Corporate reform and the race to dystopia

Gordon Smith has a wonderful new paper on corporate social responsibility, The Dystopian Potential of Corporate Law. Gordon argues, as he says in the abstract, that

changes in corporate law cannot eradicate poverty or materially change existing distributions of wealth, except by impairing the creation of wealth. Changes in corporate law will not clean the environment. And changes in corporate law will not solve the labor question. Indeed, the only changes in corporate law that will have a substantial effect on such issues are changes that make the world worse, not better.

This is very much in sync with my own work, Accountability and Responsibility in Corporate Governance. There I outline the specific alternatives of moving toward more, or less, manager accountability to shareholders. Like Gordon, I believe that less accountability is likely to lead, not to some utopian prospect of "socially responsible" firms, but to higher agency costs and less social wealth.

The corporate debate is not (as many would like to think) between those who like poverty and wealth disparities and those who don't.  In a general sense, everybody in the corporate debate thinks the law should strive, in some general sense, to maximize social wealth. Gordon's contribution is to show how profoundly we will miss that goal if we fail to think realistically about how to get there.