Coase-Sandor Working Paper Series in Law and Economics

Stark Choices for Corporate Reform

Aneil Kovvali


For decades, corporate law scholars insisted on a simple division of responsibilities. Corporations were told to focus exclusively on maximizing financial returns to shareholders while the government tended to all other concerns by adopting new regulations. As reformers challenged this orthodoxy by urging corporations to take action on pressing social problems, defenders of the status quo have responded by suggesting that these efforts could be dangerous. In their view, internal corporate governance reforms could interfere with the adoption of external governmental regulations that would be more effective. The hypothesis that reformers face a stark choice between pursuing internal corporate changes and pursuing new external regulations is playing an increasingly important role in the corporate law literature, but it has not been subjected to meaningful analysis.

This Article seeks to fill that gap. After isolating the stark choice hypothesis, the Article unpacks and challenges the assumptions that drive it. There is no clear constraint that forces a choice between internal and external reforms, and there are good reasons to believe that an internal strategy is more likely to generate valuable change. Internal reforms can also lay the groundwork for external reforms, as corporations cease to resist or even actively support new regulations. Analyzing these dynamics can yield new insights into efforts to improve corporate outcomes on issues like racial justice and climate change.