Brigham Young University Law School BYU Law Digital Commons Faculty Scholarship 4-30-1996 Corporate Governance and Managerial Incompetence: Lessons from Kmart D. Gordon Smith Follow this and additional works at: https://digitalcommons.law.byu.edu/faculty_scholarship Part of the Business Law, Public Responsibility, and Ethics Commons, and the Business Organizations Law Commons Recommended Citation D. Gordon Smith, Corporate Governance and Managerial Incompetence: Lessons from Kmart, 74 N.C. L. REV., 1037 (1996). This Article is brought to you for free and open access by BYU Law Digital Commons. It has been accepted for inclusion in Faculty Scholarship by an authorized administrator of BYU Law Digital Commons. For more information, please contact
[email protected]. CORPORATE GOVERNANCE AND MANAGERIAL INCOMPETENCE: LESSONS FROM KMART D. GORDON SMIm Modern corporategovernance scholars often extol an activist role by institutional investors in directing corporate activity. Widely viewed as a solution to the "collective action" problems that inhibit such activism by individual investors, institutional investors are praised for adding value to corporationsthrough their participationin the decisionmaking process. The ouster of Joseph Antonini as Chief Executive Officer of Kmart Corporation in 1995 might be taken as a vindication of this view, because substantialevidence indicates that institutionalinvestors played a crucial role in influencing Kmart's board of directors to remove him. In this Article, Professor Gordon Smith challenges this potential reading of the events at Kmart. Professor Smith poses the fundamental question of whether institutionalinvestor activism designed to address perceived incompetence among corporate managers consistently adds value to corporations in which such activism is present. ProfessorSmith analyzes the effect of internal and external forces on managers, particularly on Antonini.