Corporate Enterprise as Commonwealth

Date01 March 2018
DOIhttp://doi.org/10.1111/jols.12078
Published date01 March 2018
AuthorStephen Healy
JOURNAL OF LAW AND SOCIETY
VOLUME 45, NUMBER 1, MARCH 2018
ISSN: 0263-323X, pp. 46±63
Corporate Enterprise as Commonwealth
Stephen Healy*
Deepening ecological crisis alongside a half century of widening
inequality and economic instability are evidence that `Business as
Usual' cannot go on. Transformation is required, particularly in the
realm of corporate activity, the business of business. Shareholder
primacy is a powerful social norm that constrains transformation. It
positions publicly traded corporations as compelled by competitive
necessity and bound by law to place shareholder returns first. This
article reviews critical legal theory that questions the historical
precedence, legal coherence, and practical consequence of share-
holder primacy in corporate law. I consider Deakin's suggestion that it
might be more appropriate to think of the corporation as a commons
managed for the benefit of multiple parties. In my view, Deakin's
conceptualization might be further elaborated by turning to other
traditions in enterprise formation, most notably those that have shaped
the cooperative form in Italy and elsewhere.
INTRODUCTION
The first two decades of the twenty-first century are marked by a growing
recognition that Business as Usual (BaU) cannot continue. A growing list of
symptoms defines the horizon of its impossibility. Some people point to the
failure of three decades of post-cold war economic globalization to deliver
generalized prosperity, producing instead a world where fewer than a dozen
people control nearly half of planetary wealth.
1
William Streeck describes
46
*Institute of Culture and Society, Western Sydney University, Building EM,
Parramatta Campus, Penrith, NSW 2751, Australia
stephen.healy@westernsydney.edu.au
1 G. DeMartino, Global Economy, Global Justice: Theoretical and Policy Alternatives
to Neoliberalism (2002); D. Hardoon, `An Economy for the 99%: It's Time to Build a
Human Economy that Benefits Everyone, Not Just the Privileged Few' (2017), at
build-a-human-economy-that-benefits-everyone-620170>; T. Piketty and L.J. Ganser,
Capital in the Twenty-First Century (2014).
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the past half century as a time in which `normality' is a fluctuation between
economic instability and crisis, where each convulsion diminishes the social
capacity to respond effectively to the next one ± arguing in effect that the end
of capitalism has already arrived, with nothing to take its place.
2
Others
argue that we are at the end of the long summer of the climatic stability of
the Holocene, and that the last seventy-five years marked a `great accelera-
tion' that catapulted us into the Anthropocene: a period defined by a warmer
and more volatile climate, acidified oceans, depleted resources, and a planet-
wide sixth mass extinction.
3
More hearteningly, this same stretch of time is characterized by a global
profusion of social movements and experiments directed at imagining and
enacting just and sustainable economies and ecologies, including other ways
of understanding the organizational form and purpose of enterprise.
4
There
are many names for this emergent-alternative: solidarity, sharing and peer-
to-peer economies, new economies, and de-growth economies.
5
Further,
these movements to remake economies variously interact with efforts to
transform the conditions of work, exchange, consumption, and investment.
6
There is a manifest desire to underwrite these new possibilities. In the United
States 20 per cent of investment dollars are earmarked for socially respon-
sible investment, amounting to more than eight trillion dollars.
7
In Australia
47
2 W. Streeck, How Will Capitalism End? (2014).
3 W. Steffen et al., `The Trajectory of the Anthropocene: The Great Acceleration'
(2015) 2 Anthropocene Rev. 81; D. Dumanoski, The End of the Long Summer: Why
We Must Remake Our Civilization to Survive on a Volatile Earth (2010).
4 G. Roelvink, Building Dignified Worlds: Geographies of Collective Action (2016); G.
Roelvink et al., Making Other Worlds Possible: Performing Diverse Economies
(2015).
5 See, for example, J. Ageyman, Introducing Just Sustainabilities: Policy, Planning
and Practice (2013); M. Safri, `Mapping Non-Capitalist Supply Chains: Toward an
Alternate Conception of Value Creation and Distribution' (2015) 22 Organization
924; RIPESS, `Global Vision for a Social Solidarity Economy: Convergences and
Differ ences in C oncept s, Defi nition s and Fram eworks ' (2015) , at p://
www.ripess.o rg/wp-conten t/uploads/201 5/02/RIPESS_ Global-Vision _EN.pdf>; S.
Bergeron and S. Healy, `Beyond the Business Case: A Community Economies
Approach to Gender, Development and Social Economy' in Social and Solidarity
Economy: Beyond the Fringe?, ed. P. Utting (2015) 72; B. Morgan and D. Kuch,
`Radical Transactionalism: Legal Consciousne ss, Diverse Economies, and the
Sharing Economy' (2015) 42 J. of Law and Society 556; J. Lepawsky et al., `Best
of Two Worlds? Towards Ethical Electronic Repair, Reuse, Repurposing and
Recycling' (2017) 81 Geoforum 87; D. Bollier, Think Like a Commoner: A Short
Introduction to the Life of the Commons (2014); M. Bauwens, `Class and Capital in
Peer Production' (2009) 33 Capital & Class 121.
6 J.K. Gibson-Graham et al., Take Back the Economy: An Ethical Guide for
Transforming Our Community Economies (2013).
7 USSIF, `SRI Basics' (2017), at ; G. Unruh et al.,
`Investing for a Sustainable Future. Investors Care More About Sustainability than
Many Executives Believe' in MIT Sloan Report (2016), at:
.mit.edu/projects/investing-for-a-sustainable-future/>.
