ABSTRACT
Boyer examines further the paradox of how the diffusion of stock options and fi nancial market incentives, which are supposed to discipline managers, actually have allowed them to use their intrinsic power to massively increase their remuneration and wealth. He traces the conception of the corporation through historical stages beginning with the creation of the joint stock company in the nineteenth century, with the advent of professional management, and investors optimizing the return on their portfolios through fi nancial markets. The managerial corporation was associated with dynamic effi ciency (through eras punctuated with recession and world wars), until the 1970s, when oligopolistic conglomerates faced falling productivity. Financial liberalization and new fi nancial markets and instruments created a new context in which corporations were pressured to concentrate on their core business, and executives were incentivized with stock options to increase their focus. This set the scene for the bubble economy of the 1990s, representing Enron as the result of the developing relations between corporate governance and fi nancial markets. Boyer considers the discrepancy between the optimal contracting approach of agency theory which suggested that aligning executives with stock options would maximize shareholder value, when executive compensation continued to boom even when share price performance was falling. For a different explanation he turns to the analysis of entrenched managerial power of Bebchuk and Fried (2003).
