Several colleagues and I have published a new article, entitled "Accountability with a Capital “Ism”: A Computational Simulation of the Accountable Capitalism Act vs. Delaware Corporate Law", in the Ohio State Technology Law Journal (OSTLJ). Here is the abstract:
In 2018, U.S. Senator Elizabeth Warren proposed S.B. 3348, the Accountable Capitalism Act. This Act seeks to alter corporate behavior to balance the effects of corporate actions across several different stakeholder groups, rather than focusing on the primacy of shareholders as is conventional in many U.S. state corporate laws. It has traditionally been difficult to determine the effects of the law in advance. However, innovative work in empirical legal studies is enabling experimental evaluations of laws through participatory simulation. We implemented such a simulation to compare the effects of the Accountable Capitalism Act vs. Delaware corporate law on director behavior.
We deployed this simulation to 300 human participants via Amazon’s crowdsourcing platform. Building on previous findings that showed that participants assigned to act as shareholder-selected directors and instructed via the Accountable Capitalism Act favored shareholders over other stakeholders in forced-choice contexts, this study found that such participants instructed via Delaware corporate law favored shareholders over other stakeholders as well. However, in a context where the alternate option was one that provided balanced benefits for several stakeholder groups, those instructed via Delaware corporate law placed significantly greater emphasis on shareholders than did those instructed via the Accountable Capitalism Act.
Based on the results from the human participants, we constituted 3000 “virtual boards of directors,” composed of randomly selected groups of study participants assigned to different types of directorships. Results from the virtual boards of directors suggest that boards composed of shareholder-selected directors instructed via the Accountable Capitalism Act led to lower levels of disparity across different stakeholder groups than those composed of shareholder-selected directors instructed via Delaware corporate law. In addition, those composed of 60% shareholder-selected directors and 40% employee-selected directors, as specified in the Accountable Capitalism Act, led to still lower levels of disparity than those composed solely of shareholder-selected directors.
While these findings are based on interactive simulations rather than the real world, and based on the behavior of everyday people rather than business executives, they nevertheless provide experimental evidence that two key aspects of the Accountable Capitalism Act—the requirement for directors to consider the effects of corporate actions on various stakeholder groups, and the representation of employees on corporate boards—both produce results in line with their desired effects. Taken together, these results provide experimental support for the proposition that the Accountable Capitalism Act would lead to more balanced corporate behavior than does Delaware corporate law.
The article is available free here. Thank you very much to the dedicated and talented staff of the OSTLJ for all their hard work and editorial assistance.