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Business Organizations Law

Cornell Law Faculty Publications

Homo economicus

2003

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On The Proper Motives Of Corporate Directors (Or, Why You Don't Want To Invite Homo Economicus To Join Your Board), Lynn A. Stout Jan 2003

On The Proper Motives Of Corporate Directors (Or, Why You Don't Want To Invite Homo Economicus To Join Your Board), Lynn A. Stout

Cornell Law Faculty Publications

One of the most important questions in corporate governance is how directors of public corporations can be motivated to serve the interests of the firm. Directors frequently hold only small stakes in the companies they manage. Moreover, a variety of legal rules and contractual arrangements insulate them from liability for business failures. Why then should we expect them to do a good job?

Conventional corporate scholarship has great difficulty wrestling with this question, in large part because conventional scholarship usually adopts the economist's assumption that directors are rational actors motivated purely by self-interest. This homo economicus model of behavior ...