“I think the decline of democracy is a mortal threat to the legitimacy and health of capitalism.”
—Rebecca Henderson, Harvard Business School1
The rule of law and democracy are crucial to capital markets. A free market balanced by a democratically elected, transparent and capable government, and a strong civil society (“an inclusive regime”) yield stable growth rates and greater social welfare.2 Conversely, threats to democracy are threats to the private sector, which is why business leaders and institutional investors cannot afford to remain on the sidelines when such threats emerge.
This paper explores the state of American democracy and whether it constitutes a systemic risk that impacts fiduciary duties. The paper proceeds in three parts. In the first, we assess the question of whether American democracy is backsliding towards failure, and argue that it is. In the…