In his new book, Corporate Governance: Promises Kept, Promises Broken, Jonathan Macey analyzes the explicit and implicit agreements governing the relationship between shareholders and the corporations in which they invest. The formal contracts, including the articles of incorporation and bylaws, that define a corporation are sparse. Shareholders who invest huge sums of money in corporations, furthermore, have no legal right to dividend payments from the corporation. Thus, Macey argues, shareholders willing to invest under such a scheme must be relying on more than just the few explicit legal rights contained in formal agreements. They must have rational expectations garnered from past experience as to how corporations will behave. These expectations become implicit promises between shareholders and corporate decisionmakers. The primary unstated promise is that the corporation is run to maximize profits. In addition, managers and directors implicitly promise they will not use corporate funds to entrench themselves or give themselves excessive benefits.

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