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ABSTRACT
This article examines the current debate advocating ‘business purpose' as an alternative to the common view that business should focus only on profit maximisation. A legal analysis reveals that ‘business purpose’ should be conceived as embracing a plurality of different normative intentions, goals, and objectives. The article provides a theoretical foundation for further development of a normative account of firms that embraces purposes not only of profit-making but also following the law, taking account of ethical duties, and orienting actions to address social, political, and environmental issues. This understanding provides a foundation for future research to engage policy debates through a method of reflective, iterative normative reconstruction of business laws, principles, and practices.
Acknowledgements
I am grateful for comments received at an interdisciplinary conference held at the London School of Economics and Political Science on institutional theories of the firm, including those specifically from Sandrine Blanc, Rutger Claassen, Simon Deakin, Joshua Getzler, and Isabelle Ferreras, and especially from David Gindis and Eva Micheler who co-organised the conference. I am also grateful for comments provided at a conference held at the University of Toronto in honour of my late colleague Waheed Hussain, who spent the early portion of his illustrious but too-short career at Wharton. Thanks also to colleagues in my department at Penn who provided comments during a presentation there. Specific thanks owe to Brian Berkey, Brookes Brown, Julie Orts, Amy Sepinwall, Richard Shell, Nina Strohminger, and David Zaring. I also very much thank Luca Enriques and two anonymous referees for this journal who made very helpful suggestions for expansion and improvement.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 I use the word ‘firm’ here to refer to any business organisation, following the usage of economists and most business scholars. ‘Firm’ is therefore interchangeable here with ‘business organisation,’ a term which some other social scientists, including legal academics, may prefer. Cf. Eva Micheler, Company Law: A Real Entity Theory 23 (2022).
2 Other relevant disciplines include philosophy, sociology, anthropology, psychology, and history – as well as economics!
3 With respect to the legal foundations of firms, see, e.g., Eric W. Orts, Business Persons: A Legal Theory of the Firm (rev. ed. 2015); H.L.A. Hart, ‘Definition and Theory in Jurisprudence,’ in Essays in Jurisprudence and Philosophy (1983). Basic courses in corporations and enterprise organisation in law schools introduce the legal normative framework of firms, as well as relevant principles of economics. See, e.g., William A. Klein, John C. Coffee, Jr. and Frank Partnoy, Business Organization and Finance: Legal and Economic Principles (11th ed. 2010). For an example of an ‘old school’ legal text in the United States written prior to the dominant influence of law-and-economics in the field, see Alfred F. Conard, Corporations in Perspective (1976).
Competing normative frameworks for ethics is a vast and complex topic as well, and introductory courses in philosophy and business ethics commonly provide an overview of deontological, consequentialist, virtue ethics, and social contract approaches. For an ambitious effort to provide a unified theory of ethical obligations, see Derek Parfit, On What Matters (2011), vol. 1. For an argument defending the objectivity of moral truths, see James Lenman, ‘Making Sense of Ethics: An Introduction to Metaethics,’ Open Press, Tilburg University, July 7, 2023, https://openpresstiu.pubpub.org/pub/making-sense-of-ethics/release/1.
4 For one recent philosophical account of how and why business leaders retain moral responsibilities when acting within corporate structures, see Alan Strudler, ‘The Contours of Corporate Moral Agency,’ Law and Philosophy (July 8, 2023) (published online), https://link.springer.com/article/10.1007/s10982-023-09477-x. Axel Honneth provides an important account, updating earlier insights particularly in the work of Hegal and Durkheim, of the role of ethical life in the development of market economies and business firms. His critique includes an assessment of social ‘misdevelopments’ by which collective actions have become separated from normative foundations. Axel Honneth, Freedom’s Right: The Social Foundations of Democratic Life (Joseph Ganahl trans. 2014) (2011).
5 For a detailed historical, political, and social psychological account of the influence of economics (particularly of the ‘Chicago School’ variety) on contemporary corporate law, see Ronald Chen and Jon Hanson, ‘The Illusion of Law: The Legitimating Schemas of Modern Policy and Corporate Law,’ 103 Michigan Law Review 1 (2004). For a broader critique of the influence of ‘market fundamentalism,’ see Noami Oreskes and Erik. M. Conway, The Big Myth: How American Business Taught Us to Loathe the Government and Love the Free Market (2023). For a recent example with respect to the development of theories of the firm, assuming economic rationality as the principal method of inquiry, see Dhammika Dharmapala and Vikramaditya S. Khanna, ‘Controlling Externalities: Ownership Structure and Cross-Firm Externalities,’ 23 Journal of Corporate Law Studies 1 (2023). For a very influential theoretical contribution that promoted the ‘Chicago School’ trend in corporate law, see Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of Corporate Law (1996).
6 For an influential example, see Rebecca Henderson, Reimagining Capitalism in a World on Fire: How Capitalism Can Save the World (rev. ed. 2021). See also Colin Mayer, Firm Commitment: Why the Corporation Is Failing Us and How to Restore Trust in It (2013); Colin Mayer, Prosperity: Better Business Makes the Greater Good (2018); Colin Mayer, Capitalism and Crises: How to Fix Them (2024). For a sampling of other works making this general argument, see Alex Edmans, Grow the Pie: How Great Companies Deliver Both Purpose and Profits (2020); Tom C.W. Lin, The Capitalist and the Activist: Corporate Social Activism and the New Business of Change (2022), ch. 1; Judith Rodin and Saadia Madsbjerg, Making Money Moral: How a New Wave of Visionaries Is Linking Purpose with Profit (2021), ch. 1; Judy Samuelson, The Six New Rules of Business: Creating Real Value in a Changing World (2021), ch. 2; Witold J. Henisz, ‘The Value of Organizational Purpose,’ 8 Strategy Science (May 9, 2023) (published online version), https://doi.org/10.1287/stsc.2023.0195.
For recent contributions in the legal literature that take more critical perspectives, see Ofer Eldar, ‘Designing Business Forms to Pursue Social Goals,’ 106 Virginia Law Review 937 (2020); Lisa M. Fairfax, ‘Stakeholderism, Corporate Purpose, and Credible Commitment,’ 108 Virginia Law Review 1163 (2022); Jill E. Fisch and Steven Davidoff Solomon, ‘Should Corporations Have a Purpose?,’ 99 Texas Law Review 1309, 1312 (2021).
The idea of focusing specifically on ‘business purpose’ rather than only profits has been around for at least a decade. See, e.g., Paul Polman, ‘Re-establishing Trust: Making Business with Purpose the Purpose of Business’ in Re-Imagining Capitalism: Building a Responsible Long-Term Model (Dominic Barton et al. eds. 2016), ch. 2. See also Colin Mayer, ‘What Is Wrong with Corporate Law? The Purpose of Law and the Law of Purpose,’ 18 Annual Review of Law and Social Science 283 (2022) (providing historical perspective).
7 A casual empirical survey confirms also that different firms have a plurality of differences purposes, but I do not rely here on formally specified empirical observations. Note, however, many and probably most contemporary economic accounts assume a profit maximisation objective without an empirical basis for this assumption either. For the most part, the profit maximisation assumption is built-in through a priori assumptions in economic and financial models of the firm rather than through observation of managerial behaviour and explanations of actual observed behaviour.
8 See, e.g., Emilie Aguirre, ‘Beyond Profit,’ 54 University of California Davis Law Review 2077, 2081 (2021) (‘Companies with objectives beyond profit offer significant potential for social and economic impact. They can leverage economies of scope to help solve some of society's most pressing problems and address untenable externalities, sometimes even more effectively and efficiently than current approaches by the government or charitable sector, and other times as an important complement to these sectors.’). See also Fisch and Solomon (n 6) at 1312 (noting a focus on corporate purpose can enable ‘corporate participants to formalize their goals and priorities, which can include not just the pursuit of profits, but the incorporation of operational constraints, stakeholder values, and social impact’).
9 Nor are they new. For historical background focusing on the United States, see William C. Frederick, Corporation, Be Good! The Story of Corporate Social Responsibility (2006). Various antecedents include advocates of corporate social responsibility and stakeholder theory. On different versions of stakeholder theory in business ethics (including instrumental and normative theories), see Thomas Donaldson and Lee E. Preston, ‘The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,’ 20 Academy of Management Review 65 (1995).
10 In this respect, my aim here departs from Professor Witold Henisz’s recommendation that ‘research on organizational purpose should turn its attention from legal and moral foundations to empirical research on externalities, stakeholder opinions, and managers’ self-representations of their organization’s purpose.’ Henisz (n 6). On the contrary, I see research and careful analysis of the legal and moral foundations of the scope of organisational commitment as essential to the very possibility and potential range of the empirical dimensions that Henisz proposes to measure.
Without attention to normative foundations, there is also a danger that major assumptions will be made without sufficient justification. Henisz, for example, seems to adopt long-term profit maximisation as a goal – a version of an instrumental stakeholder theory – but he provides no argument or justification for this normative choice.
11 The just war constraint highlights two dimensions of normative limitations on legitimate purposes: legal and moral. For example, a firm that makes military weapons might legally sell them to a regime that prosecutes an unjust war, but this would be wrong from a moral perspective. Its profit-making would be legally but not morally permissible. For an overview of debates concerning just war theory, see Seth Lazar, ‘War,’ Stanford Encyclopedia of Philosophy (May 3, 2016), https://plato.stanford.edu/entries/war/. For a more recent synthetic deontological account, see also Arthur Ripstein, Kant and the Law of War (2021). For an application specifically to business decision-making, see also Eric W. Orts, ‘War and the Business Corporation,’ 35 Vanderbilt Journal of Transnational Law 549 (2002).
12 For a seminal recent philosophical treatment of the value of ‘freedom’ in our contemporary market economy, including firms, and what this value requires, see Waheed Hussain, Living with the Invisible Hand: Markets, Corporations, and Human Freedom (2023). As Hussain argues, the freedom of business organisations and of the individual participants acting within them is constrained by larger imperatives of economic market systems. These larger systems are empowered by legal structures and therefore can also be conditioned and shaped through the political reform of these legal structures. Similarly, Axel Honneth frames ‘individual freedom’ as a central value in his social theory, which includes a critique of modern markets and their embrace of contemporary economic analysis to the exclusion of normative expectations and ethical foundations. Honneth (n 4).
13 See, e.g., Michael C. Jensen, ‘Value Maximization, Stakeholder Theory, and the Corporate Objective Function,’ 12 Business Ethics Quarterly 235 (2002).
14 Id. at 237
15 For a symposium on the topic of ‘corporate purpose,’ including overviews of evidence of win-win solutions, see IESE ECGI Conference on Corporate Purpose, ‘Can Purpose Deliver Better Corporate Governance?’ 33 Journal of Applied Finance 41 (2021).
16 This quotation comes from a source that reveals the ideological slant of this conviction. The view of an ‘individual’s purpose’ is stated as given. Corporate Finance Institute, ‘Neoclassical Economics,’ https://corporatefinanceinstitute.com/resources/knowledge/economics/neoclassical-economics/ (visited Dec. 10, 2023). Note that there are other competing theories of economics. And the analogy drawn here between an individual’s purpose to maximise ‘utility’ as compared with a firm’s purpose to maximise ‘profits’ omits the fact that ‘utility’ under most philosophical and economic conceptions is much broader than ‘profits.’ For an example of why this matters even in theories of the firm that follow a shareholder-primacy understanding, see Oliver Hart and Luigi Zingales, ‘Companies Should Maximize Shareholder Welfare Not Market Value,’ 2 Journal of Law, Finance, and Accounting 247 (2017).
17 Henderson (n 6) at 9. As discussed in this paper, this view about fiduciary duty is, legally, wrong – or, at a minimum, contested in different circumstances.
18 Lyman Johnson, ‘Unsettledness in Delaware Corporate Law: Business Judgment Rule, Corporate Purpose,’ 38 Delaware Journal of Corporate Law 405, 437–38 (2013) (citing Darrel West, The Purpose of the Corporation in Business and Law School Curricula, Governance Studies at Brookings (July 19, 2011), https://www.brookings.edu/wp-content/uploads/2016/06/0719_corporation_west.pdf).
19 See David Gelles, The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America—and How to Undo His Legacy (2022). Welch followed the ideology of Milton Friedman and others who argued that ‘companies should maximize profits for shareholders,’ and he accomplished this objective through managerial methods including downsizing employees, corporate deals through mergers and acquisitions, and conversion of GE to a mostly financial firm from a mostly manufacturing one. Id. at 3–4.
20 Id. at 5, 41–50. Welch even referred to his downsizing strategy as a ‘campaign against loyalty.’ Id. The nickname compared Welch’s strategy to a neutron bomb which destroys people but leaves buildings and other infrastructure standing. See also Oreskes and Conway (n 5) at 362.
21 Gelles (n 19) at 9 (including CEOs at well-known companies such as AlliedSignal, Boeing, Chrysler, Fiat, 3M, Goodyear, Home Depot, Honeywell, Nielson, Owens Corning, Rubbermaid, Stanley, and TiVo). At the end of his career, Fortune went so far as to name Welch ‘Manager of the Century.’ Id. at 7, 91.
22 For an influential view that spells out how and why the law does not necessarily support shareholder value as the ultimate objective of firms, see Lynn Stout, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public (2012). There is legal authority in the U.S. to the contrary, holding that shareholder profit maximisation is legally required at least in some circumstances, but these mostly arise in the context of corporate control cases. See, e.g., eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1 (Del. Ch. 2010) (holding that a shareholder wealth maximisation norm applies in a close corporation control context); Revlon, Inc. v. MacAndrews and Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986) (applying shareholder wealth maximisation standard in ‘sale of control’ hostile takeover context). However, it is nevertheless becoming standard to recognise the decline and fall of shareholder wealth maximisation as a mandatory corporate objective even in the context of strongly market-oriented laws in the United States. See Lynn M. LoPucki, ‘The End of Shareholder Wealth Maximization’, 56 University of California Davis Law Review 2017 (2023) (laying out how scholars have debunked six main arguments in favour of shareholder wealth maximisation). For a critique specifically of the eBay case, see also David A. Wishnick, Comment, ‘Corporate Purposes in a Free Enterprise System: A Comment on Ebay v. Newmark,’ 121 Yale Law Journal 2405 (2012).
23 See Hart and Zingales (n 16).
24 For a legal theory of the firm that adopts a broad view of business participants to include, in particular, employees and other internal agents, see Orts (n 3) at 3–27, 43, 54–62, 133–37. For a normative argument that modern market economies and business firms within them owe ethical duties of fairness and mutual recognition particularly to employees, see Honneth (n 4) at 178–98, 223–53.
