The Birds, the Beasts, and the Bat: Developing a Constitutionalist Theory of Corporate Regulation
| Published date | 01 June 1999 |
| Date | 01 June 1999 |
| DOI | 10.22145/flr.27.2.5 |
| Author | Stephen Bottomley |
| Subject Matter | Article |
THE BIRDS, THE BEASTS,
AND
THE BAT:
DEVELOPING ACONSTITUTIONALIST THEORY OF
CORPORATE REGULATION
Stephen Bottomley*
INTRODUCTION
One
of Aesop's fables tells the story of a
war
between the Birds
and
the Beasts,
and
the
problems
which
this
posed
for the Bat. Whilst sharing characteristics
in
common
with
each
set
of protagonists, the Bat nevertheless
did
not
belong to either side.
Unfortunately this subtlety
was
not
noticed
by
the
warring
parties
'who
each dismissed
the
Bat as
an
enemy. This image of the Bat's difficult position captures
what
I
am
attempting
to
do
in
this article. Iexamine the debate ("war" is too strong a
word
for it)
between
the
two
dominant
justificatory theories1of corporate governance
and
regulation
in
Australian corporate
jurisprudence-the
concession theory
and
the
contract-based theories.2I
argue
that
although this debate has offered some
important
insights, ultimately
it
has
proved
to be either too simplistic (offering one-dimensional
pictures of corporate life) or too restrictive (limiting
our
conception of
how
corporate
governance
and
regulation
might
be
improved). Isketch
out
an
alternative justificatory
theory
which
Icall "corporate constitutionalism". This theory
draws
on
aspects of
both
the
,concession
and
contract-based theories but, as Iwill show,
it
is
not
simply
an
amalgamation of
them
nor
acompromise
between
them. Like the Bat,
it
has
aseparate
and
unique
place
in
the
debate.3
The question of
whether
and, if so, to
what
extent the state has arole
in
regulating
corporations
has
always excited debate.
At
the time
Salomon
v
Salomon
&
Co
Ltd4
was
1
2
3
4
Professor
of
Commercial
Law, Faculty
of
Law,
Australian
National
University.
In
this context, a"justificatory theory" is
one
which
seeks to
provide
a
coherent
justification
for a
particular
approach
to,
or
method
of,
corporate
regulation.
Such
a
theory
seeks
to
explain
why
we
might
adopt
one
approach
as
opposed
to others.
There
is,
then
a
need
to
explain
the
details
of
the
chosen
regulatory
method,
but
that
falls
outside
the
scope
of
this
article.
The
use
of
these labels
may
simplify
what
is a
complex
debate. As I
explain
below,
the
idea
of
contract
supports
a
range
of
theories
about
corporate
regulation.
I
ought
to
acknowledge
that
in
Aesop's fable
the
Bat is
depicted
as
an
opportunist,
fighting
alongside
whichever
group
of
protagonists
happens
to
be
in
the
ascendancy
as
the
war
progresses: V S
Vernon
Jones (trans), Aesop's
Fables
(1963)
at
133.
At
this
point,
therefore,
the
simile
between
corporate
constitutionalism
and
the
Bat
breaks
down.
[1897]
AC
22.
244
Federal
Law
Review
Volume
27
decided there
was
intense
argument
about
whether
the facility of
the
incorporation
procedures
found
in
the
Companies Act 1862 (UK)
should
be available to small
businesses.
One
hundred
years later there is considerable debate
about
the extent, if
any, to
which
the state
should
impose
mandatory
regulations
on
any
company,
regardless of its size. Obviously the details of these debates differ, as
do
the concerns
which
motivate them.
In
the
late nineteenth century, the debate
was
about
regulatory
coverage:
what
range of business enterprises
should
be covered
by
companies
legislation?
In
the late twentieth century,
when
the
corporation has become
one
of the
dominant
forms of association
in
business, social
and
political life, the debate is
about
regulatory method:
what
is the best
way
of regulating corporate activity? As
can
be
seen, there is a
common
theme underlying these different
questions-a
concern to
clarify the state's role
in
relation to corporations.
And
therein lies the problem: despite
the differences
in
the
debates
about
corporate regulation,
not
only is
the
underlying
theme
the same,
but
so too are the assumptions
and
concepts,from which competing
answers
are
constructed.
In
the debate
about
state regulation of corporations,
we
have
not
really
moved
all
that
far
in
the one
hundred
years since Salomon's case.5
The concern
which
motivates this article is
not
all
that
startling: one
hundred
years
after Salomon's case6
we
need
to develop ajustification for corporate regulation
which
takes
appropriate
account of the role of the corporate form
in
contemporary society.
We
must
develop a
new
and
relevant conceptual approach which will enable
us
to
transcend the restrictions of
current
debates.
In
more
specific terms, Iwill argue
that
this
new
approach (although, as will
be
seen,
it
is
not
all
that
"new")
must
strike abalance between
the
interests of corporate
members
and
managers
on
the one
hand
and
the interests of society
on
the
other-
hand.
7Iwill
do
this
by
extracting some of the key elements
in
the
history of
thought
about
corporate theory
and
corporate regulation. I
should
point
out
that
Iwill
not
be
presenting this history
in
any
detail;
indeed
mine
will be afairly
crude
summary. The
elements Iwill refer to are concession theory,
Salomon's
case,s
and
the neoclassical
economic theory of the firm. Iwill
then
construct the
new
approach, taking into
account
the
concerns of concession theory (in so far as
it
requires arole for the state
in
corporate regulation)
and
those of contractualist theories (in so far as they require
that
the interests of corporators9be respected).
In
the process Iwill
add
my
support
to
those writers
who
seek to
abandon
the tired dichotomy
between
mandatory
regulation
and
facilitative deregulation which continues to restrict the debate
on
corporate
regulation.l0
5
6
7
8
9
10
Ibid.
Ibid.
This article
uses
the
traditional shareholder-centred
model
of
the
corporation
as its
reference point.
However
this is only apreliminary position;
the
implications
of
the
argument
which
is
put
in
the
article for
other
corporate stakeholders
have
yet
to
be
considered.
[1897] AC 22.
In
this article I
use
the
term
"corporators" to refer to
both
members
and
directors
of
a
company.
IAyres
and
JBraithwaite, Responsive Regulation: Transcending
the
Deregulation
Debate
(1992);
ACorbett,
itA
Proposal
for a
More
Responsive
Approach
to
the
Regulation
of
Corporate
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