Classes are back in session and I'm teaching Corporations to a whole new batch of future lawyers. Here's my course summary:
The corporation can be understood as a solution to the problem of encouraging investment in socially beneficially ventures in spite of high risk. By separating ownership from control, the corporate vehicle limited investor risk to the amount of their investment. This innovation, together with the limitless duration of the corporate entity and free transferability of its ownership interests, has led to the current global dominance of the corporate form as a capital accumulation device. This "corporate solution" has given rise to its own problems, however. These can be broadly divided into three categories: (1) the "agency problem" of aligning managerial interests with those of the shareholders/owners; (2) the problem of unfair domination of minority shareholders by majority shareholders; and, (3) the problem of protecting the interests of corporate stakeholders such as employees, creditors, and the general community, without unduly limiting the corporation's growth potential. This course will examine the ways in which the law seeks to balance these often competing interests.
One could argue that the "agency problem" lies at the root of our current financial crisis — from the apparent failure of boards of directors to effectively monitor what was going on at their corporations in terms of risk exposure, to managers actively pursuing excessive risk because the fat bonus checks would all be cashed by the time the house of cards crumpled. Obviously, executive compensation is a hot topic when it comes to this issue, and you can go here for a look at how regime change may impact this area.
Here's to an interesting semester. Stay warm!
{ 2 comments… read them below or add one }
Stefan,
I regard the reform of corporate law, no less than constitutional law, to be key to achieving equality and prosperity. Like many millions of other Americans, I trusted corporate America with my family's savings – our hard-earned capital – and nearly half of it seems to have disappeared without a trace. The corporate system and capitalism itself has enjoyed broad popular support because of the widespread ownership of business, industry, and financial institutions through stockholding, but if corporate law is unable to protect our interests – if workers and shareholders can be exploited through financial manipulation – then another system altogether may have to be adopted to assure that the people who do the work enjoy the rewards. Like feudalism and plantation slavery and communism, people won't forever abide a system that exploits them.
I don't know what the solutions are in your field of law. I look forward to seeing your proposals for reform.
My current research project argues that Constitutional limitations should more frequently be applied to corporate actors because their power and influence over government makes them at times de facto "state actors". Here is an excerpt from the current draft you might enjoy:
"In her article entitled 'The Corporation as Sovereign,' [60 Me. L. Rev. 129, 163 (2008)] Professor Allison Garret notes that:
'The implications of the nation-state metaphor as a way of viewing corporations are significant. To the extent that the transformation continues, the power of the vote in a democratic society may be eroded by the power of votes purchased through share ownership and the roles that our elected officials play may become less important than the roles played by corporate executives.'
Perhaps the proposal set forth in this Article may play some small part in stemming the tide of this movement toward corporate sovereignty."
In a footnote to this text I also cite the following:
Azizah Y. al-Hibri, The American Corporation in the Twenty-First Century: Future Forms of Structure and Governance, 31 U. Rich. L. Rev. 1399, 1451 (1997) (“This is analogous to a familiar political situation in our past where only landowners had the right to vote in an election and the non-landed, non-owners had no voting rights. We have since recognized in the political arena that those who do not own land are nevertheless an integral part of the citizenship of our country. The same recognition seems to be overdue in corporate law and practice. Getting to it, however, will require a major ideological/conceptual shift not only in the concept of ‘corporate citizenship,’ but also in the concept of the ‘corporation’ itself.”).