Law Commons^™

Public Primacy In Corporate Law, Dorothy S. Lund

Seattle University Law Review

This Article explores the malleability of agency theory by showing that it could be used to justify a “public primacy” standard for corporate law that would direct fiduciaries to promote the value of the corporation for the benefit of the public. Employing agency theory to describe the relationship between corporate management and the broader public sheds light on aspects of firm behavior, as well as the nature of state contracting with corporations. It also provides a lodestar for a possible future evolution of corporate law and governance: minimize the agency costs created by the divergence of interests between management and …

Corporate Law In The Global South: Heterodox Stakeholderism, Mariana Pargendler

Seattle University Law Review

How do the corporate laws of Global South jurisdictions differ from their Global North counterparts? Prevailing stereotypes depict the corporate laws of developing countries as either antiquated or plagued by problems of enforcement and misfit despite formal convergence. This Article offers a different view by showing how Global South jurisdictions have pioneered heterodox stakeholder approaches in corporate law, such as the erosion of limited liability for purposes of stakeholder protection in Brazil and India, the adoption of mandatory corporate social responsibility in Indonesia and India, and the large-scale program of Black corporate ownership and empowerment in South Africa, among many …

Spirit Of The Corporation, Russell Powell

Seattle University Law Review

Christian theologians have analyzed the productive and destructive qualities of institutions, sometimes attributing to them human virtues and vices. In City of God, Saint Augustine describes a utopian vision of human community within a Christian context as an alternative to the flawed “City of Man.” Contemporary theologians and sociologists have described collective structures of human behavior in institutions as having a kind of “spirit” analogous to the individual human “spirit.” Institutions are then assumed to take on an existence separate from the individuals within them, and in fact, the “spirit” of an institution influences the behavior of individuals. In The …

The Grip Of Nationalism On Corporate Law, Mariana Pargendler

Indiana Law Journal

Part I provides a brief overview of the relationship between corporate law and nationalism and demonstrates their interaction in the historical experiences of several key jurisdictions. These vignettes are merely illustrative, but they indicate how deep the link between nationalism and corporate law can be. Part II summarizes the evidence on the economic effects of foreign corporate control, showing that it is ultimately inconclusive. Part III explains why corporate law can be an attractive instrument to accomplish nationalist objectives and explores the possible regulatory responses to this phenomenon. Part IV analyzes the implications of these findings for future developments in …

Corporate Oversight And Disobedience, Elizabeth Pollman

All Faculty Scholarship

Over a decade has passed since landmark Delaware corporate law decisions on oversight responsibility, and only a small handful of cases have survived a motion to dismiss. Scholars have puzzled over what it means to have the potential for corporate accountability lodged within the duty of good faith, but almost never brought to fruition in terms of trial liability.

This article explores the public-regarding purpose of the obedience and oversight duties in corporate law and provides a descriptive account of how they are applied in practice. The Article argues that the fidelity to external law required by the duty of …

Rethinking The Nature Of The Firm: The Corporation As A Governance Object, Peer Zumbansen

Peer Zumbansen

This Article attempts to bridge two discourses—corporate governance and contract governance. Regarding the latter, a group of scholars has recently set out to develop a more comprehensive research agenda to explore the governance dimensions of contractual relations, highlighting the potential of contract theory to develop a more encompassing theory of social and economic transactions. While a renewed interest in the contribution of economic theory for a concept of contract governance drives one dimension of this research, another part of this undertaking has been to move contract theory closer to theories of social organization. Here, these scholars emphasize the “social” or …

Salomon Redux: The Moralities Of Business, Allan C. Hutchinson, Ian Langlois

Allan C. Hutchinson

In this Essay, we revisit the Salomon case and its related litigation not only from a legal standpoint but also from a broader moral perspective. 4 In the second Part, we offer a detailed context for and account of the Salomon litigation. The third Part focuses on the historical roots of the corporation and the judicial arguments in Salomon. In the fourth Part, we explore the moral and legal consequences of the Salomon decision. Throughout the Essay, our ambition will be not only to give the Salomon case a more contextual and richer spin but also to tackle the relationship …

"Special," Vestigial, Or Visionary? What Banking Regulation Tells Us About The Corporation—And Vice Versa, Robert C. Hockett, Saule T. Omarova