25 Even Welch followed some basic ethical principles as well, perhaps foremost among them ‘candor’ and the need to establish ‘trust’ within a business organisation, though he may have seen these principles as instrumental to his overarching goal of profit maximisation. Claudio Fernández-Aráoz, ‘Jack Welch’s Approach to Leadership,’ Harvard Business Review (Mar. 3, 2020), https://hbr.org/2020/03/jack-welchs-approach-to-leadership; Dana Severson, ‘The 8 Rules of Leadership by Jack Welch,’ Inc. [undated], https://www.inc.com/dana-severson/these-8-simple-rules-of-leadership-from-jack-welch-are-more-important-now-than-ever-before.html.
26 On the importance of relatively short time horizons and payback periods necessary to sustain private business enterprises, see Avner Offer, Understanding the Public-Private Divide: Markets, Governments, and Time Horizons (2022). It is also true that many nonprofit organisations depend on this requirement of not spending more than one has in order to remain viable over time. When costs exceed revenues these organisations also effectively ‘go out of business.’ The received conceptual separation between ‘for-profit’ and ‘not-for-profit’ enterprises is traditionally focused on the distribution of earnings (especially in tax law). However, this traditional understanding might be usefully questioned, though this inquiry lies outside the scope of this paper. For an argument challenging the received wisdom on the lines separating for-profit and nonprofit enterprise, particularly with respect to tax law, see Anup Malani and Eric A. Posner, ‘The Case for for-Profit Charities,’ 93 Virginia Law Review 2017 (2007).
In this connection, it is interesting to note that the formal legal split between ‘profit’ and ‘nonprofit’ corporations in the United States appeared only around 1873, when the state of Pennsylvania decided to adopt separate legal codes for ‘corporations for profit’ and ‘corporations not for profit.’ Jonathan Levy, Ages of American Capitalism: A History of the United States 293 (2021). The advent of ‘hybrid forms’ known as ‘social enterprises’ that are explicitly both ‘for profit’ and ‘not-only-for-profit’ also deserve attention and may further blur any hard legal lines separating for-profit and not-for-profit organisations. See, e.g., Dana Brakman Reiser and Steven A. Dean, Social Enterprise Law: Trust, Public Benefit and Capital Markets (2017); Eldar (n 6).
27 Again, this is also true of nonprofit enterprises, which have costs as well as income streams, and income must exceed or at least balance costs over time for an enterprise to remain viable. The line traditionally drawn between ‘profit’ and ‘nonprofit’ enterprises is one that would benefit from further scrutiny.
28 For an early and still persuasive account, see Max Weber, Economy and Society: An Outline of Interpretive Sociology (Guenther Roth and Claus Wittich eds. 1978), vol. 1, 91. See also Joseph A. Schumpeter, Capitalism, Socialism and Democracy (1976) (1942), 123 (defining ‘rational cost-profit calculations’ as ‘the logic of the business enterprise’).
29 See, e.g., Lenman (n 3); Strudler (n 4).
30 See Eric W. Orts and Alan Strudler, ‘The Ethical and Environmental Limits of Stakeholder Theory,’ 12 Business Ethics Quarterly 215, 221 (2002). There are, however, exceptions to the rule. Sometimes business firms as well as everyday people may have a moral obligation to disobey the law. Corporate disobedience may be justified in the pursuit of a higher moral purpose, including a business innovation that would increase social welfare. See, e.g., Elizabeth Pollman, ‘Corporate Disobedience,’ 68 Duke Law Journal 709 (2019).
31 Someone may object that following the law is not a ‘purpose’ or ‘objective’ but rather a normative ‘constraint’ imposed on businesses. Relatedly, one might say that following the law is a necessary part of ‘managing’ a business, but not directly relevant to setting its objective. Or someone may object that following the law is at most a secondary purpose or objective to the primary one of the pursuit of profits. These objections, though, parse words and the idea of ‘purpose’ too grudgingly. All purposeful activities take place within a social setting of background assumptions of following the law or not (with occasional departures both large and small), and this means that a number of different normative systems are at work in the formation of our everyday purposes and intentions. Phenomenologically speaking, in other words, all decisions and actions often involve at least several different intentions and background assumptions. This sociological and philosophical recognition supports my overall argument that reductionist economic versions of business purpose or objective are too narrow, too abstract, and too unrealistic.
32 In fact, the law has become so complex in many modern societies that always following the law in every respect and all circumstances is impossible for any large organisation. This means trade-offs must be made internally, for example, between expenditures on legal compliance and profitable operations. This difficulty, however, does not obviate the normative imperative that it’s important to try to follow the law. There is reason also to believe that compliance systems can be very effective. See, e.g., Stavros Gadinis and Amelia Miazad, ‘The Hidden Power of Compliance,’ 103 Minnesota Law Review 2135 (2019).
33 I recognise that this is an ideal account that omits the fact that many people in almost all societies today struggle to find any job that will provide themselves or their families with basic subsistence (i.e., food, water, housing, etc.). In these circumstances, employment options are minimal and work choices become socially forced.
34 This formulation borrows from, but contrasts with, the view of Professor Roberta Romano that the ‘master problem’ in corporate law relates instead to the separation between ownership and control. Roberta Romano, ‘Metapolitics and Corporate Law Reform,’ 36 Stanford Law Review 923, 923, 929 (1984). Although very influential, Romano’s formulation adopts an overly narrow view of the economic agency costs internal to business firms organised as corporations, where the objective of the law (as well as internal organisation) is assumed to be the reduction of the organisational costs to individual residual equity owners of assets of the firm. My argument tracks Romano’s broader theme, however, in opening up what she calls the ‘metapolitics’ of the debate about how we conceive of business and its purposes in relation to other institutional structures in society, including law and government. An alternative subtitle of this article might even be ‘The Metapolitics of the Firm Revisited.’
35 For an account of how modern economic methods follow, and often refuse to depart from, nineteenth century mathematical models in physics, see Philip Mirowski, More Heat Than Light: Economics as Social Physics, Physics as Nature’s Economy (1989), especially chs. 5 and 6. See also Robert Heilbroner and William Milberg, The Crisis of Vision in Modern Economic Thought (1995), 102–05.
36 See Rej Chetty, ‘Yes, Economics Is a Science,’ New York Times (Oct. 20, 2013), https://www.nytimes.com/2013/10/21/opinion/yes-economics-is-a-science.html.
37 Honneth (n 4) at 184–85. See also Amartya Sen, Rationality and Freedom (2002), 22–26 (discussing how ‘self-interest maximization’ is ‘dominant in contemporary economics’).
38 Honneth (n 4) at 177, 180–82, 185.
39 Adam Smith, An Inquiry into the Causes of the Wealth of Nations (Edwin Cannan ed. 1977) (1776); Adam Smith, The Theory of Moral Sentiments (D.D. Raphael and A.L. Macfie eds. 1976) (1759). On the resurgence of interest in Smith’s moral philosophy and its relation to economics, see Stephen Darwall, ‘Sympathetic Liberalism: Recent Work on Adam Smith,’ 28 Philosophy & Public Affairs 139 (1999).
40 Orts (n 3) (drawing mostly on U.S. sources). See also Micheler (n 1) (using mostly U.K. legal materials); Simon Deakin et al., ‘Legal Institutionalism: Capitalism and the Constitutive Role of Law,’ 45 Journal of Comparative Economics 188 (2017) (arguing also for the institutional importance of law, particularly regarding ‘contracts,’ ‘property,’ and ‘firms’). See also Part II below.
41 Leena Lankoski and N. Craig Smith, ‘Alternative Objective Functions for Firms,’ 31 Organization and Environment 242, 259 and n. 2 (2018) (quoting Limited Liability Companies Act, ch. 1, §5).
42 Some commentators refer only to corporations and their equity holders, namely shareholders, when discussing theories of the firm. It is important to recognise the existence of many other business forms, including sole proprietorships, general and limited partnerships, limited liability companies, business trusts, complex relational firms that combine different forms, and relatively new social hybrid business forms such as benefit corporations. See Orts (n 3), ch. 5. Variations appear also in different countries, though there are lots of legal ‘transplants’ resulting in more similarities of business structure in the world than one might think at first. Cf. Alan Watson, Legal Transplants: An Approach to Comparative Law (2d ed. 1993) (on the interpenetrating influence of different legal systems and ideas). Perhaps the largest divide is the extent to which a particular society encourages free-enterprise structures (e.g. the UK or US) or state-owned firms (e.g. China).
43 Differences in definition may emerge in borderline cases such as pirates and gangs in economic or sociological understandings of ‘firms’ as group entities or collectives engaged in economic practices, even if they are pursuing illegitimate objectives. The law may also treat these entities as organisations for purposes of imposing criminal liability for ‘conspiracies’ or ‘organized crime,’ but it does not recognise them as having legal powers to hold property, make contracts, or otherwise engage in legitimate business activities. Another kind of borderline cases arise when otherwise legitimate firms act illegitimately. See, e.g., Katharina Pistor, The Code of Capital: How the Law Creates Wealth and Inequality (2019).
44 Milton Friedman, ‘A Friedman Doctrine – The Social Responsibility of Business Is to Increase Its Profits,’ New York Times, Sept. 13, 1970, https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html. See also Henderson (n 6) at 12 (describing Friedman as ‘perhaps the most influential intellectual force in popularizing this idea … that ‘there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits’’). The idea of profit maximisation in economics preceded Friedman, though early debates on this topic in the 1930s through the 1960s revolved around whether profit maximisation descriptively fit the actual behaviour of firms, which could then be modelled accordingly. For accounts of the influence of Friedman, see, e.g., Hussain (n 12) at 4–5, 51–52, 188; Oreskes and Conway (n 5) at 4–9, 259–83.
45 For a more extended argument along these lines focusing on corporate law, but applicable to the law of business organisation more generally, see Eric W. Orts, ‘The Complexity and Legitimacy of Corporate Law,’ 50 Washington and Lee Law Review 1565 (1993).
46 Orts (n 3), chs. 1 and 2. On the importance of law in the construction of capital, including in trusts, corporate enterprises, securities, and various intangible assets, see also Pistor (n 43).
47 Orts (n 3), ch. 4.
48 Consider, for example, Derek Parfit’s ‘triple theory’ that includes deontology, consequentialism, and social contract principles under one rubric. Parfit (n 3) at 412–13. As a neoclassical liberal economist, Friedman embraces at least implicitly some version of consequentialism.
49 In fact, this kind of reasoning often gets many business people into trouble. It’s a lesson perhaps most effectively taught in kindergarten, but bears reinforcing for most of us throughout our lives. See Robert Fulghum, All I Really Need to Know I Learned in Kindergarten: Uncommon Thoughts on Common Things (1993).
50 This is a primary justification for why business ethics should be taught as a serious subject in business schools, and not just as a course in which practitioners are invited to lecture and share their own views of their own moral virtues (though these stories can nevertheless be quite useful to tell). The teaching of professional ethics in law schools is similarly justified – and not only as an exercise in following codes of professional practice.
51 American Law Institute, Principles of Corporate Governance: Analysis and Recommendations § 2.01(a) (1994).
52 Id. § 2.01(b)(1) and (2) (emphasis added).
53 There is a disjunction in the language that the ALI’s statement in its description of following the law as mandatory (‘[i]s obliged’) and only making room for ethical considerations as permissive (‘may take into account’). Id. One can make a strong case that following basic moral principles should take precedence over legal requirements when they conflict. For example, should a social media company based in a democratic country follow a law in China that requires the identification of possible political dissidents who would then be severely punished? Most ethics professors would answer ‘no’ because following Chinese law in this circumstance seems to conflict with a basic moral principle not to act in a manner that is complicit with human rights violations. At least in some cases like these, a form of corporate civil disobedience following moral principles seems to be called for. Cf. Pollman (n 30). In the terms used here, moral and legal normative requirements may sometimes conflict.
54 ALI, Principles of Corporate Governance, § 2.01(b)(3).
55 The American Law Institute has launched a new project for a Restatement of the Law of Corporate Governance which appears to be aimed at least in part at weakening or at least narrowing the purpose of business corporations to focus only on a more or less broadly defined ‘economic objective.’ American Law Institute, Restatement of the Law of Corporate Governance § 2.01 (Tentative Draft No. 1, April 2022). ‘In very general terms,’ as the reporters note, the revised statement of the corporate objective ‘may be thought of as a broad exhortation to enhance economic returns within the bounds of the law.’ Id. cmt. E. For a critique of this approach, see Eric W. Orts, ‘The ALI’s Restatement of the Corporate Objective Is Flawed,’ Columbia Law School, CLS Blue Sky Blog on Corporations and the Capital Markets (June 6, 2022), https://clsbluesky.law.columbia.edu/2022/06/06/the-alis-restatement-of-the-corporate-objective-is-seriously-flawed/.
56 What I mean by co-generation here is that law originates at least historically through the development of moral systems, and moral norms in turn can be influenced by the law. The details of the relationship between law and morality are of course deep and complex. See, e.g., Kent Greenawalt, Conflicts of Law and Morality (1987). This jurisprudential literature is vast. My point here is only to say that law and morality are related with respect to providing two sources of normative obligations in society that are different from some other motivations and objectives such as in economic endeavors that aim toward making profits or other self-interested gain.
57 Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power (2004). See also Orts (n 3) at 47–48. Cf. Mayer, ‘What Is Wrong with Corporate Law?’ (n 6) at 291 n.6 (collecting additional sources). Axel Honneth diplomatically describes the departures of market systems from their internal ethical foundations as ‘normative misdevelopments.’ Honneth (n 4) at 177, 198, 246.
58 As discussed above in the introduction and elaborated below in Parts III and IV, this argument relies implicitly on a sociological or epistemological view of differentiation of systems or spheres of human knowledge and action. For competing explanations and perspectives, see, e.g., Jürgen Habermas, The Theory of Communicative Action (Thomas McCarthy trans.) (1984); Honneth (n 4); Niklas Luhmann, Introduction to System Theory (Peter Gilgen trans., Dirk Baecker ed.) (2013); Michael Walzer, Spheres of Justice: A Defense of Plurality and Equality (1983).
59 See Romano (n 34).
60 On the public/private distinction and business enterprises, see Orts (n 3) at 109–31. Cf. also David Ciepley, ‘Beyond Public and Private: Toward a Political Theory of the Corporation,’ 107 American Political Science Review 139 (2013) (recognizing this distinction but arguing for eliminating it with respect to corporations).
61 Orts (n 3) at 33 (comparing the creation of firms to the creation of ‘real fictions’ such as our names as individuals). See also Lon L. Fuller, Legal Fictions (1967). Cf. Micheler (n 1) (setting forth a ‘real entity theory’ of the firm grounded in legal recognition).
