The 2008 crash has left all the established economic doctrines - equilibrium models, real business cycles, disequilibria models - in disarray. Part of the problem is due to Smith’s "veil of ignorance": individuals unknowingly pursue society’s interest and, as a result, have no clue as to the macroeconomic effects of their actions: witness the Keynes and Leontief multipliers, the concept of value added, fiat money, Engel’s law and technical progress, to name but a few of the macrofoundations of microeconomics. A good viewpoint to take bearings anew lies in comparing the post-Great Depression institutions with those emerging from Thatcher and Reagan’s economic policies: deregulation, exogenous vs. endoge- nous money, shadow banking vs. Volcker’s Rule. Very simply, the banks, whose lending determined deposits after Roosevelt, and were a public service became private enterprises whose deposits determine lending. These underlay the great moderation preceding 2006, and the subsequent crash.

The Economic Institutions of Capitalism

What makes organizations so similar? We contend that the engine of rationalization and bureaucratization has moved from the competitive marketplace to the state and the professions. Once a set of organizations emerges as a field, a paradox arises: rational actors make their organizations increasingly similar as they try to change them. We describe three isomorphic processes-coercive, mimetic, and normative—leading to this outcome. We then specify hypotheses about the impact of resource centralization and dependency, goal ambiguity and technical uncertainty, and professionalization and structuration on isomorphic change. Finally, we suggest implications for theories of organizations and social change.

The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields (Chinese Translation)

This article demonstrates a linkage between firm performance and board composition by examining the committee structure of boards and the directors' roles within these committees. Consistent with previous studies, I find little association between firm performance and overall board composition. However, by going into the inner workings of the board via board committee composition, I am able to find significant ties between firm performance and how boards are structured. First, a positive relation is found between the percentage of inside directors on finance and investment committees and accounting and stock market performance measures. Next, firms significantly increasing inside director representation on these two committees experience significantly higher contemporaneous stock returns and return on investments than firms decreasing the percentage of inside directors on these committees. These findings are consistent with Fama and Jensen's assertion that inside directors provide valuable information to ...

Firm Performance and Board Committee Structure

This study empirically evaluates the certification and value-added roles of reputable venture capitalists (VCs). Using a novel sample of entrepreneurial start-ups with multiple financing offers, I analyze financing offers made by competing VCs at the first professional round of start-up funding, holding characteristics of the start-up fixed. Offers made by VCs with a high reputation are three times more likely to be accepted, and high-reputation VCs acquire start-up equity at a 10‐14% discount. The evidence suggests that VCs’ “extra-financial” value may be more distinctive than their functionally equivalent financial capital. These extra-financial services can have financial consequences. A CENTRAL ISSUE for early-stage high-tech entrepreneurs is obtaining external resources when the assets of their start-up are intangible and knowledge-based. Particularly for entrepreneurs without an established reputation, convincing external resource providers such as venture capitalists (VCs) to provide financial capital may be challenging. The literature contains two main lines of research for overcoming this problem. One research stream has concentrated on designing institutional structures to permit financing early-stage ventures. This contractual- and monitoring-based approach is aimed at solving potential agency problems between investors and entrepreneurs (e.g., Admati and Pfleiderer (1994), Lerner (1995), Hellmann (1998), and Kaplan and Str¨ omberg (2001, 2002, 2003)). A second research stream has suggested that when the quality of a start-up cannot be directly observed, external actors rely on the quality of the start-up’s affiliates as a signal of the start-up’s own quality

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What Do Entrepreneurs Pay for Venture Capital Affiliation

Over the past thirty years, a new systemic conception of life has emerged at the forefront of science. New emphasis has been given to complexity, networks, and patterns of organisation, leading to a novel kind of 'systemic' thinking. This volume integrates the ideas, models, and theories underlying the systems view of life into a single coherent framework. Taking a broad sweep through history and across scientific disciplines, the authors examine the appearance of key concepts such as autopoiesis, dissipative structures, social networks, and a systemic understanding of evolution. The implications of the systems view of life for health care, management, and our global ecological and economic crises are also discussed. Written primarily for undergraduates, it is also essential reading for graduate students and researchers interested in understanding the new systemic conception of life and its implications for a broad range of professions - from economics and politics to medicine, psychology and law.

The Systems View of Life: A Unifying Vision

Corporate directors have a fiduciary duty to make decisions in the best interests of the shareholders. This aspect of fiduciary duty is often called the shareholder primacy norm. Legal scholars generally assume that the shareholder primacy norm is a major factor considered by boards of directors of publicly traded corporations in making ordinary business decisions and that changing the shareholder primacy norm would have an effect on the substance of those decisions. This Article challenges this view and argues that the shareholder primacy norm was never equipped to mediate conflicts between shareholders and nonshareholder constituencies of a corporation. The origins and development of the shareholder primacy norm suggest that it was introduced into corporate law to perform a much different and somewhat surprising function: the shareholder primacy norm was first used by courts to resolve disputes among majority and minority shareholders, and over time this use of the shareholder primacy norm evolved into the modern doctrine of minority oppression. This application of the shareholder primacy norm seems incongruous today because minority oppression cases involve conflicts among shareholders, not conflicts between shareholders and nonshareholders. Nevertheless, when early courts employed rules requiring directors to act in the interests of all shareholders (not just the majority shareholders), they were creating the shareholder primacy norm. Once used to resolve minority oppression cases, the shareholder primacy norm easily found its way into cases involving publicly traded corporations because courts did not routinely distinguish closely held corporations from publicly traded corporations until the middle of this century. But the application of the shareholder primacy norm to the ordinary business decisions of publicly traded corporations is muted by the business judgment rule. As a result, even though the shareholder primacy norm is closely associated with debates about the social responsibility of publicly traded corporations, it's impact on the ordinary business decisions of such corporations is extremely limited.

