Ideals of the Corporation and the Nexus of Contracts
| Author | Ewan McGaughey |
| Date | 01 November 2015 |
| Published date | 01 November 2015 |
| DOI | http://doi.org/10.1111/1468-2230.12161 |
REVIEW ARTICLE
Ideals of the Corporation and the Nexus of Contracts
Ewan McGaughey*
Marc T. Moore, Corporate Governance in the Shadow of the State, Oxford:
Hart Publishing, 2013, 336 pp, hb £59.99.
INTRODUCTION
What is ‘the fundamental nature of the laws’ that govern ‘public corporations in
the United States and the United Kingdom’? (1) To basically similar questions,
Frank Easterbrook and Daniel Fischel once famously answered, ‘Who cares?’1
‘Divergence between private and social interest’, they wrote, ‘is rare’. So it did
not matter what goals large corporations pursued: profit, social welfare, or
charity. It did not matter whether corporations acted long-term or short-term,
because a corporation was simply a set of ‘private agreements’. The only reasons
not to enforce private agreements were force, fraud, lack of mental capacity,
external effects on third parties, or maybe to alleviate poverty.2But those goals
were all achieved in the general law of contract, or tort, or specific regulation
outside corporate law. Corporate law itself was just a sub-category of contract
law where, so they considered, the aim is to enforce private bargains. Often the
express terms of the ‘corporate contract’ run out. Then corporate law makes
default rules for what the parties ‘would have wanted’ (and only that) had they
thought about it, and had they had no transaction costs. But if you officiously
enquired about the fundamental nature of corporate law, the testy reply was just:
‘Who cares?’
This is just one of many reasons why Corporate Governance in the Shadow of the
State is an important contribution to literature on ideals of business regulation.
Evidently, Moore does care about the nature of the company. The basic question
he poses is whether regulation of large listed corporations is more public law or
private law. His cases studies are the major Anglo-American models, represented
by a Delaware ‘Inc’ (as modified by federal US regulation) and a UK ‘plc’. But
the ‘private or public’ debate is not an end in itself. It is a route to the normative
question of how large corporate structures ought to function: a profound
question if, as Moore says, the ‘dominant academic paradigm’ does indeed
‘trickle down into the so-called “real world”’ (1).
*King’s College, London and The London School of Economics and Political Science.
1 F. Easterbrook and D. Fischel, ‘The Corporate Contract’ (1989) 89 Columbia LR 1416, 1446.
2ibid, 1434, referring further to C. Sunstein, ‘Legal Interference with Private Preferences’ (1986) 53
University of Chicago LR 1129.
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© 2015 The Author. The Modern Law Review © 2015 The Modern Law Review Limited.(2015) 78(6) MLR 1057–1070
Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
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