As an institutional theory, I follow here in a tradition and with a background understanding deriving from both what has been called ‘old’ and ‘new’ institutional theory, deriving originally from foundational works in sociology of Emile Durkheim, Max Weber, and many others. The relevance for this kind of approach in the context here is well described by Philip Selznick, a leading representative of the ‘new’ institutional theorists:
The tension between law and organizational reality is sharply revealed in unresolved issues regarding the modern corporation. To see the corporation ‘as an institution’ is to view the enterprise as a going concern, taking account of relevant stakeholders, attending to long-run interests, being sensitive to the operative structure of authority. All this is in conflict with the still-dominant view that the corporation is a voluntary association of shareholders who own the enterprise and are the only members who really count. This doctrine obscures the realities of power, subordination, and responsibility. …
An institutional theory of the firm is a voice of resistance to this culture of shortsightedness, offers guides to thinking about corporate responsibility, and brings into question the goal of maximizing profits or returns on capital.
62 One commentator on an early draft questioned the wisdom of using ‘purposes’ rather than some other term to describe the normative choices governing firms and their participants. It is true the one can use synonyms, such as intentions, goals, or objectives as substitutes in various contexts. Although I prefer ‘purposes’ as a catchall category, it is also correct to clarify that the collective ‘purposes’ of firms are constructed at two distinct levels: a macro-level of legal and moral norms applicable universally, and a micro-level of normative choices made by governing participants in firms themselves. My distinction between normatively mandatory and normatively permissive purposes aims to capture this difference. For greater precision in terminology, ‘objectives’ tend to refer to higher-order, longer-term purposes and intentions, while ‘imperatives’ import a strong sense of moral responsibility. ‘Intentions’ can refer to both individual participants and organisational entities (though with complications regarding entities, such as those surrounding ‘legislative intent’). In the final analysis, however, I do not believe that the substantive arguments made in this article depend on these kinds of semantic choices or usages. I refer to ‘purposes’ as a catchall category to include intentions, objectives, and the normative imperatives that may govern or constrain them in practice.
63 Fuller (n 61) at 20–23 (observing that legal fictions should be either rejected or redefined when they are not proving to be useful).
64 Cf. Pistor (n 43) at 231–34 (observing, following the German philosopher Christoph Menke, that it is possible to rewrite the codes of law to redefine rights and property in a manner oriented toward socially beneficial ends, rather the ends of individual aggrandizement).
65 Donald E. Schwartz, ‘Defining the Corporate Objective: Section 2.01 of the ALI’s Principles,’ 52 George Washington Law Review 511, 517 (1984) (citing Judge Weinstein).
66 Id. at 517 n.30 (quoting Phillip A. R. Brown, Deputy Secretary of the Department of Trade for the United Kingdom).
67 Companies Act, 1985, c. 6, s 309(1); see also Mark T. Moore and Martin Petrin, Corporate Governance: Law, Regulation and Theory (2019), 145–47.
68 Companies Act, 2006, c. 46, § 172(1) (U.K.) (instructing the director of a company to promote the interests of various constituencies of the corporation, including the interests of its employees). See also Micheler (n 1) at 6, 132–33 (noting the change).
69 My account here of the origins of business purposes differs from the theory of business purpose proposed by Professors Tom Donaldson and James Walsh. They argue correctly that theories of business purpose are highly contested and inadequate. However, their own proposal, after examining a number of alternatives to economic theories recommending profit maximisation, is to claim the ultimate business purpose should be ‘to optimize collective value.’ Thomas Donaldson and James P. Walsh, ‘Toward a Theory of Business,’ 35 Research in Organizational Behavior 181, 195–98 (2015). One initial problem with this normative proposal is that a vagueness regarding ‘purpose’ is replaced with a similar vagueness regarding ‘value’ and, for that matter, ‘collective value.’ In addition, Donaldson and Walsh appear to place the burden here on business firms themselves to determine how their plans and actions will work out to ‘optimize collective value.’ Instead, my argument here places the burden not only on firms to determine their own purposes, which are or should be guided by values (or, more precisely, the values of business participants), but also on governments and legal structures which determine the basic ‘rules of the game’ and guidelines for business firms to follow. In addition, my view of the possibility (and today at least the reality) of plural business purposes is proposed not only descriptively but also normatively. My normative prescription follows from a recognition of contemporary complexity, institutional as well as temporal. For example, conceptions of business purposes – both externally imposed and internally determined – should evolve to include environmental values and duties as well as those of business participants or even humanity taken as a collective whole. See, e.g., Brian Berkey and Eric W. Orts, ‘The Climate Imperative for Business,’ California Management Review, (Insight/Frontier, Apr. 2021), https://cmr.berkeley.edu/2021/04/climate-imperative/. This value of climate protection may fit into a general objective to ‘optimize collective value,’ but if so then Donaldson and Walsh should make this explicit.
70 Axel Honneth aptly refers to this historical method of analysis in social theory as the ‘normative reconstruction’ of different ‘social spheres’ of collective action. Honneth (n 4) at viii, 1–11, 197–98. At the same time, it is also important to note that ‘the future matters’ as much if not more than history does. A virtue of the economic perspective is that is oriented primarily toward the future rather than the past. For an account of this important distinction – and utilizing it as a conceptual method of understanding – see Jens Beckert, Imagined Futures: Fictional Expectations and Capitalist Dynamics (2016).
71 Aristotle, Politics 1252a (Ernest Barker trans., rev. ed. 1958).
72 For accounts supporting this historical summary, see Fernand Braudel, Civilization and Capitalism, 15th-18th Century, three volumes (trans. Siân Reynolds) (1992); Stewart Bruchey, Enterprise: The Dynamic Economy of a Free People (1990); Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business (1977); Alfred D. Chandler, Jr., Scale and Scope: The Dynamics of Industrial Capitalism (1990); John Hendry, Between Enterprise and Ethics (2004) ch. 1; Richard N. Langlois, The Corporation and the Twentieth Century: The History of American Business Enterprise (2023); Levy (n 26).; Charles Perrow, Organizing America: Wealth, Power, and the Origins of Corporate Capitalism (2002); William G. Roy, Socializing Capital: The Rise of the Large Industrial Corporation in America (1997); Richard S. Tedlow, The Rise of the American Business Corporation (1991); Charles Tilly, Coercion, Capital, and European States, A.D. 990–1992 (rev. ed. 1992).
73 For an account integrating classical social theoretical insights from the likes of Èmile Durkheim, Georg W.F. Hegel, Talcott Parson, Karl Polanyi, and Adam Smith, see Honneth (n 4) at 176–98.
74 There is a difference between (1) theories that see groups of people acting cooperatively as primary, which the law then ‘recognizes’ as having organisational ‘personality’ with legal rights and duties, and (2) theories that give the law primacy in recognizing business entities as persons. Although I emphasise the power of law as primary in previous work, it’s true that the law can only ‘recognize’ something that already exists or has existed in some sense in the world. As Amitav Ghosh writes,
Recognition is famously a passage from ignorance to knowledge. To recognize, then, is not the same as an initial introduction. … The most important element of the word recognition thus lies in its first syllable, which harks back to some prior, an already existing awareness that makes possible the passage from ignorance to knowledge. …
75 See Orts (n 3) at 12–13 (describing concession theory as a top-down theory of business enterprise); cf. Micheler (n 1) at 12 (‘Concession theory puts the state in the driver’s seat.’).
76 On the British East India Company, see, e.g., John Keay, The Honourable Company: A History of the English East India Company (1991); Philip Lawson, The East India Company: A History (1993); Nick Robins, The Corporation That Changed the World: How the East India Company Shaped the Modern Multinational (2012). On the Dutch version, see relevant portions of Jonathan I. Israel, The Dutch Republic: Its Rise, Greatness and Fall, 1477–1806 (reprint ed. 1998). See also Larry Neal, ‘Venture Shares of the Dutch East India Company,’ in Origins of Value: Innovations in the History of Finance (William N. Goetzmann and K. Geert Rouwenhorst eds. 2005), at 165–76. For a concise history of European colonialism, including the role of colonial companies of different kinds, see David B. Abernethy, The Dynamics of Global Dominance: European Overseas Empires, 1415–1980 (2000).
77 For a general history, see Alan Taylor, American Colonies: The Settling of North America (2001). See also Abernethy (n 76) at 55–56 (discussing different kinds of European colonies).
78 For a history of these developments, showing also that the idea of profit maximisation as a corporate purpose originated relatively recently and ‘the corporation as such has no intrinsic purpose,’ see David B. Guenther, ‘Of Bodies Politic and Pecuniary: A Brief History of Corporate Purpose,’ 9 Michigan Business and Entrepreneurial Law Review 1, 7 (2019). For an historical and legal account of ‘the death of concession,’ see Liam Séamus O'Melinn, ‘Neither Contract Nor Concession: The Public Personality of the Corporation,’ 74 George Washington Law Review 201 (2006). This is not to say that nation-states do not still compete today using differing legal rules and frameworks, but the geopolitical competition has become more complex given the rise of organised private firms which exercise power independently of nation-states within global trading and investment networks.
79 In the United States, this shift occurred most decisively during the populist Jacksonian era. See Levy (n 26) at 123–25. By ‘democratised,’ I do not mean that this right of self-organisation was widely used and shared. Only a relatively small subset of wealthy property owners could contemplate founding and managing business firms. The important point remains that these citizens with capital could create their own business firms without specific permission or ‘concession’ from the state.
80 Levy (n 26) at 124–25; Orts (n 3) at 12–13.
81 James Willard Hurst, The Legitimacy of the Business Corporation in the United States, 1780–1970 (1970), 13–57.
82 For an historical account of the ‘company’ or ‘corporation’ as an innovative social construction, see John Micklethwait and Adian Wooldridge, The Company: A Short History of a Revolutionary Idea (2003). See also A History of Corporate Governance Around the World (Randall K. Morck ed.) (2005).
83 For further description of production metamarkets and consumption markets, see Orts (n 3) at 176 and fig. 5.1. Cf. also Adolf A. Berle and Gardiner C. Means, The Corporation and Private Property (1932) (rev. ed. 1968), xxiii (distinguishing between ‘consumption property’ and ‘productive property’); Honneth (n 4) at 198–253 (distinguishing between ‘a sphere of consumption’ and ‘the labour market’ of production).
84 Of course, business success depends on many elements including technological and organisational innovation, education, political influence, hard work, business-relevant aptitudes, and good luck.
85 Notice that this division ‘production’ and ‘consumption’ markets means that a generalised abstract ‘market’ consisting only of a mass of interacting individual people does not work because it leaves out the ubiquitous and powerful presence of business organisations. A widespread problem in contemporary economic thinking is a failure to consider the complicating feature of organisational structures in markets, which makes untenable many abstract models based on methodological individualism. For a critique of contemporary economic theories, including its ‘assumption that actors act egoistically (strive to maximize expected utility),’ see Beckert (n 70) at 250, ch. 10.
86 R.H. Coase, ‘The Nature of the Firm,’ 4 Economica (n.s.) 386 (1937). See also R.H. Coase, ‘The Institutional Structure of Production,’ 82 American Economic Review 713 (1992); Orts (n 3) at 171–72 (describing a dynamic of organisational or intrafirm costs, on one level, and transaction or interfirm costs, on another, that occurs within an overall gravitational field of law). On ‘transaction costs,’ see The Economics of Transaction Costs (Oliver E. Williamson and Scott E. Masten eds. 1999); Oliver E. Williamson, ‘Transaction Cost Economics: The Natural Progression,’ 100 American Economic Review 673 (2010).
87 An exception to this rule might be found in corporate groups that organise many subsidiaries in a venture capital kind of structure, which assumes that many of the parent’s subsidiary corporations will fail, but betting that at least a few will overperform for the overall benefit of the parent. See Pistor (n 43) (discussing Lehman Brothers corporate structure and business strategy, which was successful, but only for a limited period of time).
88 See Orts (n 3) at 194–200 (describing government and state-owned firms). For an account of large Chinese firms and their relationship to the authoritarian state in China, see Tamar Groswald Ozery, ‘Illiberal Governance and the Rise of China's Public Firms: An Oxymoron or China's Greatest Triumph?’ 42 University of Pennsylvania Journal of International Law 921 (2021).
89 One major problem of international legal organisation is therefore how to square government subsidies supporting state-owned enterprises (or government subsidies granted to private firms) with principles of free and fair economic competition. The role of public and private finance is particularly salient in this connection. See Ozery (n 88) (discussing details in the Chinese situation).
90 For details, see Ozery (n 88).
91 In practice, there are still close connections between government and private enterprise. Consider, for example, the dependence of the defense industry in the United States on foreign policy, or the influence of agricultural policies in the European Union which work to benefit its farmers. Business firms today operate within a web of complex laws and political relationships, and yet tend to retain a significant structural organisational independence in negotiating and acting within this web.
92 Again, this describes ‘liberal’ regimes in the free-market use of the word ‘liberal,’ as opposed to the ‘illiberal’ authoritarian regimes such as China, Russia, and a few others. See Ozery (n 88).
93 On the recognition of organisational persons and the relationships of agency, contracts, and property within them as the foundations of the firm, see Orts (n 3) at 1–108. Although some organisational structures, such as corporate franchises, appear have no single organisational person at the centre, closer analysis usually reveals some kinds of organisational structure that gives one entity priority with respect to others. On ‘complex relational firms,’ see id, at 191–94. It is also true that contemporary corporate networks have become increasingly complex and opaque, often to evade taxes or other liability. See Levy (n 26) at 647–52. But this does not mean that firms no longer exist within this complexity.
94 American Law Institute, Principles of Corporate Governance, § 1.05 (defining charter documents).
95 For an historical account of business purposes clauses and the suggestion that they may experience a ‘renaissance’ through fiduciary duties of good faith and in the context of public benefit corporations, see Elizabeth Pollman, ‘The History and Revival of the Corporate Purpose Clause,’ 99 Texas Law Review 1423 (2021). For a critique of contemporary free-standing statements of corporate purpose, which are not rooted in any legal obligation, as amounting to ‘twaddle’ or mere ‘verbiage,’ see Colin Mayer, ‘Are Corporate Statements More than Verbiage?’ 33 Journal of Applied Finance 44 (2021).
96 See Orts (n 3), ch. 5 (providing a taxonomy of modern types of firms).
97 Micheler (n 1) at 34, 128–30.
98 See Friedrich A. Hayek, Law, Legislation, and Liberty: Volume 1, Rules and Order (1973) at 35–54. See also John Gray, Hayek on Liberty (1998), 25–55, 118–25 (describing elements of Hayek’s ideas of spontaneous order through rule-based markets); Peter A. Boettke, ‘The Theory of Spontaneous Order and Cultural Evolution in the Social Theory of F.A. Hayek,’ 3 Cultural Dynamics 61 (1990).