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nearly half of total assets under management are directed to social and
ecologically oriented enterprise.
8
There is a seemingly sincere desire to inject ethical commitments, and
social and ecological values into the day-to-day of business but also serious
doubts, circulating in popular and academic discourse, about whether this is
possible. For example, what has been popularly referred to as `green-
washing' reflects Milne and Gray's critique of triple-bottom-line social
accounting's tendency to highlight only `win-win' scenarios where profit,
ecology, and society are always reconciled.
9
What this implies is that society
and ecology can only `win' if the corporate bottom line `wins' as well.
Banerjee concludes that the current corporate social and ecological respon-
sibility discourse is inadequate,
10
while others see such efforts as mere
comforting palliative fantasies that actually enable BaU to continue.
11
Why does it sound so unbelievable that business could be repurposed?
The position I take in this article is that this unbelievableness stems from the
deeply held belief that individuals, enterprises, and the larger economy work
on the basis of self-interest. This preconception is what Bruni and Sugden
describe as a `pre-analytical' common sense and is a testament to the power
of the stories Adam Smith told about the emergence of post-feudal socie-
ties.
12
Centuries later, this same thinking is expressed in the social norm of
shareholder primacy ± an enterprise-imperative to make profit for share-
holders ± that appears to be at once natural, rational and, so we are told,
lawful.
13
If shareholder primacy is part of a larger narrative, stretching back to
Smith, constituting a pre-analytic understanding of BaU, what if it were
possible to pick a different starting point as the basis for telling another story
about economy and the business of business? Bruni and Sugden suggest that
48
8
RIAA, Responsible Investment Benchmark Report 2016: Australia (2016), at
responsibleinvestment.org/wp-content/uploads/2016/07/RIA413_Benchmark_
Report_A4_OZ_v4.pdf>.
9 D. Milne and R. Gray, `W(h)ither Ecology? The Triple Bottom Line, the Global
Reporting Initiative, and Corporate Sustainability Reporting' (2013) 118 J. of Business
Ethics 13.
10 S. Banerjee, `A Critical Perspective on Corporate Social Responsibility' (2014) 10
International Business 84.
11 M. Davidson, `Sustainable City as Fantasy' (2012) 5(2) Human Geography 14; S.
Z
Ïiz
Ïek, `Fat-free chocolate and absolutely no smoking: Why our guilt about consump-
tion is all-consuming' Guardian, 21 May 2014, at
artanddesign/2014/may/21/prix-pictet-photography-prize-consumption-slavoj-zizek>.
12 L. Bruni and R. Sugden, `Fraternity: Why the Market Need Not Be a Morally Free
Zone' (2008) 24 Economics and Philosophy 35. Another term that might be useful
here is Castoriadis's concept of social imaginary, a term which denotes how some
concepts and ideas play a central role in generating a shared coherence: see Y.
Stavrakakis, Lacanian Left (2007).
13 B. Sja
Êfjell, `Dismantling the Legal Myth of Shareholder Primacy: The Corporation as
a Sustainable Market Actor' in Shaping the Corporate Landscape: Toward Corporate
Reform and Enterprise Diversity, eds. N. Boeger and C. Villiers (2018).
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one promising starting point is the civic cooperative tradition in Italy and the
writings of Antonio Genovesi, Adam Smith's contemporary.
14
For Genovesi,
the end of feudalism and the emergence of market economies opened up
possibilities for cooperative, joint-enterprises generative of a larger com-
monwealth. If our shared understanding of the business of business is the
generation and care of a commonwealth then what follows, as Massimo De
Angelis puts it, is an entirely different historical trajectory where social and
ecological aims have a new and different relationship with enterprise
activity.
15
The initial premise of this article is that it is possible to challenge the
beast of shareholder primacy by doing battle with it in the protean swamp of
law, politics, and common sense that spawned it. Once this idea is cleared
away it becomes far more meaningful to imagine a new relationship between
enterprise activity and social and ecological concerns. To that end, the article
proceeds as follows. In the first section, I review the origins of the concept of
shareholder primacy and then move onto consider the range of arguments
against it. Critical legal theorists over the past two decades have shown how
the idea of shareholder primacy is inconsistent with the historical evolution
of the corporation, logically incompatible with the corporate form, and
further has negative practical, social, and ecological consequences when
taken seriously as a governing principle.
In the second section, I explore Deakin's suggestion that corporations are
better conceived as a commons managed for collective benefit.
16
Deakin
develops his argument in relation to Ostrom's seminal work but in this
article, I speculate on what might happen if we carried his idea further,
connecting his conceptual framework to De Angelis's other historical
trajectory: the Italian tradition of civic cooperativism. While Italy has a long
cooperative tradition, supported by law, these ideas have begun to travel. In
the concluding section, I trace how these ideas have travelled circuitously to
the United States, and how thinking enterprise and commons together may
enable innovative responses to the twenty-first century's wicked problems.
49
14 Bruni and Sugden, op. cit., n. 12.
15 M. de Angelis, `On the commons: a public interview with Massimo de Angelis and
Stavros Stravrides' E-Flux, June 2010, at
on-the-commons-a-public-interview-with-massimo-de-angelis-and-stavros-stavrides/>.
16 S. Deakin, `The Corporation as Commons: Rethinking Property Rights, Governance
and Sustainability in the Business Enterprise' (2011) 37 Queen's Law J. 339.