Seattle University Law Review

A remarkable yet seldom noted set of parallels exists between modern U.S. bank regulation, on the one hand, and what used to be garden-variety American corporate law, on the other hand. For example, just as bank charters are matters not of right but of conditional privilege even today, so were all corporate charters not long ago. Just as chartered banks are authorized to engage only in limited, enumerated activities even today, so were all corporations restricted not long ago. And just as banks are subject to strict capital regulation even today, so were all corporations not long ago. In this …

The Widening Scope Of Directors' Duties: The Increasing Impact Of Corporate Social And Environmental Responsibility, Thomas Clarke

Seattle University Law Review

This Article concerns the widening scope of directors’ duties under the increasing impact of the pressures for corporate social and environmental responsibility. Narrow interpretations of directors’ duties that focus simply on the commercial success of the business and relegate other considerations to externalities are not tenable in the present context. The dawning realization of the global consequences of imminent climate change provides a series of inescapable challenges for business enterprises.

Corporations In The Flow Of Culture, Greg Urban

Seattle University Law Review

As an anthropologist, coming out of three decades of research among indigenous Brazilian populations, I naturally saw modern for-profit business corporations as tribes—the collective bearers of adaptive cultural know-how. They appeared to me to be the entities housing the culture needed to produce commodities, to trade commodities on the open market, or both. I was also, of course, aware of the legal concept of the corporation as fictive person capable of owning property and having standing in court cases, which I thought of as akin to the anthropological corporation insofar as both recognized the group as social actor. However, it …

Culture In Corporate Law Or: A Black Corporation, A Christian Corporation, And A Māori Corporation Walk Into A Bar . . ., Gwendolyn Gordon

Seattle University Law Review

Recent Supreme Court cases have entrenched a new image of corporate civic identity, assigning to the corporate person rights and abilities based upon the cultural characteristics, social ties, civic commitments, and internal lives of the human beings involved in it. This vision of the corporation is exemplified in recent cases implicating a corporate right to engage in political speech (Citizens United v. Federal Election Commission) and a right of corporations to be free of government interference regarding religious convictions (Burwell v. Hobby Lobby Stores, Inc.). Although much is being written about the soundness of the results in these cases and …

The English East India Company And The Modern Corporation: Legacies, Lessons, And Limitations, Philip J. Stern

Seattle University Law Review

The English East India Company was first chartered in 1600, endured until the late nineteenth century, and, in a clever act of corporate resurrection, has even recently returned as a global, upmarket retail outlet selling fine foods and commemorative coins. It has also endured in the popular imagination and culture, churning out heroes and villains alike in film, television, and video games. The script writer for a forthcoming BBC miniseries, in which the East India Company stars as the prime antagonist, even noted recently that the Company was like “the CIA, the NSA, and the biggest, baddest multinational corporation on …

What Might Replace The Modern Corporation? Uberization And The Web Page Enterprise, Gerald F. Davis

Seattle University Law Review

The number of public corporations in the United States has been in decline for almost twenty years. Alternative forms of organization, from LLCs and benefit corporations to Linux and Wikipedia, provide robust competition to traditional corporations, while short-lived, project-based enterprises that assemble supply chains from available parts are increasingly cost effective. Yet our understanding of corporate governance has not kept pace with the new organization of the economy and we continue to treat the public corporation with dispersed ownership as the default form of doing business. Meanwhile, many of the corporations going public in recent years have abandoned traditional standards …

Notes On The Difficulty Of Studying The Corporation, Marina Welker

Seattle University Law Review

In the award-winning documentary The Corporation, public intellectuals and activists characterize corporations as “externalizing machines,” “doom machines,” “persons with no moral conscience,” and “monsters trying to devour as much profit as possible at anyone’s expense.” In other footage, people on the street personify corporations: “General Electric: a kind old man with lots of stories;” “Nike: young, energetic;” “Microsoft: aggressive;” “McDonald’s: young, outgoing, enthusiastic;” “Monsanto: immaculately dressed;” “Disney: goofy;” “The Body Shop: deceptive.” The documentary, like screenwriter and legal scholar Joel Bakan’s book The Corporation: The Pathological Pursuit of Profit and Power, imparts dissonant messages about corporations. On the one hand, …

The Theory Of Fields And Its Application To Corporate Governance, Neil Fligstein

Seattle University Law Review

My goal here is twofold. First, I want to introduce the theory of strategic action fields to the law audience. The main idea in field theory in sociology is that most social action occurs in social arenas where actors know one another and take one another into account in their action. Scholars use the field construct to make sense of how and why social orders emerge, reproduce, and transform. Underlying this formulation is the idea that a field is an ongoing game where actors have to understand what others are doing in order to frame their actions. Second, I want …

Remarks: The Declining Role Of Outside Counsel In Enhancing Ethical Conduct By Corporations, Jed S. Rakoff

Seattle University Law Review

Judge Rakoff’s remarks from the seventh annual Berle Symposium, held May 26–27, 2015 at Seattle University School of Law.