99 As Waheed Hussain has argued, Hayek’s optimistic view that the spread of global markets would represent an upward road away from ‘serfdom’ and toward widespread individual freedom and well-being was overstated. Hussain warns that ubiquitous, omnipresent markets can become ‘authoritarian’ if they rely on ‘judgment-bypassing coordination mechanisms.’ Hussain (n 12) at 82–99, 112–16. For Hayek’s most influential statement focusing instead on the threat of authoritarian government, see F.A. Hayek, The Road to Serfdom (Bruce Caldwell ed., 2007) (1944).
100 See Stephen J. Leacock, ‘The Rise and Fall of the Ultra Vires Doctrine in United States, United Kingdom, and Commonwealth Caribbean Corporate Common Law: A Triumph of Experience over Logic,’ 5 DePaul Business and Commercial Law Journal 67 (2006) (providing an historical overview).
101 See, e.g., Fisch and Solomon (n 6) at 1316.
102 For a history of the ultra vires doctrine, with a proposal that at least a ‘lawful’ condition remains with respect to ‘any’ business purpose, see Kent Greenfield, ‘Ultra Vires Lives! A Stakeholder Analysis of Corporate Illegality (With Notes on How Corporate Law Could Reinforce International Law Norms),’ 87 Virginia Law Review 1279 (2001). For a similar story in the in the U.K., see Micheler (n 1) at 48–53.
From a theoretical perspective, Waheed Hussain draws the correct lesson from this legal analysis:
When theorists talk about the purpose of the corporation, they often come to the conclusion that the purpose of the corporation is to make money for shareholders. … [I]t is hard to see what the rationale for this claim could be. People establish corporations for all sorts of reasons: sometimes they are interested in a money-making venture, sometimes they are interested in providing a public service, and sometimes they are interested in some combination of the two. There is no more reason to think that every corporation is established to pursue the same end than there is to think that every contract is entered into to further the same goal . …
The point of these observation is that if you want to know what the purpose of some corporation is, you cannot simply contemplate ‘the nature of the corporation.’ Corporations have no intrinsic goals, any more than contracts do. To see what the goal of a corporation is, you have to look at that particular corporation and examine its stated objectives.
103 See Eric A. Posner and Glen Weyl, Radical Markets (2018) (recommending pushing these boundaries).
104 Orts (n 3) at 9–32.
105 See Michael E. Bratman, ‘The Intentions of a Group,’ in The Moral Responsibility of Firms (Eric W. Orts and N. Craig Smith eds. 2017), 36–52.
106 Kent Greenfield persuasively argues that modern firms should at least in some circumstances be held accountable for violating fundamental legal norms such as respect for human rights. Greenfield (n 102).
107 See, e.g., John C. Coffee, Jr., ‘The Mandatory/Enabling Balance in Corporate Law: An Essay on the Judicial Role,’ 89 Columbia Law Review 1618 (1989); Jeffrey N. Gordon, ‘The Mandatory Structure of Corporate Law,’ 89 Columbia Law Review 1549 (1989).
108 Given this normative structure, it is a mistake to insist on a terminological and semantic distinction between ‘objectives’ that are set in a mandatory fashion at the macro-level and ‘purposes’ that refer to permissible variations adopted by business participants in specific firms. Professor Edward Rock, for example, makes this distinction and argues for the opposite proposition: that it is ‘a category mistake to identify ‘business purpose’ with ‘corporate objective.’’ Edward Rock, ‘Business Purpose and the Objective of the Corporation,’ NYU Law and Economic Research Paper Series (Oct. 2020), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3724710. He would prefer to reserve the choice of ‘business purpose’ to a choice of business forms (e.g. a corporation versus a benefit corporation) and impose a mandatory shareholder value maximisation norm at the level of the ‘corporate objective.’ (Professor Rock is also, and quite influentially, the Reporter for the new Restatement of the Law of Corporate Governance project in the United States.) Unfortunately, Rock’s view is conceptually confused. Contrary to his understanding, a business ‘purpose,’ ‘objective,’ ‘intention,’ ‘goal,’ or other orienting motivation can derive from a number of different sources, most saliently, as argued here, from the top-down level of mandatory laws or ethical imperatives and from the bottom-up level of choices made by business participants. To give one example: if one takes the climate emergency seriously (as many believe we should), then the ‘purpose’ of business should shift to address the problem at both the macro-level of law (such as increasing requirements for mandatory reporting of greenhouse gas emissions by all large companies) and at the micro-level of business policy (such as choosing projects to reduce internal energy consumption or to shift to renewable energy sources as quickly as possible). In a corporation, pursuing these purposes should not depend only on whether they will also maximise economic value.
109 Cf. Greenfield (n 102).
110 See Margaret M. Blair, Erin O'Hara O'Connor and Gregg Kirchhoefer, ‘Outsourcing, Modularity, and the Theory of the Firm,’ 2011 Brigham Young University Law Review 263 (2011) (providing a theoretical examination, along with an empirical study, of outsourcing in the context of modularity theories of internal ‘transfers’ as well as ‘transactions’ defining the boundaries of firms).
111 Orts (n 3) at 41, 99–102, 213–14. The business judgment rule is a judicial version of the fiduciary duty of care, which provides a broad scope of authority to corporate managers and directors. See Carsten Gerner-Beuerle, ‘The Duty of Care and the Business Judgment Rule: A Case Study in Legal Transplants and Local Narratives,’ in Comparative Corporate Governance (Afra Afsharipour and Martin Gelter eds. 2021), ch. 11 (‘The duty of care and, increasingly, the business judgment rule are common features of any developed system of corporate law. … It is also a near-universal rule; it exists in one form or another in virtually every jurisdiction.’).
112 See Orts (n 3) at 109–17, 194–200. By one estimate, state-owned enterprises of one kind or another constitute about ten percent of global gross domestic product. Garry D. Bruton, et al., ‘State-owned Enterprises Around the World as Hybrid Organizations,’ Academic of Management Perspectives (online publication, Dec. 10, 2014), https://doi.org/10.5465/amp.2013.0069.
The integration of large state-owned enterprises into a generally liberal global market economy poses significant challenges because of the different purposes, objectives, and motivations of state-owned enterprises. See, e.g., Mitsuo Matsushita, ‘Interplay of Competition Law and Free Trade Agreements in Regulating State-Owned Enterprises,’ 24 German Law Journal 243 (2023) (discussing difficulties of handling state-owned enterprises under global trade rules because their decisions often follow political considerations that are disruptive to the global market order).
113 Max Weber, Economy and Society: An Outline of Interpretative Sociology (Guenther Roth and Claus Wittich eds., Ephraim Fischoff et al. trans. 1968), vol. 1, 91. See also note 28 above.
114 See Richard Brown, A History of Accounting and Accountants (T.C. and E.C. Jack 1905) (reprint ed., 2003); James O. Winjum, ‘Accounting and the Rise of Capitalism: An Accountant’s View,’ 9 Journal of Accounting Research 333 (1971). The advent of double-entry methods can be traced to the late thirteenth century. Fernand Braudel, The Wheels of Commerce: Civilization and Capitalism, 15th-18th Century, vol. II (trans. Siân Reynolds) (1992), 555.
115 For a classic description of the power of markets as an alternative to governmental organisation, see Charles A. Lindblom, The Market System: What It Is, How It Works, and What To Make of It (2001).
116 See, e.g., Thomas Piketty, Capital and Ideology (Arthur Goldhammer trans. 2020), 16–23. Economic returns for capital have also greatly exceeded returns for labour, which has contributed to expanding and deepening economic inequality. See Thomas Piketty, Capital in the Twenty-First Century (Arthur Goldhammer trans., 2014) [hereinafter Capital]. On the role of slavery and colonialism in the economic growth of the world economy, see also Olúfẹ́mi O. Táíwò, Reconsidering Reparations, ch. 2 (2022).
117 Piketty, Capital and Ideology (n 116), part 2, at 201–412. The continuing nefarious effects of slavery inheres in the world still. As one scholar has written, many people are ‘no longer enslaved, but not yet free.’ Saidiya Hartman, Scenes of Subjection: Terror, Slavery, and Self-Making in Nineteenth-Century America (rev. ed. 2022), 363. Modern slavery – whether in forced work or forced marriages – is rising in recent years, oppressing by one estimate approximately 50 million people worldwide. International Labour Organization, ‘50 million people worldwide in modern slavery’ (press release, Sept. 12, 2022), https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_855019/lang--en/index.htm.
118 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (n 39). For the argument that Smith’s views have been oversold by his successors, with evidence that his views about ‘profit’ were ‘ambivalent,’ see Mayer, ‘What Is Wrong with Corporate Law?’ (n 6) at 290. See also Nathan Rosenberg, ‘Adam Smith on Profits – Paradox Lost and Regained,’ 82 Journal of Political Economy 1177 (1974) (examining why Smith opposed ‘high profits’ for capitalists because they were likely antithetical to promoting the wealth of a nation).
119 Piketty, Capital and Ideology (n 116) at 27, 705–16.
120 For a critique of private property as a central argument for the justification of markets, see also Hussain (n 12) at 23–24, 31–32, 208–09. Cf. John Finnis, ‘Natural Law Theories,’ Stanford Encyclopedia of Philosophy (rev. 2020), https://plato.stanford.edu/entries/natural-law-theories/.
121 See, e.g., Caleb Ecarma, ‘Fox News Is Preparing to Be Sued Over Coronavirus Misinformation,’ Vanity Fair (Apr. 6, 2020), https://www.vanityfair.com/news/2020/04/fox-news-prepares-coronavirus-misinformation-lawsuits. For a skeptical view of the merits of a lawsuit brought on these grounds, see Erin Carroll, ‘Lawsuit Against Fox News Over Coronavirus Coverage: Can It Succeed? Should It?’ Just Security (Apr. 10, 2020), https://www.justsecurity.org/69556/lawsuit-against-fox-news-over-coronavirus-coverage-can-it-succeed-should-it/. The same argument for moral liability applies to ‘covid deniers’ in government, though of course governments usually enjoy sovereign immunity.
122 Or, under an assumption of Pareto efficiency, nobody is made worse off. Sean Ingham, Pareto-optimality, Britannica (Oct 6, 2023), https://www.britannica.com/money/topic/Pareto-optimality.
123 One standard fudge in justifications based on Kaldor-Hicks economic efficiency as an overall social objective is that Pareto constraints are ignored under the questionable empirical assumption that unequal economic gains can be redistributed by governments. Kaldor-Hicks Efficiency, Oxford Reference (2023), https://www.oxfordreference.com/display/10.1093/oi/authority.20110803100028833. Governments are notoriously reluctant, however, to redistribute wealth from the rich and powerful to everyone else.
124 For an argument that autonomy should count as strongly as welfare calculations in the justification of markets, see Hanoch Dagan, ‘Why Markets? Welfare, Autonomy, and the Just Society,’ 117 Michigan Law Review 1289 (2019).
125 For empirical evidence of increasing economic wealth distributions in the world, particularly along the lines of divergent returns to capital and labour, see Piketty, Capital (n 116). But cf. Glenn Firebaugh, The New Geography of Global Income Inequality (2006) (finding that global income inequality among nations has been declining, though inequality within nations is increasing). It is likely also that global climate disruption is increasing economic inequality—having stronger negative effects on poor countries as compared to rich ones. Noah S. Diffenbaugh and Marshall Burke, ‘Global Warming Has Increased Global Economic Inequality, PNAS (2019), https://doi.org/10.1073/pnas.1816020116.
126 For a recent critical account of these disasters and what has followed in Russia and China, see Piketty, Capital and Ideology (n 116) at 578–636. Ironically, as Professor Piketty argues, both contemporary Russia and China have veered into becoming authoritarian plutocracies (or are at least coming close), and thus are now reinforcing rather than reducing global economic inequality.
127 Id. at 8 (‘So great was the communist disaster that it overshadowed even the damage done by the ideologies of slavery, colonialism, and racialism and obscured strong ties between those ideologies and the ideologies of ownership and hypercapitalism – no mean feat.’). See also Lucien Bianco, Stalin and Mao: A Comparison of the Russian and Chinese Revolutions (Krystyna Horko trans. 2018) (providing detailed assessments of the regimes, including their responsibility for the two worst famines of the twentieth century).
128 See, e.g., Pistor (n 43) (detailing some legally arcane methods by which these conversions are accomplished).
129 One main reason for this failure of regulation has been the influence of business interests on political processes of democratic government through lobbying, campaign contributions, and other methods. See Honneth (n 4) at 325 (decrying ‘the widespread system of lobbying’). For example, business interests have effectively stymied climate regulation. See Michael E. Mann, The New Climate War: The Fight to Take Back Our Planet (2021). For a general account of the ideological assault on government based on pro-market views advanced primarily in the interests of some large businesses and wealthy individuals, see Oreskes and Conway (n 5). See also Kim Philips-Fein, Invisible Hands: The Businessmen’s Crusade Against the New Deal (2010). On difficulties in regulating campaign finance and other modes of political influence in the U.S. context, see also Samuel Issacharoff, ‘Political Corruption,’ 124 Harvard Law Review 118 (2010).
130 Piketty, Capital and Ideology (n 116) at 648–716. See also Phil Graham, Hypercapitalism: New Media, Language, and Social Perceptions of Value (2006); Jeremy Rifkin, The Age of Access: The New Culture of Hypercapitalism Where All of Life Is a Paid-for Experience (2001). On the quasi-religious arguments of some economists, see Robert H. Nelson, Economics as Religion: From Samuelson to Chicago and Beyond (2002); Robert H. Nelson, The New Holy Wars: Economic Religion Versus Environmental Religion in Contemporary America (2010); John Rapley, ‘How Economics Became a Religion,’ Guardian, July 11, 2017, https://www.theguardian.com/news/2017/jul/11/how-economics-became-a-religion.
131 An example of the influence of this pro-market view (or bias) is that a default position for policy analysis holds that markets should govern social organisation unless some kind of ‘market failure’ can be proven. On the other side of this ledger, ‘government failure’ is often presumed. See, e.g., Joseph Heath, Morality, Competition, and the Firm: The Market Failures Approach to Business Ethics (2014); Joseph Heath, ‘Market Failure or Government Failure? A Response to Jaworski,’ 1 Business Ethics Journal Review 50 (2013).
132 See discussion in Part I above recounting the approach of Milton Friedman and the American Law Institute’s Principles of Corporate Governance.
