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Abstract

Margaret Blair and Lynn Stout’s path-breaking article, A Team Production Theory of Corporate Law, advances a dual thesis: first, that team production theory does a better job than its competitors (in particular, principal–agent theory) of explaining the advantages of the public corporation and key features of corporate law; and second, that, as a matter of corporate law, corporate boards are charged with advancing the collective interest of all the contributors to the corporate enterprise rather than the shareholders’ interests alone. Its central insight is that the role of the independent, or insulated, corporate board is to serve as a “mediating hierarch” among the contributors to firm value. As new crises of corporate accountability over the past decade have been met with policies centered on corporate boards and shifts in the balance of power within the corporation, these propositions have moved beyond the academy and into the center of policy debates on the nature and purpose of corporate law. Given these realities, Blair & Stout’s conclusions raise several interesting questions when applied to the MNE and other complex corporate groups. First, where do team production problems arise within the MNE? Even limiting the scope of the inquiry to corporate entities, does team production theory account for governance rules only of parent corporations, or of subsidiaries as well? Does the answer depend on the functional role of the entity? How does team production theory inform firm governance if there are multiple “mediating hierarchs” within a corporation? Which board(s) within the MNE are “mediating hierarchs”? Although Blair and Stout advanced team production theory as the best explanation of the governance of the publicly held Berle–Means firm, might team production dynamics also dominate in non-Berle–Means firms, such as controlled entities within the MNE, where principal–agent theory might be expected to apply most directly? If the public corporation should instead be viewed as a unitary enterprise, which stakeholders should be viewed as the contributors to the corporate enterprise? This Article looks back at Team Production Theory and considers its implications for the governance of global multinational enterprises (MNEs). It argues that team production problems in fact arise at multiple levels within global firms and that, therefore, team production theory, as well as principal–agent theory, is necessary to explain MNE governance. This Article responds by extending Blair and Stout’s work explicitly to the MNE—a project that necessarily involves multiple dimensions. The first, taken up in Part II below, is to unpack findings from strategic management and organizational theory to better understand the organizational structure of these complex global firms. The second, which is the focus of Part III, is to consider how team production theory applies to organizations that exhibit “multiplex” governance, that is, firms with multidimensional, multijurisdictional, and intersecting governance structures. In these firms, there are multiple, overlapping principal–agent relationships and coordination among them may require the cooperation of multiple mediating hierarchs. This complexity suggests that greater attention should be directed toward the role of subsidiary boards and management. A full treatment of the implications of these findings for corporate law, or for the broader regulation of global firms, is beyond the scope of this paper. However, this Article contributes to that effort by laying a foundation for further research. It concludes by suggesting areas in which legal rules might better reflect these organizational changes in global firms and identifying remaining questions regarding MNE structure. The role of active subsidiary boards within the MNE deserves greater attention from scholars of U.S. corporate law, given the number of U.S. firms that are targeted by foreign acquirers or that are undertaking inversion transactions that introduce a foreign parent corporation but retain operational control in a U.S. subsidiary, not to mention the dominant role that many U.S. subsidiaries play within global MNEs.

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