Placing Corporate Law Within a Political Context

The Corporation as Imperfect Society by Brian M. McCall articulates a corporate metaphysics rooted in the political philosophy of Aristotle. The dominant models of corporate law and philosophy are rooted in the realm of private law, especially contract, agency and property law. Corporations are viewed as a nexus of contracts or as vehicles for joint ownership of a private pool of economic assets. The result has been entrenchment of the principle of shareowner wealth maximization.

By viewing them in the context of public law, not private ordering, corporations are seen as a constituent part of larger societies whose operation must be harmonized to the common good.  McCall goes on to show that while his vision differs from current commentary, corporate law practices are actually more consistent with his vision than the shareholder wealth maximization standard. While this later point reinforces the veracity of his argument, it also leaves at least this reader wondering, “if we embrace McCall’s philosophy of corporate law, what difference will it make?”

Don’t get me wrong, I enjoyed McCall’s trip from Aristotle’s definition of community, to recognition by Medieval jurists of the quasi-political nature of the corporate form, and the incorporation of the Averdeen Harbor Board in 1126, arguably the first profit making business. His critique of contract law and stakeholder theory were also persuasive. I’m convinced that a constitutional understanding of the nature of a corporation better explains the results of corporate law cases than a shareowner wealth maximization model rooted in contract or property law. We leave the paper with better alignment between theory and practice but shouldn’t a change in theory result in a change of practice? We only get hints of how that project might proceed.

According to McCall, “the nation has the competence and the right to restrain corporations when in pursuit of their imperfect end they harm the common good of the nation.” In pursuit of their own ends, corporations will create externalities that should be regulated. Directors and managers must be mindful and consider the larger public good in their decisions. Secondly, directors and managers must also consider the common good of the entire corporate community. “No decision should merely advance the particular good or harm of a group. Also cost should not be disproportionally inflicted out of proportion to the common good on one group in particular.”

With respect to the assertion that nations have the competence and the right to restrain corporations, is that really true? Multinational corporations owe no allegiance to any one country. Are individual nations really competent to regulate them, especially given constraints like the decision in Citizens United, which seems to give corporations undue influence over the political sphere? With respect to determining the common good within the corporate community, how do we ensure the views within that community are known by and represented by directors and managers? We don’t seem to even know the boundaries of the corporate community, let alone having common best practices with regard to internal governance structures guaranteeing any real degree of representation. We’ve had enormous difficulty just trying to move from self-perpetuating boards to giving shareowners direct input into nominating up to a quarter of the boar through proxy access, how do we ensure the interests of employees and others are also represented?

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