A Capsule Summary of Director Primacy

Published: October 19, 2007, 7:32 pm

I’ve been on sabbatical this fall, working on my next book: Director Primacy-The Theory and Practice of the New Corporate Governance. As of today, 78,500-odd words are in the can. Today, I was working on the introduction to the next chapter, which I think offers a nice summary of the rationale behind my development of the director primacy model: The corporation is properly understood to be a legal fiction representing a web of contracts among multiple classes of stakeholders. As such, the law s principal function with respect to corporate governance is facilitating private ordering by providing a set of off-the-rack default rules. While the parties appropriately remain free to modify those rules as they see fit, the default rules should be designed to minimize transaction costs. In most cases, doing so means selecting the majoritarian default as the legal rule; i.e., the rule most people would select if they could costlessly bargain with one another. There is good

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