Colin Mayer’s reform of the firm

Colin Mayer, an expert in corporate finance from Oxford University whom I visited in 1996 when I was starting to work on my PhD thesis at the European University Institute, has recently published a very valuable essay, “Firm Commitment,” where he summarizes for a broad audience his ideas about the past, present and future of the corporation. His main idea is that large firms have become too much captured by shareholders to the detriment of other stakeholders, such as workers, customers, suppliers or communities. Mayer says that it is not true that the other stakeholders that are not shareholders are fully covered by contracts, as it is commonly argued. The solution according to the author is a reformed corporation that he calls “The trust firm”, one that espouses moral values and shows commitment to them in the long run. This kind of reformed firm would make it possible to address not only private but also public needs, making regulation redundant and Corporate Social Responsibility much more concrete and binding. Public Private Partnerships would also be unnecessary. As The Economist has argued in its review, the diagnostic is more persuasive than the suggested cure. I agree that the reformed firm postulated by Mayer should have a wider role, but it is hard to see how it can come to replace all regulation and PPPs. There are few short cuts to improving public policies and therefore politics. But it is an excellent book on the importance of the firm and the need to discuss its role for a better world.