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The Anatomy of Corporate LawA Comparative and Functional Approach$
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Reinier Kraakman, John Armour, Paul Davies, Luca Enriques, Henry Hansmann, Gerard Hertig, Klaus Hopt, Hideki Kanda, Mariana Pargendler, Wolf-Georg Ringe, and Edward Rock

Print publication date: 2017

Print ISBN-13: 9780198739630

Published to Oxford Scholarship Online: March 2017

DOI: 10.1093/acprof:oso/9780198739630.001.0001

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Agency Problems and Legal Strategies

Agency Problems and Legal Strategies

(p.29) 2 Agency Problems and Legal Strategies
The Anatomy of Corporate Law

John Armour

Henry Hansmann

Reinier Kraakman

Oxford University Press

This chapter describes legal strategies employed to address agency and coordination problems: this allows the more accurate mapping of similarities and differences across jurisdictions. Some strategies are "regulatory" insofar as they directly constrain the actions of corporate actors; others are "governance-based" insofar as they channel the distribution of power and payoffs within companies to reduce opportunism. The law may accord direct decision rights to a vulnerable corporate constituency, for example, by requiring shareholder approval of mergers. Alternatively, appointment rights over top managers may be assigned to a vulnerable constituency, for example, by according shareholders or employees the power to select corporate directors. The relationship between different enforcement mechanisms—public agencies, private enforcement, and gatekeeper control—and the basic legal strategies is considered. It is concluded that regulatory strategies require more extensive enforcement mechanisms to secure compliance than do governance strategies. However, governance strategies require shareholders to be relatively concentrated to allow effective exercise of their decisional rights.

Keywords:   Agency, appointment rights, decision rights, control rights, regulation, corporate governance, enforcement, gatekeeper control

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