133 As discussed in Part I above, this assumption about profit maximisation is taught as an objective truth in many courses in law and business schools and intrudes into the general culture. The profit-maximising ideology is thus largely a result of ‘situational’ learning. Jon Hanson and David Yosifon, ‘The Situation: An Introduction to the Situational Character, Critical Realism, Power Economics, and Deep Capture,’ 152 University of Pennsylvania Law Review 129, 139, 199 n.254 (2003).
134 See also id. at 200–30 (advancing a ‘deep capture’ explanation).
135 For a classic source on the historical formation of capital and labour markets, see Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (2d ed. 2001) (1944). See also Honneth (n 4) at 178–79, 185–87, 190 (discussing Polanyi’s account in a social theory of norms).
136 Honneth (n 4) at 179.
137 Id.
138 Id. at (describing ‘homo oeconomicus’ as ‘the self-interested businessman’). In partial testimony to the influence of this idea, an academic journal, founded in 1983 and still going strong, is titled Homo Oeconomicus, https://link.springer.com/article/10.1007/s41412-016-0026-z. John Hendry also provides an account of how ‘businesses have successfully imposed their own values on the world’ and established ‘the legitimacy of self-interest’ as a sufficient guide for social behaviour. Hendry (n 72) at 9–14. This development occurred contemporaneously with a weakening of moral constraints. Id. at 14–22.
For a critique of the rational actor model used by most contemporary economists, see Jon Hanson and David Yosifon, ‘The Situational Character: A Critical Realist Perspective on the Human Animal,’ 93 Georgetown Law Journal 1 (2004).
139 Honneth (n 4) at 180–81.
140 See notes 39 and 118 above.
141 Honneth refers to Talcott Parsons and his arguments that employers and employees owe each other mutual obligations and professional duties, and the employer’s responsibility includes not only ‘job security, health and safety precautions, and meaningful work, but also the guarantee of a stable family income.’ Honneth (n 4) at 189. He refers to Èmile Durkheim and Georg Hegel for their insights that ‘the market can only fulfill its function of harmoniously integrating individual economic activities in an unforced manner and by means of contractual relations if it is embedded in feelings of solidarity that precede all contracts and obligate economic actors to treat each other fairly and justly.’ Id. at 181.
142 See, e.g. Allan Cooke, ‘Is ‘Business Ethics’ an Oxymoron?’ 58 Business and Society Review 68 (1986) (offering a somewhat sanguine view that business leaders are not less ethical than others); Ronald Duska, ‘Business Ethics: Oxymoron or Good Business?’ 10 Business Ethics Quarterly 111 (2000) (arguing that this cynical view of business follows from a strict view of the profit maximisation norm).
143 See discussion in Parts I and III above.
144 Mayer, ‘What Is Wrong with Corporate Law?’ (n 6) at 291. In a new book, Mayer argues for a recovery of a conception of ‘just profits’ in the moral sense of the adjective. Mayer, Capitalism and Crises (n 6).
145 Berkey and Orts (n 69). Cf. Einer Elhauge, ‘Sacrificing Corporate Profits in the Public Interest,’ 80 N.Y.U. Law Review 733 (2005). Unfortunately, the current trend is in the wrong direction with the largest oil companies registering record profits and reinvesting in more fossil fuel production rather than a hard and serious transition toward renewable zero-carbon energy. See Hanna Ziady, ‘Big Oil Faces Scrutiny After Huge Jump in Profits,’ CNN, Feb. 8, 2023, https://edition.cnn.com/2023/02/08/energy/big-oil-profits/index.html.
A new climate history illustrates the stakes involved and points out many instances in human history during which societies did not make the necessary changes before it was too late. Peter Frankopan, The Earth Transformed: An Untold History (2023). One can only hope that we can collectively succeed in shifting large-scaled global incentives fast enough to avoid the worst climate consequences this time. For a theoretical grounding of hope as a principle for political action, see Loren Goldman, The Principle of Political Hope: Progress, Action, and Democracy in Modern Thought (2022).
146 Estimates of stranded assets in the oil and gas industry if discovered resources are ‘left in the ground’ to mitigate climate damage exceed one trillion dollars. See, e.g., Gregor Semieniuk, et al., ‘Stranded Fossil-Fuel Assets Translate to Major Losses for Investors in Advanced Economies,’ 12 Nature Climate Change 532 (2022). For signs that an energy transition away from fossil fuels has begun, but not going nearly fast enough to avoid significant negative consequences, see Adam Tooze, Chartbook Carbon Notes 8: Betting on climate disaster. The possible futures of the (US) oil and gas industry, Chartbook, Substack, Nov. 26, 2023, https://adamtooze.substack.com/p/chartbook-carbon-notes-8-betting.
147 As one economist notes:
Through the 1960s, there was an active debate about whether the ‘profit maximization’ assumption was a useful way of modeling firms. Alternatives such as sales maximization, profit satisficing, and increasing market share were all proposed as alternative descriptors of firm behavior. The primary justification for modeling firms as profit maximizers in the 1950s was that even though it clearly was not a good description of what firms actually do, it was still useful to analyze them as if they did that. … In the neoclassical debate about how best to model firms, there was never a scientific belief that firms should maximize profit. That would have been a normative argument that neoclassical economists avoided – they did positive economics.
148 Friedman (n 44). See Ed Dolan, ‘How – and When – Should Companies Engage in the Political Process?’ Harvard Business Review, May 26, 2023, https://hbr.org/2023/05/how-and-when-should-companies-engage-in-the-political-process (observing that Friedman neglects ‘who makes the rules’).
149 For a diagnosis and some recommendations, see Mann (n 129). For the idea that changing global trading rules to combat fossil fuel use (similarly to the slave trade was opposed and halted), see Leif Wenar, Blood Oil: Tyrants, Violence, and the Rules that Run the World (2017).
150 On the legal history of lobbying in the United States, from presumptive illegality of most lobbying to a protected constitutional right, see Zephyr Teachout, ‘The Forgotten Law of Lobbying,’ 13 Election Law Journal 4 (2014). In the early case of Marshall v. Baltimore Ohio Railroad Co., 57 U.S. 314, 355 (1853), the Supreme court described secret lobbying contracts as ‘a direct fraud against the public.’ The Court warned that a free market in lobbying would allow ‘the combined capital of wealthy corporations’ to ‘produce universal corruption.’ Id. As late as 1894, the general rule was that lobbying contracts, unless conducted in accordance with professional legal ethical rules, were illegal. William L. Clark, Jr., The Handbook of the Law of Contracts 285, 356 (1894). More recently, the Supreme Court shifted gears, and cases such as United States v. Harriss, 347 U.S. 612 (1954), indicate that lobbyists now enjoy a large measure of protection under the First Amendment. See Richard Briffault, ‘The Anxiety of Influence: The Evolving Regulation of Lobbying,’ 13 Election Law Journal 160 (2014).
151 Citizens United v. Federal Election Comm’n, 558 U.S. 310 (2010). See also Eric W. Orts and Amy J. Sepinwall, ‘Collective Goods and the Court: A Theory of Constitutional Commodification,’ 97 Washington University Law Review 637 (2020) (arguing against the current constitutional course of the Supreme Court with respect to the regulation of campaign finance).
152 See, e.g., David Coen, Alexander Katsaitis and Matia Vannoni, Business Lobbying in the European Union (2021); Suzanne Mulcahy, Lobbying in Europe: Hidden Influence, Privileged Access (2015); Lobbying the European Union: Institutions, Actors, and Issues (David Coen and Jeremy Richardson eds.) (2009). See also ‘The Power of Lobbyists Is Growing in Brussels and Berlin,’ Economist (May 15, 2021), https://www.economist.com/business/2021/05/15/the-power-of-lobbyists-is-growing-in-brussels-and-berlin.
153 Melissa, J. Durkee, ‘International Lobbying Law,’ 127 Yale Law Journal 1742, 1747 (2018).
154 Samuel Issacharoff and Pamela S. Karlan, ‘The Hydraulics of Campaign Finance Reform,’ 77 Texas Law Review 1705, 1708 (1999) (observing that ‘political money, like water, has to go somewhere,’ and ‘political money, like water, is part of a broader ecosystem’). For the particularly egregious example of Exxon’s denial of climate science, even after its own scientists had confirmed the problem, see, e.g., ‘Exxon Knew About Climate Change Almost 40 Years Ago,’ Scientific American (Oct. 26, 2015), https://www.scientificamerican.com/article/exxon-knew-about-climate-change-almost-40-years-ago/.
155 Eric W. Orts, ‘Business Must Get Political – For Climate Sustainability,’ Wharton Risk Center series, Idea #27, (Aug. 23, 2019), https://riskcenter.wharton.upenn.edu/climate-risk-solutions-2/business-must-get-political-for-climate-sustainability/. See also short video version: Eric Orts, ‘Businesses That ‘Get It’ on Climate Change Must Also Get Political, 1.5 min Climate Lectures, University of Pennsylvania (Sept. 11, 2019), https://www.sas.upenn.edu/events/businesses-get-it-climate-change-must-also-get-political.
156 Thomas P. Lyon and Elizabeth Doty, ‘The Erb Principles for Corporate Political Responsibility,’ Harvard Law School Forum on Corporate Governance (Apr. 4, 2023), https://corpgov.law.harvard.edu/2023/04/04/the-erb-principles-for-corporate-political-responsibility/.
157 The CPA-Zicklin standard for reporting on corporate political spending is one leading approach. Center for Political Accountability, CPA-Zicklin Model Code of Conduct for Corporate Political Spending (Oct. 13, 2020), https://www.politicalaccountability.net/wp-content/uploads/2022/06/CPA-Zicklin-Model-Code-of-Conduct-for-Corporate-Political-Spending.pdf.
158 See, e.g., Nina K. Cankar, Simon Deakin and Marko Simoneti, ‘The Reflexive Properties of Corporate Governance Codes: The Reception of the 'Comply-or-Explain' Approach in Slovenia,’ 37 Journal of Law and Society 501, 510 (2010) (describing ‘corporate governance codes’ as ‘an example of regulatory instruments which are explicitly designed to be ‘reflexive,’ that is, ‘to trigger a learning process which over time will enable them to incorporate developments from practice’). ‘Reflexivity’ can by defined as ‘the fact that social practices are constantly examined and reformed in the light of incoming information about those very practices.’ Anthony Giddens, The Consequences of Modernity 38 (1990), 38. It was originally connected with concerns especially about increasing levels of systemic risk. See Ulrich Beck, Risk Society: Towards a New Modernity (1992). The idea of reflexive law has roots in the social theory of Gunther Teubner. See Gunther Teubner, ‘Substantive and Reflexive Elements in Modern Law,’ 17 Law & Society Review 239 (1983).
159 At present, however, all large oil and gas companies appear to be greenwashing about their long-term climate commitments. See Damian Carrington, ‘Oil Firms’ Climate Claims Are Greenwashing, Study Concludes,’ Guardian (Feb. 16, 2022), https://www.theguardian.com/environment/2022/feb/16/oil-firms-climate-claims-are-greenwashing-study-concludes, citing Mei Li, Gregory Trencher and Jusen Asuka, ‘The Clean Energy Claims of BP, Chevron, Exxonmobil and Shell: A Mismatch Between Discourse, Actions and Investments,’ PLOS One (Feb. 16, 2022), https://doi.org/10.1371/journal.pone.0263596. Note also that the three largest oil companies in the world today are state-owned enterprises: Saudi Aramco, Sinopec, and PetroChina. Tooze (n 146) (citing Statista data reported May 2023).
160 Again, one option here would be to recover and enforce legal rules that would restrict lobbying to providing information and arguments based in ‘public reason.’ See Teachout (n 150). On the general concept of public reason and its implications, see John Rawls, ‘The Idea of Public Reason Revisited,’ 64 University of Chicago Law Review 765 (1997). See also John Rawls, Political Liberalism (rev. ed. 2005) (incorporating and refining his views on ‘public reason’).
161 Hanson and Yosifon (n 133) at 200–30.
162 For a measure of the influence of law-and-economics in law schools by proponents of the movement, see Joni Hersch and W. Kip Viscusi, ‘Law and Economics as a Pillar of Legal Education’, 8 Review of Law and Economics 487 (2012). For a critique with respect to the private law topics of contracts, property, and torts, see Shawn Bayern, The Analytical Failures of Law and Economics (2023). The influence of law-and-economics follows a more general trend in academia that privileges contemporary economics as a discipline that is seen as more ‘scientific’ and ‘superior’ to other academic disciplines. See Marion Fourcade, Etienne Ollion and Yann Algan, ‘The Superiority of Economists,’ 29 Journal of Economic Perspectives 89 (2015). For further critique of contemporary economic theories, and their failure to appreciate their ‘fictional’ and contingent foundations, see also Beckert (n 70) at 9–14, 245–68.
163 This is not to say that serious risks of violence do not remain salient as a major worry in our world today. However, an appropriate conception of outbreaks of terrorism and violent political instability is to read them as symptoms of underlying social problems rather than as motivated by potential solutions.
164 Honneth (n 4) at viii, 1–11, 62–67, 197–98.
165 Id. at 3–7, 15–19, 59–62, 131–304. Honneth’s precursors in taking this approach include Hegal (‘ethical spheres’) and Parsons (‘relationship institutions’). Id. at 125 (citing Hegel and Parsons).
Note that Honneth also distinguishes between ‘legal freedom’ and ‘moral freedom.’ Id. at 163–20. He warns against a modern tendency to reduce discussions of the normative value of freedom in general to ‘legal freedom’ associated only with legally denominated ‘rights.’ In his words:
Nothing has been more fatal to the formulation of a concept of social justice than the recent tendency to dissolve all social relations into legal relationships, in order to make it all the easier to regulate these relationships through formal rules. This one-sided approach has caused us to lose sight of the fact the conditions of justice are not only given in the form of positive rights, but also in the shape of appropriate attitudes, modes of comportment and behavioral routines.
166 See Milton Friedman, Capitalism and Freedom (2020 ed.) (1962); Hayek, Road to Serfdom (n 99) (both emphasising freedom as essential). As mentioned above, Waheed Hussain has recently followed a parallel course to Honneth’s in emphasising the value of freedom as opposing, rather than supporting, the expansion of market structure and organisational logic in modern societies. For Hussain, a primary problem is how a world dominated by market rationality can become authoritarian. Hussain (n 12).
167 Honneth (n 4) at 337 n.1. One may also interpret the value of ‘freedom’ here as equivalent to the value of ‘liberty’ employed in some other social and political theories.
