Superstar CEOS and Corporate Law

Larger-than-life corporate leaders, who can move fast and disrupt entrenched players, are often perceived as having the vision, superior leadership, or other exceptional qualities that make them uniquely valuable to their corporation. While the business press, management experts, and financial economists have long studied these “superstar” CEOs, the legal literature has largely overlooked this phenomenon. In this Article we develop a framework to explore the challenges that superstar CEOs pose for corporate law doctrine and scholarship.

We show that, even in the present era of increasingly powerful shareholders, superstar CEOs have significant power over boards of directors. The power of superstar CEOs arises not from their formal influence over director nomination, shareholders’ rational apathy, or other sources of directors’ agency costs. Rather, it is based on the widespread belief that a CEO, and only this individual CEO, has what it takes to produce superior returns for shareholders. Consequently, superstar CEOs’ power is limited in both duration and scope: it is likely to vanish when markets lose faith in their star qualities, and it cannot be abused if its harm to the company exceeds the value of the CEO’s unique contribution. This framework, we show, explains Elon Musk’s continuous entanglement with Delaware courts, board failure at Uber and WeWork, the puzzling jurisprudence regarding management buyouts, and the failure of governance reforms to contain CEO misconduct. It also cautions against reliance on existing governance arrangements to induce companies to advance stakeholder interests.