The Vision Project

Our Brittle Corporate System

Editor’s Note: In this BC Law Magazine “Vision Project” series, we are engaged in a lengthy discussion with Boston College Law School faculty about where the Covid-19 pandemic and its attendant medical, economic, racial, and political consequences may lead us. As New York Times op-ed columnist Timothy Egan so eloquently put it recently, “Every crisis opens a course to the unknown. In an eye-blink, the impossible becomes possible. History in a sprint can mean a dark, lasting turn for the worse, or a new day of enlightened public policy.” There are warnings and worries in these professors’ views, but there are also farsighted ideas and strategies for crafting a better future, a more just society, and a world in which each and every human being is equal under the law.


ASSOCIATE PROFESSOR BRIAN QUINN

Prof. Quinn writes on corporate law, mergers & acquisitions, transaction structures and private ordering. His work has appeared in numerous journals, and he is co-author of a leading casebooks on mergers and acquisitions and corporate law. In addition, Prof. Quinn has written extensively on issues of legal reform in post-Socialist Asia, particularly Vietnam. He is a fluent Vietnamese speaker.


Law Professor Brian Quinn, photographed on May 10, 2016.

What has the coronavirus pandemic revealed about the strengths and weaknesses of our understanding of corporate law as it impacts social and economic justice? Toilet paper shortages, no PPE, corporate bankruptcies. For many of us, these might be how we remember the early days of the pandemic. They seem like random events, but there is a thread that connects them all. The pandemic has been a devastating assault on many of the underlying assumptions of modern corporate governance. For the past fifty years, corporate governance has been heavily influenced by investing theory and financial economics. Combine this with theories that sought to align managers with stockholders through increased use of stock and stock options as compensation for managers. In many places, the corporate system focused on ever increasing efficiency and corporate profits was lauded. But in the face of the pandemic, we see what the weaknesses of operating on a knife-edge becomes obvious. The system is brittle, like a dry branch on a tree, incapable of bending under stress, only breaking.

What needs to change? Supply chains had become so finely tuned over the years that very little excess capacity could be found in the system. Amazingly, the toilet paper business is a capital-intensive business that operates at the very edge of efficiency. With a surge in demand for toilet paper, there should be no surprise that the supply chain is unable to respond in the short run. The same is true of PPE. Over the past twenty-five years, the manufacturing supply chain has become increasingly global. When the pandemic hit, we suddenly realized that there was no PPE to be had in the US. It was all made in Asia. The scramble to protect frontline medical workers that ensued can be laid at the feet, in part, to the decades-long effort to improve corporate efficiency and increase profits. When the economy ground to a halt in March, the first ones to suffer were employees who were let go to conserve corporate cash. It turns out rainy funds are a thing of the past. Corporations spent more than $700 billion on stock buybacks in 2019 and were on pace to do the same in 2020 before the pandemic. Given the size of the CARES Act corporate bailout, corporate largesse in the past few years seems ill-advised, at least in hindsight.

What is your vision for the corporate sector in a post-pandemic world? The real question coming out of the pandemic is whether we just return to status quo ante, simply privatizing gains and socializing losses, or if the corporate sector will learn. Learning, though, will require changes to the basic incentives facing corporate managers and stockholders. It’s not at all clear that the corporate sector and investors are ready to learn those lessons.

Read all faculty Vision Project interviews here.

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