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The Shareholder Primacy Norm

Venture capital contracts contain extensive provisions regulating exit by the venture capitalists. In this Article, Professor Smith employs financial contracting theory in conjunction with original data collected from 367 venture-backed companies to analyze these exit provisions. He concludes that the combination of exit provisions in a typical venture capital relationship serves to lock venture capitalists into the investment during the initial stage. In later stages of the relationship, the venture capitalists acquire increasing control over exit by securing additional seats on the board of directors and by obtaining contractual exit rights. The result is a sophisticated transfer of control from the entrepreneur to the venture capitalists as financial investments increase.

The Exit Structure of Venture Capital

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This Article proposes a new theory to unify the law of fiduciary duty. The prevailing view holds that fiduciary law is atomistic, arising for varied reasons in established categories of cases (such as trustee-beneficiary and director-shareholder) and ad hoc in relationships where one person trusts another and becomes vulnerable to harm as a result. By contrast, the critical resource theory of fiduciary duty holds that every relationship properly designated as "fiduciary" conforms to the following pattern: One party (the `fiduciary) acts on behalf of another party (the "beneficiary') while exercising discretion with respect to a critical resource belonging to the beneficiary. Relying on insights from the property rights theory of the firm, this critical resource theory holds that the primary purpose of the law of fiduciary duty is to combat opportunism within relationships that fit this pattern. The beneficiary initially protects against opportunism through self-help-denying or threatening to deny the fiduciary access to the critical resource that is an essential platform for opportunistic behavior in these settings. Fiduciary law supplements self-help by depriving the fiduciary of the benefits from opportunism. By requiring the existence of a critical resource at the core of all fiduciary relationships, the critical resource theory assists courts in differentiating fiduciary relationships from relationships in which harm is caused merely by misplaced trust. The critical resource theory also justifies the varying intensity of fiduciary duties across fiduciary relationships: Where self-help is effective, fiduciary constraints are relatively weak, and where self-help is weak, fiduciary constraints are relatively intense. Three additional implications of the critical resource theory of fiduciary duty are also developed: (1) The critical resource theory implies that fiduciary duty and the contractual obligation of good faith and fair dealing are close cousins, both imposing loyalty obligations of varying intensity to combat opportunism; (2) the critical resource theory affirms the capacity of parties in a fiduciary relationship to contract out of fiduciary duties; and (3) the critical resource theory explains why restitution is the usual remedy for a breach of fiduciary duty. INTRODUCTION Fiduciary law is messy. Courts routinely impose fiduciary duties in myriad relationships, including trustee-beneficiary, employee-employer, director-shareholder, attorney-client, and physician-patient. In each of these relationships, courts require fiduciaries to adhere to a general obligation of loyalty,' but countless variations on that theme tailor the general obligation to the specific context. In addition, courts regularly impose fiduciary obligations ad hoc in relationships where one person trusts another and becomes vulnerable to harm as a result.2 Surveying this landscape, one of the leading commentators on the law of fiduciary obligation concluded that it is "atomistic,"3 and despite attempts to articulate a principled description of fiduciary relationships,4 the prevailing view remains that fiduciary law is "elusive."5 The purpose of this Article is to craft a unified theory of fiduciary duty. IMAGE FORMULA10 The unified theory of fiduciary duty offered here advances two primary goals: (1) It articulates the principles that distinguish fiduciary from nonfiduciary relationships,6 and (2) it rationalizes the content of fiduciary obligations.7 This account of fiduciary duty is offered as a descriptive theory in the spirit of James Gordley's call to "give a systematic and sensible account of our law."8 Moreover, both of the primary goals serve the aspiration of equality, which is often expressed as the desire to treat like cases alike.9 IMAGE FORMULA12 The theory proposed here is animated by the view that fiduciary relationships form when one party (the "fiduciary") acts on behalf of another party (the "beneficiary") while exercising discretion with respect to a critical resource belonging to the beneficiary. …

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The Critical Resource Theory of Fiduciary Duty

Most venture capitalists provide services to their portfolio companies beyond capital investment. Although these services form an important part of the bargain between the venture capitalists and the entrepreneur, they are rarely specified or even capable of specification in venture capital contracts. This article examines the moral hazard and adverse selection problems facing entrepreneurs who "hire" venture capitalists to provide value-added services and describes the role of the market for venture capitalist reputation in addressing those problems. Further, the Article speculates about whether advances in information technology - specifically, the World Wide Web - are likely to improve the efficiency of the market for venture capitalist reputation.

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D. Gordon Smith

Papers

The Shareholder Primacy Norm

The Exit Structure of Venture Capital

The Exit Structure of Venture Capital

The Critical Resource Theory of Fiduciary Duty

Venture Capital Contracting in the Information Age