Groundwork Of The Metaphysics OfCorporate Law

The practitioners of law and economics have done an enormous favor for all of us who are concerned with corporate law. This favor comes in two parts. On the one hand, they have sharpened, indeed radicalized, the paradigm of the stockholder-centric corporation on which corporate law has been built since the middle of this century, revealing as they have done so the startling weaknesses and unreality of that paradigm.(1) On the other hand, these scholars have deconstructed the traditional fiction of the corporation to reveal the reality of competing interests within the corporation that have nonetheless been excluded from the legal model of the corporate form. This, of course, is the contractual model of the corporation.(2) In doing so, they have exposed for attention the interests of a variety of constituents that corporate law has heretofore ignored. Although these scholars have built a new, if highly disputed, model of the corporation as contract to provide an infrastructure to replace the old entity, they have done so with zealous regard for the traditional paradigm that centers on the stockholders.As a result of these scholars' efforts, the central underlying issues in corporate law have been exposed as never before. What is the nature and the purpose of the corporation in modern American society? Their clear answer is to maximize the wealth of stockholders, as a consequence of which overall social wealth will be maximized by virtue of market mechanisms.(3) In order for this to be accomplished, the markets that revolve around the corporation, including markets for capital, labor, supplies, and outputs, must be kept as efficient as possible, with only the first and, possibly, the second,(4) coming within the province of corporate law. These scholars have identified the costs and barriers which can impede market efficiency, and have suggested some of the gains to be realized from removing those costs and barriers.They have accomplished all of this by reducing the prevailing corporate paradigm to its most elemental level--the pursuit of self-interest by all concerned.(5) Although my use of the collective pronoun suggests unity among legal economists, there are in fact deep divisions among them. But on one aspect of the corporate paradigm they are unanimous: Corporations exist for their stockholders. Only when the corporation is thus focused can the self-interest of corporate actors be used to maximize their own wealth in a way that will lead to increased societal wealth.(6)Professor Ronald Green recognizes this when he talks about the metaphors of corporate law,(7) metaphors that have been turned into normative principles by law and economics scholars.(8) He writes about the need to abandon these metaphors, in order to enable us both to see and understand that the modern corporation profoundly affects the well-being of a number of constituent groups in addition to the corporation's stockholders, and that in fact corporate directors and managers recognize this. But Professor Green relies too comfortably on metaphor as the problem. The problem is not simply one of metaphor. In fact the problem is far deeper in corporate doctrine and theory and, ultimately, policy. Only when we address social and moral issues in corporate law that appear at this depth can we begin to resolve them. The fact that legal economists have pushed the traditional paradigm to the extreme, exposing its root assumptions, permits us to address the issues at just this level.We know the way to efficiency. We also have begun to explore the costs of efficiency. Professor Green's paper identifies, as does this Symposium, some of the values that get left behind when the efficiency model becomes paradigm. Essentially it all boils down to the realization that a single-minded focus on efficiency, on the corporation as a narrowly defined economic institution, sacrifices the human values of those who play a part in its functioning. The efficiency model does this by legally cabining the actions of corporate actors within confining, distinctly nonhuman roles. …