168 Honneth also offers a complex view of ‘the right of ‘freedom’ to include interrelated dimensions of ‘negative freedom,’ ‘reflexive freedom,’ and ‘social freedom.’ Id. at 13–62. Without providing a full explanation here, these dimensions include (1) dedicated social space for individuals (and perhaps freely created organisations) to exercise freedom of choice in particular areas of life preserved and protected by law against the political state and other institutional interference (negative freedom), (2) the ability of individuals (and perhaps organisations) to exercise capacities of self-reflection an at least to some extent to exercise free will with respect to chosen actions (reflexive freedom), and (3) the potential to act with volition and moral purpose in social systems, including both economic markets (and various roles within them) and democratic governments (social freedom). See also Rutger Claassen, ‘Social Freedom and the Demands of Justice: A Study of Honneth's Recht Der Freiheit,’ 21 Constellations 67 (2014).
Others have also questioned whether ‘only freedom’ should serve as an ultimate value in social theory as Honneth seems to maintain. See, e.g., Christopher F. Zurn, Axel Honneth: A Critical Theory of the Social (2015) at 192–93.
169 For criticism that Honneth’s social theory as expressed in Freedom’s Right does not sufficiently include an ‘environmental sensibility,’ see Odin Lysaker, ‘Ecological Sensibility: Recovering Axel Honneth’s Philosophy of Nature in the Age of Climate Crisis,’ 21 Critical Horizons 205 (2020).
170 Honneth (n 4) at 5.
171 In this respect, Honneth follows Durkheim, Hegel, and Parsons. See notes 141 and 165 above.
172 Id. at 177. As one of his interpreters also observes, ‘Honneth does not reject capitalism wholesale, seeing market relations rather as structured by inherent moral content and as potential spheres for the realization of individuals’ social freedom when properly institutionalized.’ Zurn (n 168) at 21.
173 Honneth (n 4) at 198.
174 Id. at 191.
175 Id. at 192.
176 Id.
177 Id. at 198.
178 Id. (noting ‘normative misdevelopments’ must be ‘measured against presupposed principles of legitimacy’ which will often include a focus on ‘legal reforms’).
179 For an account of the rise of individual ‘influencers’ especially in marketing on social media, and some suggestions for regulating deceptive influencers and their sponsors, see Alexandra J. Roberts, ‘False Influencing,’ 109 Georgetown Law Journal 81 (2020). See also Hannibal Travis, ‘The Freedom of Influencing,’ 77 University of Miami Law Review 388 (2023) (recounting regulation of influencers by the Federal Trade Commission and push-back that such regulation may violate freedom of speech rights).
In the political realm, influencers on social media, sometimes coordinated by nation-states or political campaigns, play a significant role in purveying ‘fake news’ and other propaganda or digital disruption designed to enflame public opinion. On the problem of ‘fake news’ and recommended steps to respond to it, see, e.g., Mark Verstraete, Jane R. Bambauer and Derek E. Bambauer, ‘Identifying and Countering Fake News,’ 73 Hastings Law Journal 821 (2022). See also Andrew Selbst, ‘The Journalism Ratings Board: An Incentive-Based Approach to Cable News Accountability,’ 44 University Michigan Journal of Law Reform 467 (2011) (recommending formation of a new administrative subagency under the Federal Communications Commission to rate television news programs for accuracy, which could be extended to internet sources). For an argument favouring the development of human rights norms from the bottom up rather than through top-down state and international action, see Adnan A. Zulfiqar, ‘Human Rights Norms from Below, ‘48 Yale Journal of International Law 55 (2023).
180 See discussion above in Part I.
181 These rules are generally negative ‘prescriptions,’ but prescriptive laws can also be framed as affirmative duties – such as a requirement to provides specific information (such as annual financial or other performance reports) – with penalties attached for a failure to act in the prescribed manner.
182 For a critique of ‘command-and-control’ as a rhetorical device invented and promulgated to oppose effective governmental regulation, see Jodi L. Short, ‘The Paranoid Style in Regulatory Reform,’ 63 Hastings Law Journal 633 (2012). Professor Short nevertheless recognizes a number of different approaches to regulation to have developed, including (1) deregulation (or no regulation), (2) liability-based regulation (relying on background tort, property, and contract private law), (3) market-based regulation (using, for example, tradeable pollution permits or taxation schemes), and (4) self-regulation (including voluntary or mandatory informational regulation). Id. at 664–68. For a similar menu of regulatory options, see Sarah E. Light and Eric W. Orts, ‘Parallels in Public and Private Environmental Governance,’ 5 Michigan Journal of Environmental and Administrative Law 1, 23–53 (2015) (including ‘prescription’ as a more neutral description than ‘command-and-control,’ as well as options of property, market-leveraging, tradeable permits, information, procurement, and insurance); Carol M. Rose, ‘Rethinking Environmental Controls: Management Strategies for Common Resources,’ 1991 Duke Law Journal 1, 9–10 (1991) (providing an easy-to-remember set of options for commons problems including ‘do nothing,’ ‘keepout,’ ‘right way,’ and ‘property’). For an argument for public-private cooperative or ‘modular’ regulation, see Jody Freeman and Daniel A. Farber, ‘Modular Environmental Regulation,’ 54 Duke Law Journal 795 (2005). And for a critique of focusing too much on instrument choice rather than the specific problems at hand, specifically the climate emergency, see William Boyd, ‘The Poverty of Theory: Public Problems, Instrument Choice, and the Climate Emergency,’ 46 Columbia Journal of Environmental Law 399 (2021).
183 See C. Edward Fletcher, III, ‘Sophisticated Investors Under the Federal Securities Laws,’ 1988 Duke Law Journal 1081, 1133–34 (1988) (discussing the historical origin of the primary federal securities laws in the United States as focused on protecting ‘the average investor,’ assuring confidence in the capital markets, and addressing a concern that financial markets were leeching capital away from productive uses in the real economy).
184 Usha Rodrigues, ‘Securities Law's Dirty Little Secret,’ 81 Fordham Law Review 3389, 3389 (2013). As Rodriguez explains: ‘the rich not only have more money – they also have access to types of wealth-generating investments not available, by law, to the average investor. An investor with enough income or a high enough net worth (an accredited investor) can invest in a private equity fund, for example, or in still-private companies before they go public. The rest of us cannot.’ Id. at 3390–91. See also Christina Parajon Skinner, ‘Private Equity for the People’, 171 University of Pennsylvania Law Review 2059, 2063–67 (2023) (observing that legal restrictions for investing in private equity markets exacerbate wealth inequality). For an argument that the accredited investor requirement for private equity is also racially discriminatory, see Grier E. Barnes, Note, ‘Racial Exclusion in Private Markets: How the New Accredited Investor Standard Is Arbitrary and Capricious,’ 96 N.Y.U. Law Review 1966 (2021). For an account of how a ‘club-like approach’ characterises hiring within many financial firms ‘based on metrics such as ethnic or racial groups, gender, geographic location, or schools attended,’ see Olufunmilayo B. Arewa, ‘Investment Funds, Inequality, and Scarcity of Opportunity,’ 99 Boston University Law Review 1023, 1053–54 (2019). For recent critiques of the private equity business as engaged in the ‘plundering’ of other interests in society in the name of profit maximisation for investors, see Brendan Ballou, Plunder: Private Equity’s Plan to Pillage America (2023); Gretchen Morgenstern and Joshua Rosner, These Are the Plunderers: How Private Equity Runs – and Wrecks – America (2023).
185 Max M. Schanzenbach and Robert H. Sitkoff, ‘Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee,’ 72 Stanford Law Review 381, 385–86 (2020). See also Stéphanie Lachance and Judith C. Stroehle, ‘The Origins of ESG in Pensions,’ in Pension Funds and Sustainable Investment: Challenges and Opportunities (P. Brett Hammond, Raimond Mauer and Olivia S. Mitchell eds. 2023), 58–81 (emphasizing importance of various factors, including legal fiduciary duties, with respect to pursuing non-fiduciary objectives within pension funds in international context).
186 For accounts of this dilemma for the interests of labour and their pension funds, see, e.g., David H. Webber, ‘The Use and Abuse of Labor’s Capital,’ 89 N.Y.U. Law Review 2106 (2014); Stewart J. Schwab and Randall S. Thomas, ‘Realigning Corporate Governance: Shareholder Activism by Labor Unions,’ 96 Michigan Law Review 1018 (1998). For a recent account of use of corporate financial techniques by labour unions and pension funds, see Sanford M. Jacoby, Labor in the Age of Finance: Pensions, Politics, and Corporations from Deindustrialization to Dodd-Frank (2022).
187 See Abbye Atkinson, ‘Commodifying Marginalization,’ 71 Duke Law Journal 773 (2022) (arguing that public pension funds find themselves investing in marginalized debt and the companies purveying it while that these investments are at the same time doing harm to the citizens whom the government works to assist).
188 See discussion above in Part I.
189 See discussion above in Part II.
190 See note 22 above (citing, e.g., the Revlon and eBay cases in the United States). For a defense of shareholder value maximisation referring to the leading cases in the U.S. context, see also Stephen M. Bainbridge, The Profit Motive: Defending Shareholder Wealth Maximization (2023).
191 For an influential account critical of managerial dysfunction in the implementation of the economic theory in practice, see Lucian Bebchuk and Jesse Fried, Pay without Performance: The Unfulfilled Promise of Executive Compensation (2006). For criticism of the economic and legal theory itself, see, e.g., Orts (n 3) at 231–39. One recent critique goes so far as to suggest that tying executive pay to shareholder price performance incentivises fraud and corporate criminality. William K. Black and June Carbone, ‘Economic Ideology and the Rise of the Firm as a Criminal Enterprise,’ 49 Akron Law Review 371 (2016). For an historical account in the U.S. context emphasising the role of labour unions and social norms in providing a check on exorbitant executive compensation, see Steven A. Bank, Brian R. Cheffins and Harwell Wells, ‘Executive Pay: What Worked?’ 42 Journal of Corporation Law 59 (2016).
192 On fiduciary principles, their history, and contemporary scope see Tamar Frankel, Fiduciary Law (2011); Tamar Frankel, ‘Towards Universal Fiduciary Principles,’ 39 Queen's Law Journal 391 (2014).
193 It would also be good to recover an understanding of basic principles of agency law rather than the more modern economic gloss of agency costs. Eric W. Orts, ‘Shirking and Sharking: A Legal Theory of the Firm,’ 16 Yale Law & Policy Review 265, 270–82 (1998). Agency law reinforces some basic truths about how firms are constructed with fiduciary duties owed to others as a primary responsibility of business leaders. See Orts (n 3) at 54–62 (discussing legal agency as a key building block of firms); see also American Law Institute, Restatement of Law of Agency (Third) (2006), especially introduction and ch. 1 (setting forth the basics, including applications to organisations).
194 See Cynthia A. Williams, ‘Fiduciary Duties and Corporate Climate Responsibility,’ 74 Vanderbilt Law Review 1875 (2021). Corporate compliance regimes may serve as a method of instantiating this interpretation of fiduciary duty. For this argument, see Susan S. Kuo and Benjamin Means, ‘Climate Change Compliance,’ 107 Iowa Law Review 2135 (2022).
195 Matteo Gatti and Chrystin Ondersma, ‘Can A Broader Corporate Purpose Redress Inequality? The Stakeholder Approach Chimera,’ 46 Journal of Corporate Law 1 (2020); Matteo Gatti and Chrystin Ondersma, ‘Stakeholder Syndrome: Does Stakeholderism Derail Effective Protections for Weaker Constituencies?’ 100 North Carolina Law Review 167 (2021).
196 For an overview, see Reiser and Dean, Social Enterprise Law (n 26) 52–76; Orts (n 3) at 206–15; Eldar (n 6) at 964–73. See also Restatement of the Law of Corporate Governance, § 2.01, reporter’s note 7 (Tentative Draft No. 1, April 2022) (counting 34 states now authorizing public benefit corporations). Other new business forms organised along similar lines include low-profit limited liability companies (L3Cs) and work integration social enterprises (WISEs). See Orts (n 3) at 207–10; Eldar (n 6) at 949, 963, 973–74. Some of these business forms are specifically designed to attract tax-exempt ‘program-related investments’ (PRIs) from nonprofit foundations seeking to ‘do good’ while reducing their costs. See, e.g., Eldar (n 6) at 944, 958–63.
197 Eldar (n 6) at 940–41, 964–68.
198 Ofer Eldar, ‘The Role of Social Enterprise and Hybrid Organizations,’ 2017 Columbia Business Law Review 92, 98 (2017) (noting that the problem ‘in most cases’ of hybrid organisations that ‘it is practically impossible to measure and verify the accomplishment of altruistic goals’). For reflections on ‘metrics’ and why they matter and are difficult to specify, see also Reiser and Dean, Social Enterprise Law (n 26) at 124–42.
199 Eldar (n 6) at 943, 989–99. The proposal derives from what Eldar sees as successful WISE firms in Europe and community development financial institutions in the United States. Id. at 973–85.
200 Id. at 943–44, 999–1000.
201 Dorothy S. Lund and Elizabeth Pollman, ‘The Corporate Governance Machine,’ 121 Columbia Law Review 2563 (2021) (describing the systemic nature of corporate governance in the United States as favouring and entrenching the norm of shareholder value maximisation). On lobbying, see also notes 129, 150, 152, and 153 above.
202 Fairfax (n 6). Business leaders recently made a series of high-profile announcements of a turn away from profit maximisation toward a broader ‘stakeholder’ view of corporate purpose. The most prominent of these were a public statement made favouring this approach by the Business Roundtable of CEOs in 2019 and repeated statements by Larry Fink, the head of Blackrock, the large asset managing firm. Id. at 1165–66 (citing sources). However, as Fairfax points out, ‘we have been here before,’ and ‘there are reasons to be skeptical.’ Id. at 1167. The academic discussion in the United States stretches back at least to a famous 1932 debate between Adolf Berle and Merrick Dodd. See A. A. Berle, Jr., ‘For Whom Corporate Managers Are Trustees: A Note,’ 45 Harvard Law Review 1365 (1932); E. Merrick Dodd, Jr., ‘For Whom Are Corporate Managers Trustees?, 45 Harvard Law Review 1145 (1932).
As Fairfax notes, this debate periodically recurs, such as in the discussion about corporate constituency statutes enacted in the late 1980s and early 1990s in many U.S. states when an increasing number of hostile takeovers threatened to overrun the business judgment rule and fiduciary duty of care protections for corporate managers and directors. Historically, though, the corporate responsibility debate has deeper roots outside of the United States, mostly notably perhaps in the Weimar Republic in Germany in the important (though now mostly forgotten or ignored) work of Walther Rathenau, a prominent industrialist and politician who was assassinated by the far right in 1922. For a recovery Rathenau’s ideas on firms and corporate purpose, see Blanche Segrestin, ‘When Innovation Implied Corporate Reform: A Historical Perspective Through the Writings of Walther Rathenau,’ Gérer et Comprendre, Annales des Mines (2017), https://shs.hal.science/halshs-01736509/document.