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QUESTIONING SHAREHOLDER PRIMACY: LAW, CONSEQUENCES,
AND OTHER POSSIBILITIES
1. The case for shareholder value
At the end of the twentieth century many theorists `predicted the converg-
ence of corporate law and practice around the norm of shareholder
primacy'.
17
Deakin points out that in both academic and popular discourse,
shareholder primacy is presumed to be the most efficient enterprise orienta-
tion. Firms place shareholders first and compete to attract and retain them by
delivering maximum returns. This competition in turn creates innovation,
reduces costs, and improves social welfare. For many, this efficiency is
sufficient justification for the assertion that shareholder primacy ought to be
a legal norm.
The twentieth-century argument for the primacy of shareholders emerged
at a moment in history when large share-trading corporations had sharply
delineated the roles between investors and the class of managers who ran the
corporation. It is instructive to note that the argument for shareholder
primacy was initially put forward during the economic crisis of the 1930s
and was further developed during the tumultuous 1970s. When Berle and
Means first put forward the idea that the primary concern of corporate
management should be to ensure profits for the shareholder, it was in
response to a historical context where professional management was in
control and investors were `merely passive recipients of dividends with no
creative input and real claim to ownership rights' and no control over
management prerogative.
18
In the midst of the great depression, their hope
was that greater involvement from investors would restore capitalism's
dynamism and improve social welfare. By the 1960s, Berle had conceded
that `maximising the interests of owners (shareholders) had become a limited
priority of managers and gave way to stability and good labour standards.'
19
Large manager-controlled corporate organizations had become so dependent
upon state intervention, in capital-labour relations and other matters, that
they could no longer be considered private property, but were instead quasi-
public entities.
The managerial-sided argument carried the day until the 1970s ± when
macro-economic crisis, declining economic growth, and the geopolitics of
oil `opened the door to doubts about managerialism's efficiency'.
20
One
50
17 id., p. 341.
18 L. Talbot, `Of Insane Forms. From Collectives to Management Controlled Organisa-
tions to Shareholder Value Organisations: Building Societies, a Case Study' (2010)
11 J. of Banking Regulation 223.
19 id., p. 227.
20 L.A. Stout, `The Toxic Side Effects of Shareholder Primacy' (2013) 161 University of
Pennsylvania Law Rev. 2003, at 2008.
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response to this crisis was a radical reconceptualization of corporate
enterprise. Alchain and Demsetz reconceived the firm as a set of internalized
markets with players acting in their own interest, where the shareholders'
market-demand for a return on their investment acts as an overarching
imperative. Jensen and Meckling in a similar fashion recast the firm as
nothing more than a `nexus of contracts,' with the agreement between the
firm and investor first amongst equals.
21
Both of these ideas emerged in
response to global instability but also to a moment in corporate history when
iconic firms like US Steel were divesting themselves of single industries and
places melting, not into air, but into the digital ledger of financial
conglomerates.
22
This 1970s version of shareholder primacy seems to anticipate a world in
which it was defensible for Milton Friedman to say that the moral respon-
sibility of corporate enterprise was profits for shareholders, and Margaret
Thatcher could assert that society does not exist.
23
It is in the context of this
social and moral vacuum that Reagan and Thatcher's neoliberal ideological
project took hold as a concerted effort by the capitalist class to recapture
economic, cultural, and political dominance.
24
Here, shareholder primacy is
one expression of a broader neo-liberal ethos ± stealthily displacing all other
forms of valuation save cost-benefit.
25
While Ireland,
26
and Stout remind us
that shareholder primacy is a norm and not a legal concept,
27
Sja
Êfjell points
out that powerful norms performatively shape both law and behaviour.
28
For
example, by 1993, legal reforms in the United States allowed top managers'
pay to be tied to `objective performance metrics' and encouraged com-
pensation to take the form of stock options, partially erasing the divide that
had disconcerted Berle and Means decades earlier.
29
During the exuberant 1990s, with post-cold war globalization in full swing
and a booming American economy, the belief that what was good for
shareholders was good for `everybody' may have been forgivable. Ten years
after the global financial crisis, in an increasingly conflict-ridden world where
climate change is a present reality, this position is no longer defensible. And
yet, the performative power of shareholder primacy is not so easily cast off.
There has been a sustained argument for the past two decades by a number of
51
21 Talbot, op. cit., n. 18, p. 228.
22 D. Harvey, A Brief History of Neoliberalism (2005).
23 id.
24 See J. Peck, Constructions of Neoliberal Reason (2010); W. Streeck, `The Return of
the Oppressed' (2017) 104 New Left Rev. 5.
25 W. Brown, Undoing the Demos: Neoliberalism's Stealth Revolution (2015).
26 P. Ireland, `Company Law and the Myth of Shareholder Ownership' (1999) 62
Modern Law Rev. 32.
27 L.A. Stout, The Shareholder Value Myth: How Putting Shareholders First Harms
Investors, Corporations and the Public (2012).
28 Sja
Êfjell, op. cit., n. 13.
29 Stout, op. cit., n. 20, p. 2009.
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critical legal theorists who point to the incompatibility of shareholder
primacy with the historical evolution of the corporation, its inconsistency
with core concepts of corporate law, and the problematic economic, social,
and ecological consequences that follow when the idea is taken seriously.
Reviewing these arguments is an important step towards generating a coher-
ent alternative, one that might retain what is of value in the corporate form.
2. Historical development and the logical coherence of corporate enterprise
Blair and Stout returning to Coase's 1937 theory of the firm write that the key
feature of production in a firm is a `hierarchical' structure under which an
entrepreneur who needs to acquire materials and services retains the right to
direct the exact details of what and how products and services are delivered . ..
