ABSTRACT
It is trite to say that the prevailing view of the firm, and hence the dominant theory of company law since the late 1970s, is the so-called nexus of contracts theory and the closely related agency costs theory. This chapter does not question the normative assumption that the maximisation of social wealth is the appropriate objective of corporate law, and hence the relevant criterion against which to assess the current legal framework. Contractarian theory does not fail to acknowledge the problem of negative externalities and other market failures which require the introduction of mandatory regulation. The main prospective benefit of extending the micro-prudential regulatory framework to include the corporate law framework for financial institutions, is the alignment of the incentives of directors and senior managers with the objectives of prudential regulation, which is crucial for reflexive regulatory techniques to work in practice.