203 See Ballou (n 184) at 226–34. See also Morgenson and Rosner (n 184) at 175–212, 258–78 (discussing private equity deals in the healthcare industry). One recent study finds that healthcare prices increased by an average of 11% in companies after private equity buyouts from 2006 to 2019 caused in large part by financial engineering and bargaining techniques used in the private equity deals. Tong Liu, ‘Bargaining with Private Equity: Implications for Hospital Prices and Patient Welfare,’ MIT Sloan School working paper (last revised Nov. 30, 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3896410. See also Edward Hoffer, ‘Private Equity and Medicine: A Marriage Made in Hell,’ 137 American Journal of Medicine 5, commentary (Jan. 2024), https://www.amjmed.com/article/S0002-9343(23)00589-2/pdf (decrying the pernicious effects on health care costs and quality through private equity deals).
204 See note 184 above.
205 The U.S. Securities and Exchange Commission recently enhanced reporting requirements, though the new regulation did not go as far as expected. See Ropes and Gray, SEC Adopts New Private Fund Adviser Rules (Aug. 29, 2023), https://www.theregreview.org/2022/11/10/tunney-sec-proposes-private-fund-reform-to-protect-investors/; William Tunney, ‘SEC Proposes Private Fund Reform to Protect Investors,’ Regulatory Review (Nov. 10, 2022), https://www.theregreview.org/2022/11/10/tunney-sec-proposes-private-fund-reform-to-protect-investors/.
206 Ballou (n 184) at 234–42. Note that calls for increased transparency in the private equity have, at least to some extent, been bipartisan. See Morgenson and Rosner (n 184) at 318–19 (discussing Trump-appointed SEC Commissioner Allison Herron Lee’s call for more disclosure in the securities industry).
207 Ballou (n 184) at 234–43. See also Morgenson and Rosner (n 184) at 314–24. Unfortunately, trends in the United States with respect to the promiscuity and underenforcement of corporate fraud appear to be going in the wrong direction. See Ankush Khardori, ‘Financial Fraudsters Have Escaped Justice for Far Too Long,’ New York Times (Nov. 14, 2023), https://www.nytimes.com/2023/11/13/opinion/financial-fraud-justice-department.html (citing FBI statistics estimating financial fraud in the tens of billions of dollars and recounting views from experts that anti-fraud enforcement is much too weak).
208 Ballou (n 184) at 243–44. See also Rosemary Batt, ‘The Stop Wall Street Looting Act,’ Cornell University ILR School (Nov. 4, 2021), https://www.ilr.cornell.edu/news/faculty/batt-offers-reflections-stop-wall-street-looting-act.
209 Morgenson and Rosner (n 184) at 315–16 (noting the bill ‘died under intense lobbying pressure’).
210 Id. at 314 (describing ‘the billions of dollars flowing from these funds’ to be an ‘enabler’ and ‘the oxygen’ of the private equity business). For an account of the role of labour unions in both participating in and criticizing private equity deals, see Jacoby (n 186) at 167–93.
211 It is also not clear that private equity continues to be a good investment for institutional investors on economic grounds. See Jeffrey C. Hooke, The Myth of Private Equity: An Inside Look at Wall Street’s Transformative Investments (2021) (warning that the private equity business model has been oversold).
212 See Ballou (n 184) at 140–42, 221, 244. Other groups include the Private Equity Stakeholder Project, Americans for Financial Reform, and the Open Markets Network. Id. at 223.
213 Since 1980, economic inequality has been rising almost everywhere in the world. The top decile of citizens in the United States, Europe, China, India, and Russia have all seen their share of income rise from around 25–35 percent in 1980–35 to 55 percent in 2018. Piketty, Capital and Ideology (n 116) at 20–21 and fig. 1.3. Economic inequality in the U.S. and Russia is much higher than in Europe, and inequality in India has grown much higher than in China. Id. A significant reason for the increasing inequality in the U.S. is ‘the explosion of high salaries for executives since 1980.’ Id. at 421. See also Emily Barreca, Note, ‘Accountable Compensation: The Progressive Case for Stakeholder-Focused, Board-Empowering Executive Compensation Laws,’ 37 Yale Journal on Regulation 338, 346–48 (2020) (reviewing evidence for the connection between increasing wealth inequality and rising executive pay in the United States); Elizabeth Warren, ‘Companies Shouldn’t Be Accountable Only to Shareholders,’ Wall Street Journal (Aug. 14, 2018), https://www.wsj.com/articles/companies-shouldnt-be-accountable-only-to-shareholders-1534287687 (‘Because the wealthiest 10% of U.S. households own 84% of American-held shares, the obsession with maximizing shareholder returns effectively means America’s biggest companies have dedicated themselves to making the rich even richer.’).
214 Barreca (n 213) at 348–51 (summarizing the interventions and evidence of scant effect).
215 The repeal of progressive income tax rates on the wealthy has been a major contributing factor to increasing economic inequality, as well as a spur to increasing executive pay. See Piketty, Capital and Ideology (n 116) at 495–96, 532–33 (noting top marginal rates in the United Kingdom and U.S. were 70% to 90% between 1930 and 1980).
216 Barreca (n 213) at 351–54 (reviewing this approach in the U.S. context).
217 See, e.g., Orts (n 3) at 231–39. Incentive pay has also been used for non-executive level employees in certain industries, notably in some so-called high-technology firms. See, e.g., Yoshio Yanadori and Janet H. Marler, ‘Compensation strategy: does business strategy influence compensation in high-technology firms?’ 27 Strategic Management Journal 559 (2006). However, evidence is mixed on whether incentive compensation for employees will prove to be a long-term trend and, if so, in which business sectors. See, e.g., Sanjib Chowdhury and Eric Schulz, ‘The levels of base pay and incentive pay used by small firms to compensate professional employees with general and specific human capital.’ 60 Journal of Small Business Management 1 (2022).
218 See Hanson and Yosifon (n 133) at 200–30 (on ‘deep capture’). For an overview of the current legal landscape in the United States, which appears at the Supreme Court level to be now moving against even required disclosures as a regulatory option, see Amanda Shanor, Mary-Hunter McDonnell and Timothy Werner, ‘Corporate Political Power: The Politics of Reputation and Traceability,’ 71 Emory Law Journal 153, 156–69, 173–75, 193–99 (2021).
219 Despite the recent increase in measures of economic inequality, long-term historical trends provide reason for hope. See Piketty, Capital and Ideology (n 116) at 7, 16–20. See also Goldman (n 145) at 149–53 (reconstructing a view of ‘working hope’ as a pragmatic ‘practical orientation’ embracing both ‘institutional reconstruction’ and experimentation).
220 See, e.g., Piketty, Capital (n 116) at 515–39 (describing a ‘global tax on capital’ as an ideal); Piketty, Capital and Ideology (n 116) at 565–77 (describing historical experience and proposals for various kinds of wealth taxes). Enhancement of inheritance taxes would also be an option. A related idea with respect to inheritances would be to use increased wealth-based taxes as a means to provide every person with a ‘minimal inheritance’ when they reach a mature age (say 25). See Thomas Piketty, A Brief History of Equality (Steven Rendall trans.) (2022), 159–63 (introducing this basic idea). See also Bruce Ackerman and Anne Alstott, The Stakeholder Society (2000) (proposing a similar idea granting each citizen an $80,000 stake when they reach the age of majority).
A global wealth tax to address the problem of climate adaptation might also be a good place to start. A treaty or international agreement for a small percentage tax on global citizens owning more than $100 million could help to finance climate adaptation in poorer countries: ‘1.5% for 1.5°’ is a possible catchphrase. See Gabrielle See, ‘Modest tax rates on the global elite could close huge climate finance gap: UN-backed report,’ Eco-Business (Feb. 3, 2023), https://www.eco-business.com/news/modest-tax-rates-on-the-global-elite-could-close-huge-climate-finance-gap-un-backed-report/. For precedents in international law, see also Vanessa Fetter, ‘A Global Climate Wealth Tax to Fund a Worldwide, Just Transition,’ in Ecological Transition and Environmental Taxation (forthcoming), SSRN working draft (Aug. 15, 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4404926.
221 See, e.g., Piketty, Capital (n 116) at 493–514 (providing historical background on progressive income taxes and recommending a return to high marginal rates on the highest incomes as a partial response to widening wealth inequality); Piketty, Capital and Ideology (n 116) at 151, 387, 558–59 (noting origins of progressive income taxes in various countries beginning at the cusp of the twentieth century). See also Emmaneul Saez and Gabriel Zucman, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay (2019), 115 (noting that ‘the progressive income tax has historically been the most potent tool to curb the concentration of riches’).
222 For example, a bill for a Shareholder Protection Act was introduced in 2010 to mandate binding shareholder votes on political campaign spending by corporations. Barreca (n 213) at 342. Employees who are also shareholders can exercise influence on executive pay too. See Jacoby (n 186) at 127–51 (discussing activism by unions); Gretchen Morgenson, ‘Employees, Too, Want a Say on the Boss’s Pay,’ New York Times (Apr. 21, 2012), https://www.nytimes.com/2012/04/22/business/employees-too-want-a-say-on-the-bosss-pay.html (same).
223 For a proposal along these lines, noting that the U.S. Supreme Court has been generally favorably inclined more toward disclosure requirements rather than substantive limitations on amounts of political spending, see Shanor, McDonnell and Werner (n 218) at 161–63. See also notes 156 and 157 above.
224 See Olivia Olander and Nick Niedzwiadek, ‘What the pending UAW-Big 3 deals mean for workers, Biden and the economy,’ Politico (Oct. 30, 2023), https://www.politico.com/news/2023/10/30/uaw-big-3-labor-biden-economy-00124368 (noting that the deals giving workers wage raises of approximately 25% may mark a turning point). On the economic power of labour unions, see Angus Deaton, Economics in America: An Immigrant Economist Explores the Land of Inequality (2023), 220–21 (noting that unions ‘not only raised wages for their members, as well as many nonmembers, but also kept an eye on working conditions’ and provided a ‘countervailing power for working people’ in politics); Piketty, A Brief History of Equality (n 220) at 45–47, 119–20 (noting the importance of labour unions in terms of their ‘negotiating power’ with capitalist enterprises).
225 See Shanor, McDonnell and Werner (n 218) at 158 (noting that shareholder proposals targeting political spending and lobbying have recently been the most popular proposals).
226 See Sarah C. Haan, ‘Shareholder Proposal Settlements and the Private Ordering of Public Elections,’ 126 Yale Law Journal 262 (2016). See also discussion above in Part IV.
227 For an optimistic account of long-term trends toward economic equality, see Piketty, A Brief History of Equality (n 220) at 1–2, 16–18. The most recent major causes have been the rise of the welfare state, progressive taxation, and the end of colonialism. Id. at 121–46. On pragmatic hope as an alternative to unthinking optimism or an undue faith in historical progress, see Goldman (n 145) at 1–7, 150.
228 Honneth (n 4) at 198–253.
229 As Honneth writes, ‘the actual heart of the economy lies in the market-mediated sphere of social labour.’ Id. at 223. See Orts (n 3) passim (counting employees as participants in a legal theory of the firm).
230 See Honneth (n 4) at 227–28. For an overview of the development of labour law in the United States, with an emphasis on the recognition of constitutional rights in occupational settings, see Sophia Z. Lee, The Workplace Constitution: From the New Deal to the New Right (2014). Of course, the effectiveness of labour rights depends also on including people as full-fledged employees, rather than temporary labour outside firms.
231 For a proposal for U.S. reforms that would move toward greater labour participation practices such as codetermination and works councils in the European Union and particular countries like Germany, see Leo E. Strine, Jr. et. al., ‘Lifting Labor’s Voice: A Principled Path Toward Greater Worker Voice and Power Within American Corporate Governance,’ 106 Minnesota Law Review 1325 (2022). The main proposal is for a ‘minimalist’ approach to ‘board co-determination,’ and several bills have been introduced in Congress that would move marginally toward this result. Id. at 1327–33 (overview of proposed reforms). Strine and his co-authors believe other large-scale reforms are needed too, including enhanced mandatory reporting and informational disclosure by companies, as well as the adoption of an expansive fiduciary duty of care principle at the federal level. Id. at 1331–32, 1380–94. See also Leo E. Strine, Jr. and Kirby M. Smith, ‘Toward Fair Gainsharing and a Quality Workplace for Employees: How a Reconceived Compensation Committee Might Help Make Corporations More Responsible Employers and Restore Faith in American Capitalism,’ 76 Business Lawyer 31 (2021) (arguing for a reconceptualization of compensation committees on corporate boards to consider ‘gainsharing’ with employees as well as traditional questions of incentive-based executive compensation).
232 One additional example is mandatory top-down safety regulations in the workplace, which firms and unions can then enhance if they wish. In the United States, for example, the most effective mandatory standards are set by administrative agencies such as the Occupational Safety and Health Administration, though the power and effectiveness of these agencies has been waning. See, e.g., Sidney A. Shapiro and Randy Rabinowitz, ‘Voluntary Regulatory Compliance in Theory and Practice: The Case of OSHA,’ 52 Administrative Law Review 97 (2000). Nonprofit associations which are often composed of business firms also play a significant role in standard-setting for safety. See Robert W. Hamilton, ‘The Role of Nongovernmental Standards in the Development of Mandatory Federal Standards Affecting Safety or Health,’ 56 Texas Law Review 1329 (1978) (providing a comprehensive overview of the structure of U.S. law in this area); Lesley K. McAllister, ‘Harnessing Private Regulation,’ 3 Michigan Journal of Environmental & Administrative Law 291 (2014) (discussing contemporary practices in the setting of private standards which are then endorsed or adopted administratively, legislatively, or judicially).
233 For example, estimates in the United States show that the percentage of unionised workers declined from approximately 35 percent of the private and public sectors in the 1950s to less than 10 percent today. Lee (n 230) at 257, 261 fig. A1.
234 Id. at 257.
235 The idea of full employment as a policy goal is an old one, and some countries have made efforts in this direction. See, e.g., Alvin H. Hansen, Economic Policy and Full Employment (1947). See also John Low-Beer, ‘Perspectives on Social Inequalities,’ 84 Yale Law Journal 1591, 1599–600 (1975) (book review) (noting that powerful business interests oppose full employment legislation but arguing the idea is not utopian); Pavlina R. Tcherneva and L. Randall Wray, ‘Common Goals-Different Solutions: Can Basic Income and Job Guarantees Deliver Their Own Promises? 2 Rutgers Journal of Law & Urban Policy 125 (2005) (canvassing options and arguing in favour of employer-as-last-resort programs).