Firms emerge, Coase speculated, when it would be too costly and complicated to
write contracts that give the buyer or services the necessary degree of control.
30
Following Coase, Blair and Stout provide here a minimum rationale for the
enterprise to take corporate form. For Coase, the form only makes sense if it
is more efficient than short-term contracts between individual producers.
This is not always the case: for example, general contractors coordinate
residential construction through a system of contractors and subcontractors.
In contrast, the corporation is a purpose-built arrangement that is meant to
endure through time. For Deakin, the corporate form is a `legal mechanism,
or set of mechanisms' that ascribes `legal personality to the firm,' one that
can `hold property, make contracts and so on in much the same way that a
natural person can' but on a scale and temporal duration beyond the
capacities of natural persons.
31
The corporate legal form composes the body,
pulling together assets, people, and know-how for the long haul.
For Deakin, the corporate body differentiates itself from other bodies as it
pulls itself together. The nature of this separation varies across sectors,
location, and historical context. For example, the early corporate charters
that governed trading vessels did not separate personal and corporate wealth
± when a goods-laden ship sank, the investor's personal fortune went down
with it. As Ireland argues, shared risk was a crucial feature of the joint-stock
corporation because that was what distinguished the purchase of a share from
immoral/illegal usury.
32
The unlimited liability of these early corporations
persists in some industries to this day: for example, claims from Hurricane
Andrew in 1992 also wiped out the personal fortunes of some Lloyds of
London backers.
33
52
30 M.M. Blair and L.A. Stout, `A Team Production Theory of Corporate Law' (1999) 85
Virginia Law Rev. 247, at 257.
31 Deakin, op. cit., n. 16, p. 352.
32 Ireland, op. cit., n. 26.
33 C. Herweijer et al., `Adaptation to Climate Change: Threats and Opportunities for the
Insurance Industry' (2009) 34 Geneva Papers on Risk and Insurance Issues and
Practice 360.
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A defining innovation of the modern publicly traded corporations is the
separation of corporate assets from the personal wealth of investors. Stocks
that could easily be (re)converted into cash arose in the 1830s, and by the
1860s, shares became a property totally distinct from the assets that
comprised the corporation.
34
The corporate body held the assets, the mana-
gers directed the affairs of the business, and investors purchased `shares'. In
this more abstract version of the public corporation, investors were shielded
from risk but the price they paid was a diminishment of their power:
Shareholders have many rights, ranging from voice and voting rights to rights
in relation to distributions, which stem from the property they have in their
shares. However, none of these rights either derives from or confers a right to
property in the firm itself or its assets, nor do any property claims which
shareholders might have give them a right to manage the assets of the firm.
Ownership of a share does not confer the right to a pro-rata portion of the
corporation's assets while it is a going concern.
35
Ultimately this arrangement protects shareholders as well. One cannot walk
into a business and lay claim to the copy machine or a hydraulic press as his
or her share. In the present context, even the ownership of their share is
conditional. Corporations are entitled to buy back shares if, for example,
they decide to delist as a publicly traded entity. Management typically
decides both the size and timing of any dividend payments, balanced against
all other going concerns and responsibilities of the corporation that allow it
to remain a stable, functional entity through time.
36
Management must also
be at liberty to respond to other concerns which may negatively affect
profitability ± from environmental protection to health and safety con-
siderations. In the United States, this discretion is legally enshrined in the
`Business Judgement Rule', in which the legal system defers to management
judgement unless there are obvious conflicts of interest.
37
3. Principal-agent theory and the practical consequences for corporate
governance
While acknowledging the logic that gives form to the corporation, Blair and
Stout point out that advocates of shareholder primacy base their arguments
on how a corporation should conduct itself in relation to shareholders
drawing on principal-agent theory:
The principal is understood to be the owner of the firm, as well as the residual
claimant who receives all of the profits ± that is, economic rents ± left over
after all her contractual obligations to the agents below her have been met.
38
53
34 Ireland, op. cit., n. 26, p. 42.
35 Deakin, op. cit., n. 16, p. 356.
36 id., p. 357.
37 Stout, op. cit., n. 27, p. 29.
38 Blair and Stout, op. cit., n. 30, p. 262.
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Principal-agent theory allows shareholder primacy proponents to argue that
making investor demand a primary concern ensures effective coordination of
effort down through the hierarchical chain. Prioritizing shareholder demand
ensures a measure of performance and is a bulwark against any shirking of
responsibilities.
39
In theory, this model sees each level of the firm's
hierarchy carrying out the will of an external principal that is indifferent to
internecine conflict within the firm.
According to Blair and Stout, in actual practice principal-agent theory
misunderstands how corporations function in ways that can distort effective
performance.
40
In prioritizing the principal, it gives scant attention to the fact
that it is `the agent's job . .. to figure out what needs to be done'.
41
Principal-
agent theory, like shareholder primacy more broadly, treats the corporation
as a `bundle of assets' and thus misses the fact that `one of the key assets a
corporation uses in production is its ``intellectual capital'' ± that is, the
knowledge and experience residing in the minds of its employees, rather the
hands of its shareholders.'
