A Normative Theory of Corporate Law and Board Composition—Nominee Directors and the Cost of Capital
This paper develops a normative theory of corporate law and applies it to the forum theme. It is argued that corporate law should minimise the cost of capital. This applies to core corporate law and to corporate law in a wider sense, covering, for example, corporate insolvency law and capital markets law. Against this background, the paper investigates the impact of nominee directors on the cost of capital. Interestingly, major jurisdictions differ in their treatment of nominee directors. This raises a number of questions. Are nominee directors desirable? If so, should there be certain restrictions? Are directors’ duties a sufficient solution? Subsequently, the normative theory proposed is examined from a broader theoretical perspective. An attempt is made to show the usefulness of the theory within the framework of established analytical and normative corporate law theories. From the perspective of justice theory, the question is discussed whether more general principles of justice may require a deviation from the cost of capital yardstick. The paper concludes with an overview of the particular insights the theory promises in comparison with other normative approaches.