The Rhetoric Of Negative Externalities, Claire A. Hill

Seattle University Law Review

Negative externalities are costs imposed on third parties. The paradigmatic example is pollution. A firm manufactures a product that generates toxic waste, and dumps the waste; society pays for the associated cost, including, for instance, the community’s health problems caused by the waste. Profit is supposed to measure the firm’s revenues in excess of the associated costs; because this cost is not included, the firm’s profits are higher than they should be, and there is more pollution than there should be. What is privately optimal diverges from what is socially optimal. The concept of negative externalities is intuitively appealing. It …

Agency Theory As Prophecy: How Boards, Analysts, And Fund Managers Perform Their Roles, Jiwook Jung, Frank Dobbin

Seattle University Law Review

In 1976, Michael Jensen and William Meckling published a paper reintroducing agency theory that explained how the modern corporation is structured to serve dispersed shareholders. They purported to describe the world as it exists but, in fact, they described a utopia, and their piece was read as a blueprint for that utopia. We take a page from the sociology of knowledge to argue that, in the modern world, economic theories function as prescriptions for behavior as much as they function as descriptions. Economists and management theorists often act as prophets rather than scientists, describing the world not as it is, …

The Citizen Shareholder: Modernizing The Agency Paradigm To Reflect How And Why A Majority Of Americans Invest In The Market, Anne Tucker

Anne Tucker

This Article examines corporate law from the perspective of personal investment and discusses the economic realities of modern investments in order to understand the role of shareholders within the agency paradigm. Corporate law, its scholars, and suggested reforms traditionally focus on the internal organization of the corporation. For example, agency principles inform corporate law by acknowledging a potential conflict of interest between the managers and shareholders of a corporation. Reforms such as increased shareholder voting rights and proxy access, which seek to give shareholders a more direct means to make their interests known to managers, illustrate corporate law’s focus on …

Good Faith In Revlon-Land, Christopher M. Bruner

Christopher M. Bruner

The Delaware Supreme Court has set a very high hurdle for plaintiffs challenging directors' good faith in the sale of a company. In Lyondell Chemical Company v. Ryan, the court held that unconflicted directors could be found to have breached the good faith component of their duty of loyalty in the transactional context only if they "knowingly and completely failed to undertake," and "utterly failed to attempt" to discharge their duties. In this essay I argue that the Lyondell standard effectively imports into the transactional context the exacting standard previously applied in the oversight context — a move clearly aimed …

The Future Of Socialism, Robert Paul Wolff

Seattle University Law Review

An unpromising title, this, in the seventh year of the third millennium of the Common Era; rather like “Recent Developments in Ptolemaic Astronomy” or “Betamax—a Technology Whose Time Has Come.” My grandfather’s dream, the faith of my younger days, has turned to ashes. And yet, I remain persuaded that Karl Marx has something important to teach us about the world in which we live today. In what follows, I propose to take as my text a famous statement from Marx’s A Contribution to the Critique of Political Economy1—a sort of preliminary sketch of Das Kapital2—and see what it can tell …

Hired To Invent Vs. Work Made For Hire: Resolving The Inconsistency Among Rights Of Corporate Personhood, Authorship, And Inventorship, Sean M. O'Connor

Seattle University Law Review

Corporations have long held core aspects of legal personhood, such as rights to own and divest property and to sue and be sued. U.S. copyright law allows corporations to be authors while U.S. patent law does not allow them to be inventors. To be sure, both copyright law and patent law allow corporations to own copyrights and patents as assignees. But only copyright law, through its work-made-for-hire doctrine, provides for the nonnatural person of the corporation to “be” the author in an almost metaphysical sense. Under patent law, the natural-person inventors must always be listed in the patent documents, even …

The Post-Revolutionary Period In Corporate Law: Returning To The Theory Of The Firm, Matthew T. Bodie

Seattle University Law Review

The consensus on corporate law theory has narrowed the field’s doctrinal and methodological foci. Although the vibrancy of shareholder primacy has at times been called into question as a matter of law, both boardrooms and courts have taken the normative call for shareholder wealth maximization increasingly to heart. There is little doubt that the revolution has not only substantially affected legal theory but also legislation, court decisions, and corporate behavior. It achieved a level of success unusual for an academic discipline; it not only transformed the field but also the world. We now find ourselves in the post-revolutionary period. For …