236 For an argument along these lines, see Cynthia Estlund, ‘What Should We Do After Work? Automation and Employment Law,’ 128 Yale Law Journal 254 (2018).
237 Honneth (n 4) at 246.
238 Morris R. Cohen, ‘The Basis of Contract,’ 46 Harvard Law Review 553, 560 (1933).
239 Honneth (n 4) at 252–53 (recognizing the ‘misdevelopment’ in labour markets and suggesting ‘transnational’ solutions, though not providing specific recommendations). To date, international efforts to improve labour conditions and expand labour rights have not been particularly successful. See, e..g., Alan Hyde, ‘The International Labor Organization in the Stag Hunt for Global Labor Rights,’ 3 Law & Ethics of Human Rights 153 (2009) (canvassing different approaches and finding them wanting). But see Laurence R. Helfer, ‘The Future of the International Labour Organization,’ 101 American Society of International Law Proceedings 391 (2007) (recognizing that the ILO is ‘widely perceived to be a weak and ineffectual institution’ but noting some possible directions for progress). An employer’s group within the ILO has even argued against the right to strike as fundamental. Janice R. Bellace, ‘The ILO and the Right to Strike,’ 153 International Labour Review 29 (2014).
240 As Honneth observes, the development and expansion of ‘a new culture of consumerism’ enabled ‘the growing dynamism of the market.’ Honneth (n 4) at 199.
241 Id. at 199–200 (quoting Hegel). For an examination of Hegel’s philosophy of property and its relation to human freedom and individuality, see also Peter G. Stillman, ‘Property, Freedom, and Individuality in Hegel's and Marx's Political Thought,’ in Nomos: Property (vol. 22) (1980), 130–67. As Stillman explains, Hegel’s had an ideal in mind of ‘private property within a free community’ in which ‘each individual [could] develop his own determinations through appropriating himself as his own property within a nexus of recognition of the universality and rights of himself and others as persons.’ Id. at 159. He would have rejected the view of contemporary economists: ‘To justify private property because of the wealth that results,’ for Hegal, would be ‘to ignore individuality and freedom.’ Id. at 163.
For a trenchant critique of the implications of Hegel’s philosophy – and particularly his valorisation of the state as an engine of human history with implications that were antithetical to values of individual liberty and freedom – see Isaiah Berlin, Freedom and Its Betrayal: Six Enemies of Human Liberty (2022), 77–104 (reprinting BBC radio lectures given in 1952).
242 Polanyi (n 135) at 79–80. See also Mark Blyth, Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century (2002), 1–7, 274–75 (revisiting Polanyi's account of the ‘double movement’ and extending it to some contemporary social issues). Essentially, Polanyi’s idea is that the development of capitalism creates significant disruptions in social relations, such as when labour markets were first created through the transformation of feudal relationships, and these first-moving disruptions then spur a second or ‘double movement’ of regulatory and other reactions to respond to the disruptions.
243 In the United States, for example, common law actions for fraud and deceit have been supplemented over time by state and federal statutory interventions. As one legal scholar observes, in the context of opposing a law-and-economics inspired bid to undermine the scope of some of these contemporary laws, ‘consumer protection is smart, popular policy, empirically well grounded and part of minimum decency.’ Jean Braucher, ‘Deception, Economic Loss and Mass-Market Customers: Consumer Protection Statutes as Persuasive Authority in the Common Law of Fraud,’ 48 Arizona Law Review 829, 833 (2006). For an early U.S.-based ‘survey of the legal devices that may be employed for the curtailment and suppression of false advertising,’ see also Milton Handler, ‘False and Misleading Advertising,’ 39 Yale Law Journal 22, 23 (1929). For a normative assessment of private actions to protect consumers (as well as other market actors) against ‘competitive wrongs,’ see Nicolas Cornell, ‘Competitive Wrongs,’ 129 Yale Law Journal 2030 (2020).
244 For a comparative and historical overview of this development, see Andreas Maurer, ‘Consumer Protection and Social Models of Continental and Anglo-American Contract Law and the Transnational Outlook,’ 14 Indiana Journal of Global Legal Studies 353 (2007). Recently, some protections have been extended to consumers of financial products as well, though proposals to subject new financial products to the same standards as consumer goods (such as automobiles) have not been adopted. See Oren Bar-Gill and Elizabeth Warren, ‘Making Credit Safer,’ 157 University of Pennsylvania Law Review 1 (2008) (recommending this step).
245 For the history of class actions in the U.S. context, see Anne Fleming, ‘A History of Consumer Class Actions in State Court,’ 15 Brooklyn Journal of Corporate, Financial & Commercial Law 131 (2020); David Marcus, ‘The History of the Modern Class Action, Part I: Sturm Und Drang, 1953–1980,’ 90 Washington University Law Review 587 (2013); Richard Marcus, ‘Revolution v. Evolution in Class Action Reform,’ 96 North Carolina Law Review 903 (2018). On internationalization of class actions, see Deborah R. Hensler, ‘The Globalization of Class Actions: An Overview,’ 622 Annals of the American Academy of Policy & Social Science 7 (2009); Deborah R. Hensler, ‘From Sea to Shining Sea: How and Why Class Actions Are Spreading Globally,’ 65 University of Kansas Law Review 965 (2017). On mass torts and other complex litigation, see Deborah R. Hensler, ‘Improving Our Understanding of Mass Claims Evolution, Management, and Resolution,’ 84 Law & Contemporary Problems 143 (2021).
246 See, e.g., U.S. Food and Drug Administration, Gluten-Free Labeling of Foods (updated Mar. 7, 2022), https://www.fda.gov/food/food-labeling-nutrition/gluten-free-labeling-foods.
247 A gray area in the latter method of informational regulation constitutes what a famous philosopher has defined as ‘bullshit,’ that is, statements or claims that are not intentionally deceitful but are nevertheless made without any serious concern about their truth. Harry G. Frankfurt, On Bullshit (2005).
248 Jamie A. Grodsky, ‘Certified Green: The Law and Future of Environmental Labeling,’ 10 Yale Journal on Regulation 147, 150 (1993). See also Amanda Shanor and Sarah E. Light, ‘Greenwashing and the First Amendment,’ 122 Columbia Law Review 2033 (2022) (providing an overview of U.S. law and arguing in favour of governmental power to regulate false and misleading environmental claims against First Amendment challenges); Jeffrey J. Minneti, ‘Relational Integrity Regulation: Nudging Consumers Toward Products Bearing Valid Environmental Marketing Claims,’ 40 Environmental Law 1327 (2010) (providing an overview of academic legal commentary and approaches in U.S. and European law).
249 Ramsi A. Woodcock, ‘The Obsolescence of Advertising in the Information Age,’ 127 Yale Law Journal 2270 (2018).
250 On the moral lines regarding manipulation in markets, see Sophie Gibert, ‘The Wrong of Wrongful Manipulation,’ 51 Philosophy & Public Affairs 333 (2023).
251 See Honneth (n 4) at 216–17 (describing the ‘so-called ‘moralization’ or ‘ethicization’ behavior’ of consumers who are ‘said to follow ecological, social and moral considerations when they make their purchases,’ though noting that numbers of ‘post-material’ consumers tend to be exaggerated). As Honneth argues, ‘consumer cooperatives’ could coordinate market pressure for normative change, but ‘existing consumer organizations are often far too large and bureaucratic to represent vital forums,’ and the internet to date has not helped much either. Environmental consumer action groups are hampered by a lack of reliable information about products and services. For an example of movement in this direction, however, see Marta L. Tellado, ‘From Our President: Greener Choices Ahead,’ Consumer Reports, June 9, 2022, https://www.consumerreports.org/environment-sustainability/from-our-president-greener-choices-ahead-a9429970485/.
252 On the ethics of consumer boycotts, see Brian Berkey, ‘Ethical Consumerism, Democratic Values, and Justice,’ 49 Philosophy & Public Affairs 233 (2021).
253 See Honneth (n 4) at 218–19. See also Yann Truong, ‘Personal Aspirations and the Consumption of Luxury Goods,’ 52 International Journal of Market Research 655 (2010) (providing a literature review tracking the growth of this market and possible motivations driving it). The classic in the field of course is Thorstein Veblen, The Theory of the Leisure Class (1899).
254 Honneth (n 4) at 218.
255 Although generally somewhat pessimistic in his assessment of these trends, Honneth admits ‘it cannot be denied that this [moral and post-material] change of attitude in one part of the population has moved many firms and corporations to show greater respect for these values in their production processes, and to emphasize these norms of quality in their advertising.’ He agrees that ‘companies, in their business interest, have followed the moral signals sent by different groups of consumers by changing their buying habits and have increasingly fulfilled their task of serving the satisfaction of consumer needs.’ Id. at 216.
256 Beckert (n 70), ch. 9.
257 Id. at 194 (quoting Sidney J. Levy, ‘Symbols for Sale,’ 37 Harvard Business Review 117, 118 (1959)).
258 See Brian Trelstad, Nien-hê Hsieh, Michael Norris and Susan Pinckney. ‘Patagonia: 'Earth Is Now Our Only Shareholder,’’ Harvard Business School Case 323–057 (Mar. 2023, revised Sept. 2023), https://www.hbs.edu/faculty/Pages/item.aspx?num=63834.
259 Id. For a legal description and generally positive assessment of the ‘noncharitable perpetual purpose trust’ or ‘stewardship trust’ used by Patagonia, see Beck Groff and Susan N. Gary, ‘Patagonia, Purpose Trusts, and Stewardship Trusts – Business with a Purpose,’ 37 Probate and Property 36 (Jan./Feb. 2023).
260 See Erin McCormick, ‘Patagonia’s billionaire owner gives away company to fight climate crisis,’ Guardian (Sept. 14, 2022), https://www.theguardian.com/us-news/2022/sep/14/patagonias-billionaire-owner-gives-away-company-to-fight-climate-crisis-yvon-chouinard; Charles Conn, ‘Patagonia Chair: ‘We are turning capitalism on its head by making the Earth our only shareholder,’’ Fortune (Sept. 14, 2022), https://fortune.com/2022/09/14/patagonia-chair-we-are-turning-capitalism-on-its-head-by-making-the-earth-our-only-shareholder-charles-conn/.
From a business point of view, one value that can drive change is a return to ‘quality’ and away from the production and consumption of cheap, wasteful products. Yvon Chouinard, ‘The High Stakes of Low Quality,’ New York Times (Nov. 23, 2023), https://www.nytimes.com/2023/11/23/opinion/patagonia-environnment-fast-fashion.html (making this argument).
261 See Light and Orts (n 182). See also Joshua Ulan Galperin, ‘Environmental Governance at the Edge of Democracy,’ 39 Virginia Environmental Law Journal 70 (2021) (arguing for a need to embed internal firm governance options to democratic oversight); Michael P. Vandenbergh, ‘Private Environmental Governance,’ 99 Cornell Law Review 129 (2013) (describing the promise of governance reforms within firms): Michael P. Vandenbergh and Jonathan A. Gilligan, ‘Beyond Gridlock,’ 40 Columbia Journal of Environmental Law 217 (2015) (describing private governance solutions available specifically to address the climate problem).
262 John Armour, Luca Enriques and Thom Wetzer, ‘Green Pills: Making Corporate Climate Commitments Credible,’ 65 Arizona Law Review 285 (2023).
263 See Eric W. Orts, ‘Reflexive Environmental Law,’ 89 Northwestern University Law Review 1227 (1995) (introducing the idea of reflexivity in this context); John S. Dryzek and Jonathan Pickering, ‘Deliberation as a Catalyst for Reflexive Environmental Governance,’ 131 Ecological Economics 353 (2017) (describing the importance and complexity of deliberation in reflexive institutional processes). See also note 158 above.
264 See Magali Delmas, Michael Gerrard and Eric Orts, ‘In California and Europe, a New Dawn for Corporate Climate Disclosure,’ The Hill (Oct. 5, 2023), https://thehill.com/opinion/energy-environment/4238182-in-california-and-europe-a-new-dawn-for-corporate-climate-disclosure/. For a critical assessment of this trend, see also John Armour, Luca Enriques and Thom Wetzer, ‘Mandatory Corporate Climate Disclosures: Now, But How?’ 2021 Columbia Business Law Review 1085 (2022).
In the U.K., narratives and other reports are required to inform shareholders and the public about the behaviour of very large companies with respect to environmental performance, employment practices (including accommodations for disabled people), anti-corruption, anti-slavery practices, global tax policies, gender pay gaps, and executive remuneration. See Micheler (n 1) at 175–86.
In the U.S., these kinds of requirements are less extensive. However, the Environmental Protection Agency requires greenhouse gas reporting for many large companies. U.S. EPA, Resources by Subpart for GHG Reporting (updated July 24, 2023), https://www.epa.gov/ghgreporting/resources-subpart-ghg-reporting. The Securities and Exchange Commission has also proposed new disclosure rules for climate-related issues and Environmental, Social, and Governance (ESG) strategies and metrics. U.S. SEC, Climate-Related Disclosures/ESG Investing (updated Sept. 11, 2023), https://www.sec.gov/securities-topics/climate-esg.
265 For a recent statement of this view, see also Joel Seligman, ‘Framing the Issues: Board Diversity and Corporate Purpose,’ 12 Harvard Business Law Review 249 (2022).
266 On path dependence in corporate law and governance, distinguishing between the ‘structure-driven path dependence’ of initial ownership structures and the ‘rule-driven path dependence’ of the inherited legal background, see Lucian Arye Bebchuk and Mark J. Roe, ‘A Theory of Path Dependence in Corporate Ownership and Governance,’ 52 Stanford Law Review 127 (1999). For a discussion of path dependence from the perspective of comparative law, see John Bell, ‘Path Dependence and Legal Development,’ 87 Tulane Law Review 787 (2013).
267 I do not pretend to have provided anything close to a complete answer here – thus ‘Toward a Theory of Plural Purposes of the Firm’ in the title. I hope to return to this theme in the future and hope also that others will continue to contribute new answers as well.
268 See Part I above.
269 See Honneth (n 4) at viii, 1–11, 62–67, 197–98. See also Zurn (n 168), ch. 4 (discussing Honneth’s ‘diagnoses of social pathologies’ in the context of his other work). But see Julian Culp and Leah Soroko, ‘Normative Reconstruction without Foundation.’ 15 European Journal of Political Theory 248 (2016) (criticizing Honneth’s theory essentially as too Hegelian rather than Kantian or post-Kantian and therefore missing essential philosophical foundations); Jörg Schaub, ‘Misdevelopments, Pathologies, and Normative Revolutions: Normative Reconstruction as Method of Critical Theory,’ 16 Critical Horizons 107 (2015) (arguing that Honneth’s approach abandons the methodology of ