Beyond Agency Theory, a Post-crisis View of Corporate Law

For decades, managers' powers and their freedom to make strategic decisions were taken for granted in the field of corporate governance. The present crisis has revealed that their managerial latitude is in reality much weaker than thought. The growing influence of shareholders has undermined the historical and professional legitimacy of managers, who are now viewed as 'agents' controlled by 'principals'. This paper makes two contributions. First, we hold that the crisis is not a purely economic or financial crisis but a fundamental crisis of management, with its function of regulating the relationship between the firm and society. Second, we show that this crisis is rooted in law, since corporate law does not actually protect the autonomy of management. Until now, management theory has underestimated the role of law in the evolutions of corporate governance; we argue that management research needs to open its boundaries and specifically to re-examine corporate law. We suggest new governance rules to ensure managers have the latitude to organize collective creation processes in a way that is both efficient and legitimate. And we discuss some avenues for reflecting on a post-crisis business law.