42
This is no minor point as intellectual capital cannot exist apart from the
relationships and practices that cohere in the corporate form (or any
enterprise form) and it cannot be disposed of in the same way that capital
stocks or equipment might be sold off as part of a cost-cutting measure. Blair
and Stout, ironically making use of Alchian and Demsetz's team production
model, argue that complex outputs, such as a new pharmaceutical, are not
merely the sum of inputs, but a product of collaborative relationships that
only exist within a given corporate enterprise. While Alchian and Demsetz
used the team production model to justify shareholder primacy as a guard
against in-firm freeloading, Blair and Stout simply point out that: `Because
shirking and rent-seeking can erode or even destroy the gains that can be had
from team production, it is also in the collective interest of the team members
to minimize such behavior' (emphasis in original).
43
The simple point they make is that employees and management invested
in the success of an enterprise want to cooperate and will police bad
behaviour. This provides an entirely different rationale for corporate govern-
ance where it is the difficulties of adjudicating between team members that
lead them to `relinquish control over both the team's assets and output to a
third party ± a ``mediating hierarch'' ± whose primary function is to exercise
that control in a fashion that maximizes the joint welfare of the team as a
54
39 Stout points out that `shareholders are residual claimants only when failed companies
are being liquidated into bankruptcy.' Residual claimant status does not apply so long
as the corporation is a going concern: L.A Stout, `The Shareholder Value Myth'
European Fin ancial Rev. , April±May 2 013, at ://papers .ssrn.com/ sol3/
papers.cfm?abstract_id=2277141>. See, also, Stout, op. cit., n. 20.
40 Blair and Stout, op. cit., n. 30.
41 id., p. 259.
42 id., p. 261.
43 id., p. 271.
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whole.'
44
For Blair and Stout, the impetus for the formation of a structure
that enforces discipline and encourages cooperation comes from inside the
enterprise and does not require the shareholder to act as an outside principal.
Indeed, another proof here is that non-shareholder corporations work on this
basis. In fact, they conclude `the law of public[ly traded] corporations
appears to actually eliminate the role of the principal, imposing in its place
an internal governance structure' that uses vertical accountability to create
the conditions for horizontal collaboration.
45
Shareholder primacy is inconsonant with the historical evolution, logical
purpose, and practical management of the corporate form, and this goes a
long way towards explaining why the legal case for shareholder primacy is
weak. According to Stout, the case most frequently referred to by academic
and popular primacy advocates is Dodge v. Ford in the Michigan State
Court.
46
In 1919 the Dodge brothers successfully sued Ford for a distribution
of share dividends which they then used to establish a rival company.
47
The
problem here is that this ruling was not about the relationship between
shareholders and a board of directors, but an adjudication of a dispute
between what was then a closely held company. Further, Dodge v. Ford was
not actually meant to establish a legal precedent and has only been cited once
in Delaware State Court ± a state home to nearly 50 per cent of United States
publicly traded corporations and 65 per cent of Fortune 500 companies.
48
None of these arguments ± historical, logical, practical or legal ± deny the
fact that shareholder primacy is a powerful social norm, an ideological
construct that has shaped popular and political discourse, economies and
corporate behaviour, particularly over the last three decades. And yet, with
three decades experience, it is now possible to conclude that shareholder
primacy, taken literally, undermines the capacities and durability of the
corporation form.
4. Consequences of shareholder primacy as ethos
The past decade has revealed the full economic, social, and ecological con-
sequences of the shareholder-primacy ethos that has encouraged corporations
to satisfy investors first and exhorted management to think and act like
investors. This reorientation has encouraged risk taking. In an understated
way Deakin observes that `empirical research suggests that evidence of a
link between shareholder-oriented corporate governance and bank failure is
more than just circumstantial', that a culture of reckless risk taking prevailed
55
44 id.
45 id., p. 265.
46 Dodge v. Ford Motor Company 204 Mich. 459, 170 N.W. 668.
47 Stout, op. cit., n. 27, p. 25.
48 id., p. 26. See, also, Harvard Business Services Inc, `Delaware Inc' (2017), at
www.delawareinc.com/corporation/>.
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in the lead up to the crisis.
49
This same recklessness has ecological con-
sequences as well. For example, BP engaged in a deliberate cost-cutting
strategy that compromised the safety and durability of offshore drilling rigs
in the hopes that it would have a positive impact on share price. These
decisions directly led to the 2010 disaster in the Gulf of Mexico: `When the
tragedy finally struck, the BP oil spill damaged not only the price of BP
shares, but BP bonds, other oils companies operating in the Gulf, and the
Gulf tourism and fishing industries.'
50
Not on this list are the people who died
in the explosion as well as countless forms of marine life that were impacted
by this disaster. The irony, as Stout explains, is that even the `shareholder' at
the centre of shareholder primacy may be counted as a victim too. For it is not
unreasonable to assume that if these same shareholders were invested in other
going concerns ± other oil companies or businesses associated with tourism ±
they would have been negatively impacted. This same shareholder may also
have liked to go to the beaches or to eat prawns from the gulf.
The analogy that Stout uses to describe the shareholder-primacy ethos is
fishing with dynamite. In the short term, of course, the strategy works. As a
long-term strategy, fishing with dynamite is poor form and the more people
that engage in it, the quicker it turns into a disaster. It might be reasonably
objected that this analogy is a hyperbolic version of Garrett Hardin's famous
tragedy of the commons. But perhaps not, since 2000 (when it was predicted
shareholder-oriented enterprise would be the norm) the number of publicly-
traded corporations has declined by 40 per cent while their life expectancy
has dropped from 75 years to just five.
51
Indeed, it would seem in the era of
shareholder primacy the corporation is indeed becoming an ephemeral nexus
of contracts.
