Friday, November 22, 2002

Breakfast with Epstein

I (and a bunch of other folks) had breakfast with famed U Chicago Law prof. Richard Epstein today, discussing corporate governance. Epstein was dismissive of the new corporate governance laws coming out of Congress, predicting that they will merely raise the cost of doing business, make it harder to build boards, and reduce the likelihood that a private company will choose to go public (and, by extension, that private companies will be funded at all). He argues that these laws increase the risk of being on a board (since investigating potential trouble carries legal liability) and the required commensurate compensation will have to come out of shareholders pockets. Shareholders paying for better corporate governance sounds OK by me, but given the immense responsibility of independent directors, I'm skeptical of how independent they can remain. Moreover, Epstein discussed how board members are chosen for prestige, not competence, which will exacerbate the problems caused by these new requirements.

I'm not sure what the best way to tackle corporate governance problems are. Epstein left it at "enforce existing laws better".


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