Understanding and Regulating the Corporation
| Date | 01 July 1995 |
| Published date | 01 July 1995 |
| DOI | http://doi.org/10.1111/j.1468-2230.1995.tb02035.x |
REVIEW ARTICLE
Understanding and Regulating the Corporation
Christopher
A.
Riley
*
Joseph McCahery,
Sol
Picciotto and Colin Scott (eds),
Corporate Control and
Accountability, Oxford: Clarendon Press, 1993, xv
+
450
pp, hb
E45.00.
We live
in
a corporate economy.
Goods
and services are overwhelmingly
produced and supplied not by individuals working on their own account, but by
corporations, and increasingly by very large corporations. This is hardly an
original or challenging observation, but it has obvious significance for those
working in a wide range of legal fields. For company lawyers, labour lawyers,
consumer lawyers, environmental lawyers, and no doubt many others, the targets
of their regulatory strategies will usually be corporations. And in answering the
normative and strategic questions all such lawyers must ask
-
What goals should
we be seeking to achieve? How best can we achieve those goals?
-
some model of
the corporation is necessary.
Company law itself
-
at least insofar as it addresses the large corporation
-
has
relied heavily upon a model informed by ‘managerialism.’ Large corporations are
frequently controlled not by their owners (the shareholders), but by their senior
managers. This is seen as having normative implications for the proper goals of the
corporation,’ as well as descriptive and strategic implications, in that companies
in which managers are in control behave differently and respond differently to
regulatory norms
.2
More recently, however, an alternative paradigm3
-
hereafter ‘contractarianism’
-
has challenged this established model. Its
foundations lie in the economic analysis of firms and of law. Descriptively, it
declares the company to be a ‘nexus of contracts’ between a number of different
actors interested in its business
-
managers, shareholders, employees, consumers
and
so
forth. Normatively, it advocates freedom of contract, market regulation and
only limited legal intervention to overcome market failure. Contractarians have
thus subjected managerialism’s conceptual framework, and many of its normative
assumptions, to a sustained onslaught. In
so
doing, they have engendered a
stimulating debate, forcing opponents of their approach to rethink, clarify and
justify their positions.
Corporate Control and Accountability
(hereafter ‘CCA’)
-
a collection of 19
essays (plus Introduction)
-
both reflects and contributes to this debate. The
subject matter
of
these essays is, in fact, admirably wide-ranging, pursuing a large
*Law School, University of Hull.
Thanks to Cosmo Graham, William Lucy and the
MU’S
anonymous reader for helpful comments. The
faults and weaknesses remain mine.
1
So,
one influential strand of thought within managerialism has argued that the fact that shareholders
are no longer in control of the corporation undermines the assumption that shareholders’ interests
should take priority over the interests
of
other stakeholders within the corporation.
2
See generally Parkinson,
Corporare
Power
and
Responsibility
(Oxford: Clarendon Press,
1993)
ch
2.
3
It is important here not to assume homogeneity in the views of those advocating this paradigm, for it is
woven from many intellectual threads. See n
7
below and the text therewith.
0
The Modem Law Review Limited
1595
(MLR
58:4,
July). Published by Blackwell Publishers,
108 Cowley Road, Oxford
OX4
1JF
and
238
Main Street, Cambridge, MA
02142,
USA.
595
fie
Modern
Law
Review
[Vol.
58
number of important themes concerning company law and the regulation of
corporations. Most of these essays are thoughtful and stimulating, representing the
mere tip of a whole body of scholarship which the reader is left eager to discover.
The majority of the contributors are academic lawyers, but include a number of
authors from other disciplines, namely sociology, economics and accountancy. As
noted, however, the text
aims
to
be
more than merely a collection of (individually
valuable) essays. It has a holistic goal, namely to ‘offer the first sustained attempt
to transcend the new institutionalist! and contractarian visions which, during the
1980s,
became the mainstream perspectives in academic and policy-oriented
discussions of the corporation’
(p
1,
footnote added).5 Given the range of essays
included, it is necessary to be rather more selective in the essays chosen for
discussion here than would be desirable in the absence of constraints of space and
constraints in the reviewer’s knowledge.6 And, given the text’s own stated goal
of challenging contractarianism,
this
review will focus around that challenge,
selecting some of the essays which relate most closely to that debate.
Part
I
of
this
review begins by sketching out the contractarian paradigm and
develops three themes therefrom: its description of the corporation, its explanation
for the emergence of the corporation and its prescription for corporate regulation.
Part
II
looks at some of those essays in CCA which address different aspects of
these themes. Part
111
returns to managerialism, examines whether it continues to
offer any useful insights into the corporation and its regulation, and offers a brief
comment on some of the remaining essays not discussed elsewhere.
I
The
contractarian paradigm
It is important to stress that contractarianism arises out of the work
of
a range of
authors, both lawyers and economists. Different authors build on different
foundations, constructing nuanced versions of the contractarian model. One
immediate problem with CCA is that
it
offers only the very briefest sketch of (only
some
of)
these different positions (see p
4).
This causes two difficulties. The first
is that the reader uninitiated in the contours of the contractarian debate would
surely have some difficulty in appreciating what is actually at stake in
this
debate.
Secondly, and more significantly, it is unclear how far some of the text’s
apparently devastating arguments against one version of the contractarian
paradigm are already conceded by other versions thereof. Accordingly, we must
begin by offering a rather fuller account of what forms the contractarian paradigm
takes. Although it undoubtedly simplifies what is a much more complex history of
ideas, one established categ~risation~ divides contractarians between those whose
work falls within mainstream neoclassical economic analysis, in terms of its
assumptions and methodology, and those who follow less
orthodox
lines, including
4
This is a reference
to
one strand of analysis within the contractarian paradigm;
see
n 8 below and the
text therewith.
5
All
page numbers in parentheses refer to CCA unless otherwise stated.
6
On this ground,
I
do not deal with the essay by Teubner, ‘The Many-Headed Hydra: Networks as
Higher-Order Collective Actors.
’
7
See
Putterman
(ed),
The
Economic
Nature
of
the
Firm
(Cambridge: Cambridge University Press,
1986)
pp
19-25; Bratton
Jr,
‘The “Nexus of Contracts” Corporation: A Critical Appraisal’ (1989)
74
Cornell
L
Rev
407,
420-423; Mitnick, ‘The Theory of Agency and
Organizational
Analysis’
in
Bowie and Freeman (eds),
Ethics
and
Agency
Theory
(New York: Oxford University Press, 1992).
0
The
Modern
Law Review
Limited
1995
596
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