules function as gap-fillers in the contracts between corporate participants. Three types of formal rules relevant to corporate governance in most countries are: (1) corporate statutes enacted by legislators; (2) fiduciary principles defined by courts; and (3) regulations promulgated by securities regulators and stock exchanges. In every economy, informal (non-binding) gap fillers, such as codes of best practice, also play an important role in fleshing out the corporate contract. Managerial discretion is “reviewed” by other self-interested actors in many ways, creating competitive pressures that shape corporate contracts.