Modern Corporate Theory: Public Utility OrPrivate Part? A Comment On ProfessorWolfe'S Paper

Well, we asked for it. We invited Alan Wolfe, a distinguished social theorist who has written extensively and powerfully about the epistemological and ethical deficiencies of current social thought,(1) and asked him to take a look at what passes for theory in the field of corporate law. Now Professor Wolfe is a generous man, and obviously does not mean to offend, but he is a connoisseur of theory. He enjoys a good hearty helping of Weber, a little sweet and sour Durkheim, maybe a light, airy bit of Derrida for dessert. He has sampled current corporate law theory and he is saying, as nicely as possible, that as best he can tell, it is mush. Cold mush. Cold thin mush. Mush--because it provides neither an adequate factual description of how corporate actors behave nor an attractive prescriptive theory of how they should behave.(2) Cold and thin--because it embodies a concept of the individual devoid of culture, emotions and relationships, whose sole motivation is wealth maximization.(3)So far, Professor Wolfe probably would not get much of an argument, at least from many of the participants in this symposium. The criticisms he makes of the new economic theory of the firm, as he recognizes, echo and expand on comments previously made by its critics within the corporate law academy.(4) When he turns to consider alternatives to the dominant economic theory of the firm, however, he finds that there really are none. His paper points out how numerous advocates of a more "public" conception of the corporation nonetheless adopt, implicitly or explicitly, the fundamental assumptions about corporate relationships embodied in the dominant paradigm.(5) There is, in current corporate law discourse, no real alternative, either at a conceptual or programmatic level, to that theory.Indeed, when viewed from the level of fundamental institutions, the distance separating those corporate law academics who argue for a somewhat greater degree of governmental regulation of managerial conduct, and those who seek a reduced governmental role, is not very great. Everyone writing about corporate law, with the possible exception of a few Marxists and Michael Jensen,(6) assumes that the public corporation, with its familiar separation of ownership and control, will remain the dominant mode for conducting economic activity in the United States, and that the fundamental relationship between managers, shareholders and employees will remain essentially unchanged. Corporate law academics are like a bunch of interior designers trying to hang a picture on the living room wall. A few of us say, "move it a little to the left," and a few more say, "no, a little to the right." But nobody wants to put a different picture up there.Professor Wolfe notes all of this, and is not particularly disturbed by any of it. He recognizes the defects of the nexus of contracts theory of the firm, tells us that he prefers the "inconsistency" of its critics to the "unreality" of the model,(7) but does not expect corporate law theorists to develop an alternative model any time soon. Rather, he pats us on the head and tells us to keep "muddling through," that caution is the appropriate response in complex matters such as this, and that no theory will ever fully capture the oxymoronic nature of the public-private corporation.(8)I agree with Professor Wolfe in almost all his specific comments about the state of contemporary corporate law theory. Unfortunately, teaching and writing about corporate law is what I do for a living. Now, I can live with the fact that the dominant paradigm in my field is mushy and fails to capture important aspects of corporate reality, that the critiques of the dominant paradigm are inconsistent and marginal, and that all I can hope to do is "muddle through." My real problem is with a conclusion that is implicit but unstated in Professor Wolfe's paper.If corporate law theory is, as Professor Wolfe portrays it, viewed as nothing more than an exercise in endlessly rehashing and reemphasizing the public and/or private aspects of corporate relationships, then it is, and will remain, incredibly boring. …