Recent developments in our economy have made clear that substantial change in our corporate governance model and legal framework are essential. Everyone agrees in principle that better governance is needed, but what is presently considered corporate governance too often involves decisional process instead of substance. Decisional process includes chastising executives on account of their pay and related matters or personal behavior, and seeking to shape the composition of firms’ boards of directors. Yet it ignores directors and the firms’ broader performance. As we have seen too frequently in recent years, poor decisions by major firms can easily drag down the firms, their shareholders, employees, suppliers, customers, and ‘innocent bystanders’ alike. This article intends to elaborate upon and propose a way to rectify this anomaly, of governance law and doctrine emphasizing seemingly everything except actual governance.
In particular, this article discusses why recent legislative action intended to improve governance in ‘too big to fail’ firms will not, and is not, doing so. Also, it will examine where governance law previously fell short and contributed to the 2008 financial meltdown and the resulting Great Recession which prompted Congressional action intended to avoid a recurrence. After a discussion of the nature of the problem and its intended solution, specific changes in governance law and related law are proposed and placed into context with a discussion of recently observed appropriate and inappropriate board responses to governance challenges.