Given the extent of the damage, some might celebrate the demise of the
corporation. However, there may be some reason to consider whether the
corporate form could be repurposed. If the wicked social, economic, and
ecological problems of the twenty-first century demand a sustained, large-
scale effort for several generations, might some form of the corporation, with
its capacity to marshal resources and coordinate activities in a sustained
effort through time for generations, be of some use?
5. An alternative trajectory
Deakin offers an alternative theory of the firm that rejects shareholder
primacy or, indeed, any prioritized claim on firm ownership.
52
Returning
first to the definition of the corporation he points out the corporate-
personality is a `no-body'. It is precisely this `no-body' that prevents
56
49 Deakin, op. cit., n. 16, p. 341.
50 Stout, op. cit., n. 39.
51 id.
52 Deakin, op. cit., n. 16.
ß2018 The Author. Journal of Law and Society ß2018 Cardiff University Law School
shareholders (or anyone else for that matter) from making a pro rata claim on
assets. Given this, it becomes reasonable to ask: `Does this imply that the
business firm is ``ownerless''?' Deakin's answer is that:
the firm as such cannot be owned but in the context of the modern business
enterprise, there are multiple, overlapping and conflicting property rights or
property-type claims which the legal system is meant to adjust and reconcile.
53
One could imagine an open-ended list of potential claimants including
founders, management, shareholders and other creditors, landlords, the state,
service providers, even workers and community members who could lay
claims of ownership by virtue of having a stake ± with law in the middle of
them all. Here Deakin's analysis resonates with Gibson-Graham and
O'Neill's depiction of the radically decentred enterprise, the site of ongoing
political contestation among stakeholders.
54
Deakin makes a radical suggestion that the corporation is better conceived
of as a commons managed by and for these multiple constituencies. Inspired
by Ostrom's pioneering work, he defines the commons as `in essence a
theory about the conditions under which collective action to preserve and
sustain resources of value to a society becomes possible.'
55
As with other
commons theorists, Deakin pl aces property rights in rel ation to the
`institutional conditions that that are capable of generating those rights'.
56
This is what Linebaugh refers to as the sociality of the commons.
57
This
sociality in cludes typi cal business c oncerns, wh at Ostrom cal ls the
transferability of rights and the rights of alienation, but sets these business
concerns in relation to a larger sociality.
Building on this concept, my work with Gibson-Graham and Cameron
simplified Ostrom's formulation defining a commons as a biophysical,
cultural, or knowledge resource where a broad community accesses, uses,
and benefits from a commons but also where the processes of care and
responsibility are widely distributed.
58
This sociality distinguishes commons
from private property where access, use, care, benefit, and responsibility are
tightly defined (a gated community) and from open-access resources where
these rules are not yet established (the open ocean). Crucially important is
that commoning becomes a social process of rule setting, allowing for a
partial commoning of private resources wholly or partially (opening a private
forest to gathering or bush care) or the commoning-care of what is currently
open access (humanity's effort to care for the atmosphere). What this implies
57
53 id., p. 367.
54 J.K. Gibson-Graham and P. O'Neill, `Exploring a New Class Politics of the
Enterprise' in Re/Presenting Class: Essays in Postmodern Marxism, eds. J.K. Gibson-
Graham et al. (2001) 56.
55 Deakin, op. cit., n. 16, p. 368.
56 id., p. 369.
57 P. Lindebaugh, The Magna Carta Manifesto: Liberties and Commons for All (2008).
58 Gibson-Graham et al., op. cit., n. 6.
ß2018 The Author. Journal of Law and Society ß2018 Cardiff University Law School
is a broader politics: one where enterprises might be involved both as what is
commoned (the redirection of corporate profits or assets for wider social
purpose), or as a commoner ± from using and supporting open-source
software (a knowledge commons) to switching to renewables to lower their
carbon footprint (atmospheric commons).
For Deakin, the commons offer a way of imagining how social and
ecological concerns might be given equal consideration since their inclusion
aligns with corporate continuity, providing a way of responding to Sja
Êfjell's
call for a vision of business fit for twenty-first-century problems.
59
However,
he also admits that equal consideration of all shareholders interacting with
the corporate-commons `is radically at odds with the shareholder-oriented,
market-focused and globally-driven model' and that accommodating the
concerns of workers in particular might require a more fundamental
reorganization of the corporate form.
60
This theorization of the corporate
commons offers a way of repurposing the corporation, but how might we
translate this idea into a believable alternative to the shareholder-centric
vision of the corporation? As it stands, Deakin's theorization of the corporate
commons seems merely speculative. However, it might appear much more
credible if we were to find examples of enterprises that already govern
themselves in this way: in my view, the civic cooperative movement in Italy,
and the various places where this model has spread, is a good place to start.
In the last section of this article I establish a set of resonant connections
with corporate-commons theorists emanating from a distinctive cultural and
institutional context that might serve to exemplify how the corporation might
be governed as a commons. I go on to suggest how this idea has travelled to
other locations, most notably the United States, and how enterprises may
become both commons and commoners, working to ensure ecological and
social well-being in the broader community.
OTHER TRAJECTORIES, ENTERPRISE COMMONS, ENTERPRISE
COMMONERS
Italy's mountainous Emilio Romagna region is home to thousands of large
and small enterprises operating in many sectors ± including the manufacture
of high-end consumer goods. Many of these enterprises are organized as
mutual benefit or cooperative organizations. Bruni and Sugden suggest that
this cooperative ethos has deep cultural roots and in tracing its history they
identify Antonio Genovesi as a central figure.
61
Like his contemporary,
Adam Smith, Genovesi was concerned with the structure of post-feudal
society and economy, but he had a radically different understanding of how
58
59 Sja
Êfjell, op. cit., n. 13.
