The dominant agency-cost paradigm for the analysis of corporate law is based on the
proposition that the welfare of society is best met by rules which minimise the costs of production through the corporate form. This is typically interpreted to mean that the agency costs of shareholders should be minimised, so as to reduce the company?s cost of capital.
However, it is clear that the agency cost analysis admits of the theoretical possibility that a company?s overall costs of production might be minimised even in the presence of sub-optimal rules relating to the cost of capital if those additional capital costs were outweighed by a greater reduction in the costs of contracting for other inputs necessary for the company?s productive activities.
It has often been asserted that this situation obtains in relation to labour inputs. This
essay seeks to establish the basis on which this argument might be formulated, dealing in particular with the proposition that employees can obtain full protection for their exchange relationship through contracting with the company. It then considers what empirical evidence is available about the production costs of companies in systems with high levels of mandatory employee involvement in decision-making. It focuses in particular on the tripartite system of employee representation in Germany ? board representation, works councils and collective bargaining. Finally, it speculates about the conditions under which high levels of employee involvement might reduce a company?s overall costs of production or, by contrast, might increase those costs.
The United Kingdom introduced a Stewardship Code in 2010, followed by a slightly revised iteration in 2012 (the “first version” of the SC). It was premised upon the corporate governance advantages of engagement between institutional investors and...Read more
Previous research shows that incentives to increase earnings-per-share cause firm to increase stock repurchases and reduce investment and employment. It is natural to expect firms to cut less productive investment and employment first, which...Read more
We examine whether reducing frictions in the labor market affects the performance of private and public firms. Using the staggered adoption of state-level Paid Family Leave acts, we provide causal evidence on the value created by relieving...Read more
Retirement investing in the United States has changed dramatically. The classic defined-benefit (DB) plan has largely been replaced by the defined contribution (DC) plan. With the latter, individual employees’ decisions about how much to save for...Read more