Legitimacy and Corporate Governance

In my remarks this morning, I want to draw attention to growing parallels between corporate governance and state governance, specifically between institutional features that are now becoming considered for corporate America and institutional features that have long been a mainstay of governmental institutions in the United States. Corporate governance, I want to suggest, is becoming structured much more like public government. This structure may well be critical for enhancing trust in corporations and capital markets, but it may come at some cost to other important values. Corporate governance is major issue for society and the economy, so we ought at a minimum to be conscious of the direction corporate governance reforms are heading.

I want to begin with the key linkage between power and legitimacy. For most of us, the concept of legitimacy is most deeply and persistently linked with the power of government – not of corporations. A government like that in the United States or other developed countries possesses enormous powers – powers of violence, powers of compulsion, and powers of conscription. And government possesses its powers in a unified, monopolistic manner. Of course, generally this is a good thing, for no matter what many of us may think about competition in the marketplace, free competition in the kind of police powers possessed by government would not be a happy state of a fairs. Indeed, the monopoly in such powers is precisely the solution to the problems of a Hobbesian world.