60 Deakin, op. cit., n. 16, p. 379.
61 Bruni and Sugden, op. cit., n. 12.
ß2018 The Author. Journal of Law and Society ß2018 Cardiff University Law School
market economies functioned, theorizing market economies as a space of
joint-enterprise rather than self-interest. For Bruni, Genovesi's thinking is
but one point in a longer history that connects the common grounds of
eleventh-century monasteries to nineteenth-century Catholic social doctrine
to progressive twentieth-century governments that promoted cooperative
development.
62
Following this same thread, Tortia uses Ostrom's commons theory to
understand corporations operating in the Emilio Romagna.
63
In Italy it is
`mutual benefit organisations, mainly cooperatives' that `have shown the
greatest compatibility with the interpretation of the firm as a nexus of com-
mon pool resources.'
64
Tortia argues that the keys to their success are the
accumulation of capital as a non-divisible reserve, democratic control over
the disposition of that reserve, and its reinvestment in the enterprise as a
going concern and in the larger society for common benefit.
65
In his vision it
is the commoning of capital ± both its use and custodial care ± that is the key
to success.
Tortia explains that the indivisible reserve allows for self-capitalization,
solving a common problem for cooperative enterprises. Further, for much of
the twentieth century these capital reserves were exempt from taxation.
66
The capital reserve allows the business to operate, invest, innovate, and
engage in joint ventures with other enterprises, but it also poses a risk. In
Anglo countries, particularly the United Kingdom, the accumulation of large
reserves posed a threat of demutualization ± cooperative owners simply
selling out to realize windfall gains. By contrast, in Italy (and also in Spain)
legal frameworks require the indivisible reserve to be reinvested in the
business, constraining the temptation to demutualize. Further, should a firm
dissolve, Italian law requires that a portion of its capital go to a fund to
capitalize new cooperatives.
67
Even in dissolving, the enterprise continues to
contribute to the commonwealth. We might see in this example a more fully
realized version of Deakin's corporate commons where the assets of
enterprise are managed to ensure longer-term success. We could also see a
version of Stout and Blair's understanding of corporate governance ± the
cooperatives rely on horizontal collaboration but also cede some control to a
59
62 L. Bruni, The Wound and the Blessing: Economics, Relationships, and Happiness
(2012). See, also, V. Zamagni, `Learning from Emilia Romagna's Cooperative
Economy' Next System Project, 18 February 2016, at
learning-from-emilia-romagna>.
63 E.C. Tortia. `The Firm as a Common. The Case of Accumulation and Use of
Common Resources in Mutual Benefit Organizations' (2011) University of Toronto
Discussion Paper no. 12/11.
64 Tortia, id., p. 5.
65 id., pp. 5±6.
66 Zamagni, op. cit., n. 62.
67 Many of these requirements and tax exemptions were softened a bit during the
Berlusconi years: Zamangi, id.
ß2018 The Author. Journal of Law and Society ß2018 Cardiff University Law School
`mediating hierarch', the law, to militate against particular kinds of bad
behaviour. However, we can extend our analysis of the enterprise commons
further than this. What `the Third Italy' became most famous for was the
ability of cooperative networks to coordinate relationships between coopera-
tives, enabling small producers to successfully compete in global markets,
particularly for high-end products. Here we might see the cooperatives not as
commons in themselves but also as commoners working to constitute still
larger regional commons.
In the 1990s, economic and industrial geographers, economists, and
organization management theorists looked to what was then called the Third
Italy as an example of a different, post-fordist, approach to manufacturing
and regional development and as a way of reinventing capitalism.
68
What
captured people's imagination was the power of networks of SMEs to
coordinate their activities in a way that scaled up to meet market demand,
offering a model of regional development later popularized as flexible
specialization, that circulated globally.
69
What the model left behind back
then was the cooperative enterprise structure of the firms in Italy. In the
wake of the global financial crisis, the Third Italy is garnering new attention,
this time as a way beyond capitalism and BaU.
CORPORATE COMMONS AS A TRAVELLING CONCEPT
The tenth anniversary of the `Cleveland Experiment' in the United States is
rapidly approaching. It is the first and most famous of the `anchor
institution'-led approaches to cooperat ive development and municipal
revitalization. The Cleveland Experiment is the name the Democracy
Collaborative gave to the three cooperatives launched to provide commercial
goods and services to the universities and hospitals within the University
Circle, starting in 2009. Drawing inspiration from the Basque Country's
Mondragon cooperatives, the founders of the Cleveland Experiment aimed to
find a common solution for two problems: the need for more sustainable
ways of meeting institutional demand for goods and services ± clean linen,
electric power, food ± with the problem of persistent poverty in the
neighbourhoods that surround the university circle.
70
The solution they came up with was to develop cooperatives that would
capture some of the university circle's $3 billion per annum aggregate
institutional demand for goods and services. These cooperatives were
capitalized with help from Shore Bank ± a legacy institution from the
60
68 See J.K. Gibson-Graham, The End of Capitalism (as We Knew It): A Feminist
Critique of Political Economy (1996/2006).
69 M. Porter, The Competitive Advantage of Nations (1990).
70 N. Iuvene et al., `Sustainable Economic Democracy: Worker Cooperatives for the
21st Century' (2010) White Paper MIT CoLab.
