Ownership, Limited: Reconciling Traditional and Progressive Corporate Law via an Aristotelian Understanding of Ownership

I. INTRODUCTION II. CORPORATIONS CONCEPTUALIZED A. A Short History of the Corporation B. Shareholder Ownership Model C. Stakeholder Model D. Nexus of Contracts Model III. OWNERSHIP CONCEPTUALIZED A. Modern Conceptualization of Ownership B. Aristotelian Conceptualization of Ownership IV. IMPLICATIONS OF APPLYING ARISTOTELIAN THINKING TO STOCK OWNERSHIP A. Implications for Shareholders B. Implications for Boards of Directors 1. The Shareholder Wealth Maximization Norm 2. Board Consideration of Shareholders' Moral Obligations C. Implementation 1. The Role of Law 2. Shareholder Empowerment 3. Board Empowerment 4. Legal Mandates V. JUSTIFICATIONS FOR USE OF AN ARISTOTELIAN UNDERSTANDING OF OWNERSHIP IN CORPORATE LAW VI. CONCLUSION I. INTRODUCTION What exactly is a business corporation? For whose benefit is (or ought) it be managed? Although scholars have debated these questions for decades, the answers to them have grown increasingly important. (1) For today, few organizations in the world have as much power to do good, or harm, to individuals, communities, and society as a whole than does the business corporation. (2) Yet, unfortunately, fundamental questions concerning the corporation remain a matter of sharp disagreement. This Article proposes an understanding of the corporation that builds a bridge between two sides of the debate, enabling a compromise solution to the question of "for whose benefit the corporation ought to be managed?" At the heart of this proposal, and what enables this Article to accomplish what I claim it can accomplish, is the application of an Aristotelian conceptualization of ownership to corporate shareholders. Scholars have divided, roughly, into three camps over the question of what a corporation is, and this division has informed (again, roughly) opinions on for whose benefit the corporation is or should be managed. Traditionally, the corporate shareholder has been characterized as an owner of the corporation whose shares he or she (or it) possesses. (3) More recently, "progressive" corporate law scholars have re-cast the shareholder as merely one of many "stakeholders" in the corporate enterprise. (4) Still others--"contractarians"--object to the "reification" of the corporation, and assert that a corporation is not a thing capable of being owned, but rather merely a "nexus of [metaphorical] contracts." (5) To those concerned with issues of corporate governance and corporate social responsibility, (6) the characterization of corporate shareholders should matter (among other reasons) because it arguably goes a long way in establishing for whose sake and how the corporation ought to be managed. For if shareholders are viewed as owners of the corporation, then it comfortably follows that the board of directors, the body entrusted with managing the corporation, serves largely as the shareholders' agent. This thinking, in large part, gave rise to the reigning "shareholder wealth maximization" norm of corporate law, under which boards of directors are charged primarily with maximizing shareholder interests (traditionally understood as the equivalent of maximizing shareholder wealth). (7) If, however, shareholders are not viewed as the owners (or the sole owners) of the corporation, but rather as merely one of several stakeholders in the corporation, then it might more readily follow that the board of directors serves largely to promote and mediate among the interests of these various stakeholder groups. (8) And if the corporation is not conceived of as an entity at all, but rather simply a nexus of contracts, then the board of directors exists primarily to exercise the contractual powers conferred upon it, and to ensure that each real or metaphorical contractee receives his or her (or its) due. (9) Under such a contractarian conceptualization, whether the board operates primarily to maximize shareholder wealth would depend upon whether one concludes that shareholders contracted for such maximization (explicitly or implicitly) in return for their equity investment in the corporation. …