Salomon Redux: The Moralities Of Business, Allan C. Hutchinson, Ian Langlois

Seattle University Law Review

In this Essay, we revisit the Salomon case and its related litigation not only from a legal standpoint but also from a broader moral perspective. 4 In the second Part, we offer a detailed context for and account of the Salomon litigation. The third Part focuses on the historical roots of the corporation and the judicial arguments in Salomon. In the fourth Part, we explore the moral and legal consequences of the Salomon decision. Throughout the Essay, our ambition will be not only to give the Salomon case a more contextual and richer spin but also to tackle the relationship …

The Citizen Shareholder: Modernizing The Agency Paradigm To Reflect How And Why A Majority Of Americans Invest In The Market, Anne Tucker

Seattle University Law Review

This Article examines corporate law from the perspective of personal investment and discusses the economic realities of modern investments in order to understand the role of shareholders within the agency paradigm. Corporate law, its scholars, and suggested reforms traditionally focus on the internal organization of the corporation. For example, agency principles inform corporate law by acknowledging a potential conflict of interest between the managers and shareholders of a corporation. Reforms such as increased shareholder voting rights and proxy access, which seek to give shareholders a more direct means to make their interests known to managers, illustrate corporate law’s focus on …

A Shallow Harbor And A Cold Horizon: The Deceptive Promise Of Modern Agency Law For The Theory Of The Firm, David A. Westbrook

Seattle University Law Review

Modern agency law—the consensual agreement of one person to work for and under the control of another—has been widely used to provide a general framework for understanding a great deal of business law. Agency law concepts can be used to frame pedagogical, scholarly, institutional, and even political discourses. In so doing, modern agency law addresses concerns about the institution of the corporation, generally by reference to contract: institutions are created out of essentially consensual, and hence justifiable, relationships among autonomous individuals. So modern agency law is more than a “theory” of the firm in the narrow sense of theory; modern …

Consumer Lock-In And The Theory Of The Firm, David G. Yosifon

Seattle University Law Review

The advent of the modern corporation separated not only ownership from control but also production from consumption. The agency problem that arose between owners and managers of firms also emerged between producers and consumers. Just as corporations needed to lock-in capital to sustain large-scale operations, so too did they need to lock-in consumers to justify and reduce the risks of asset-specific investment. Large corporate operations succeeded because they solved both the capital and consumer lock-in challenges. This Article explores ways in which modern consumers, like shareholders, can find themselves in a very real sense locked into the corporations with which …

We Don’T Need You Anymore: Corporate Social Responsibilities, Executive Class Interests, And Solving Mizruchi And Hirschman’S Paradox, Richard Marens

Seattle University Law Review

Previously, Northern Italian, Dutch, and then English entrepreneurs had dominated global trade in turn, and when after a century or so their respective hegemonies began to show cracks, each group refocused its efforts in the service of tapping already-accumulated wealth through financial speculation and, in the process, also financed the rise of their successors.20 If Dahrendorf was correct, and American capital was managed during the era of American industrial dominance by “a class of career bureaucrats, whose primary loyalty lay with their employer rather than with a class of property owners,”21 there are good reasons to believe that that has …

The Evolution Of The American Corporation And Global Organizational Biodiversity, Ugo Pagano

Seattle University Law Review

The Evolution of the Modern Corporate Structure has been one of the most influential chapters of The Modern Corporation & Private Property. But Berle and Means’s superb analysis is framed in the American context and cannot be easily generalized to other experiences. Their corporate model arose in a democratic country where “production engineers” commanded more respect than financiers and capitalist dynasties. Other countries followed different organizational paths, characterized by different institutional complementarities between labor and financial markets that generated “concentrated equilibria” different from the American “dispersed equilibrium.” This Article argues that the divide can be traced to the different aristocratic …

Theories Of The Firm And Judicial Uncertainty, Andrew S. Gold

Seattle University Law Review

There is no necessary connection between academics’ theories of the firm and judicial theories of the firm. Economists and legal scholars may adopt one theory of the firm, and courts may adopt another. We might even predict this result. Judges are not economists, and as increasingly sophisticated theories of the firm emerge in the academic literature, judges are not well-positioned to keep pace with the evolving accounts. Indeed, judges may reasonably choose to adopt no theory at all. Given these premises, this Essay explores the relationship between academically developed theories of the firm and corporate legal doctrine. Legal scholars who …