ß2018 The Author. Journal of Law and Society ß2018 Cardiff University Law School
Community Reinvestment Act of 1979. Each of these cooperatives opened in
the years following the global financial crisis (between 2009 and 2011) have
provided worker-ownership opportunities to residents from the majority
community of colo ur. With the Clevel and Experiment, w e can see
cooperative enterprises being conceived and managed for the long-term
benefit of worker-owners, the communities in which they reside, and the
institutions they serve. Like the SMEs of the Third Italy, they are Deakin's
enterprise commons come to life in practice. The institutional demand of a
variety of large institutions (mostly non-profits) created the condition of
possibility for cooperative enterprises that, as they become successful, will
support its further expansi on. Version of this `anchor inst itution-led
cooperative development model' are now in various stages of development
in Richmond, California; Washington DC; Cincinnati, Ohio; Pittsburgh,
Pennsylvania; Springfield, Worcester, and Boston in Massachusetts. All
have been instituted as community wealth-building strategies.
71
An idea,
spread from Italy and Spain to the United States, implemented and improved
over time, constitutes a commonwealth in its own right.
72
In the past, `flexible speculation' circulated globally as a coin of the
realm, but in the process of translation, the cooperative nature of the enter-
prise was rubbed out. In contrast, now the `anchor-led cooperative institu-
tional model' has etched new ideas into the coin as it changes hands, from
city to city. In the context of National Science Foundation (NSF-)funded
research on the United States Solidarity Economy, I had the opportunity to
interview many of the principals involved in CERO (`zero' in English), an
anchor-institution- like experiment in the poo rest communities around
downtown Boston.
73
It too was explicitly inspired by Cleveland's experi-
ment. Here once again, the idea was to develop cooperative enterprises and
markets simultaneously. In this case the market was the more than 150 urban
farms in the Boston area that supplied local greens to a burgeoning foodie
culture. CERO, a majority community of colour worker-owned commercial
composting service was started in 2013 to satisfy this demand. CERO's
market position was good, given recent state laws that required the
composting of food waste from large institutions. The sticking point was, as
61
71 M. Kelly et al., `Politics of Place/Politics for Place, Community Wealth Building:
America's Asset-based Approach to City Economic Development' (2016) 24(2)
Renewal 51; see, also, P. Loh and B. Shear, `Solidarity economy and community
development: emerging cases in three Massachusetts cities' (2015) 46 Commmunity
Development 244.
72 Given the institutional context in which I am writing I feel compelled to point out that
this reconceptualization of corporate purpose could travel further still. Apps notes that
Australia is currently attempting to work out legal frameworks for cooperative
enterprise at the national scale: A.E. Apps, `Legislating for co-operative identity: The
new co-operatives national law in Australia' (2016) 34 Company and Securities Law
J. 6.
73 National Science Foundation grant no. 1339748.
ß2018 The Author. Journal of Law and Society ß2018 Cardiff University Law School
it often is, capital. They lacked access to a progressive lender like Shore
bank, but it was in this context that Boston activists tried something
innovative. With help from Boston Impact Investing (a progressive/local
investment fund), the newly formed CERO cooperative made a direct public
offering (DPO) to local investors in exchange for non-voting shares in the
cooperative.
With this DPO-vehicle, CERO rapidly met its capital requirements to
make the business operational. CERO aims to provide worker-ownership
opportunities to around twenty or so people, a small business, like most
enterprises in the United States. However, CERO sees its prospects for
survival in the context of a larger joint enterprise with other cooperatives,
food-based ventures, and `sticky' place-bound institutions.
74
As in Italy,
CERO's fate as a commons is bound to its relation with a still larger
financial commons and community (Boston) that is taking shape alongside
it. CERO, the enterprise, is a commons in its own right ± accessed, used, and
cared for to benefit members of a majority low-income community of colour.
In turn, CERO, as the beneficiary of an innovative capitalization scheme in
Boston and as an organization dedicated to building a food solidarity
economy in Boston, becomes a new kind of commoner.
CONCLUSION
The present mom ent seems to be cha racterized by a n increasingl y
widespread desire for an economy that reflects and embodies social and
ecological values, taking shape in economic experiments, including a global
renewed interest in the cooperative as part of a larger solidarity economy.
75
This and many other efforts are in part an effort to rethink the business of
business. Hampering the further development of these efforts is the con-
tinued widespread belief in the myth of shareholder primacy, not only a
belief that corporations must prioritize shareholder interests but that when
they do, they always win in competitive markets. Critical legal theory can
play a crucial role in breaking the hold this myth has on popular and political
discourse and in the process open up the discussion for other ideas about how
enterprise might be organized for the long haul.
The civic cooperative tradition offers an alternative starting point and way
of thinking beyond this myth. From the time of Genovesi, the premise is that
corporations are a site of cooperative `joint enterprise' which, in turn, is
sustained by the larger commonwealth of the market economy. What has
come to sustain these cooperative ventures is a long tradition of cooperation
62
74 See, also. P. Loh and J. Agyeman, `Boston's Emerging Food Solidarity Economy' in
The New Food Activism: Opposition, Cooperation and Collective Action, eds. A.
Alkon and J. Guthman (2017) 257.
75 RIPESS, op. cit., n. 5.
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amongst cooperatives, sustained by law as well as by different strategies for
capitalization and governance. This idea has begun to circulate in the United
States (and elsewhere) not just as a flexible-specialization strategy but as a
way of thinking about how to develop enterprises that contribute to a larger
commonwealth. The Evergreen cooperatives and CERO coop in Boston
demonstrate how the corporate form, but also larger societies including
investor s and share holders th emselve s, can const itute and ca re for
commonwealth.
63
ß2018 The Author. Journal of Law and Society ß2018 Cardiff University Law School

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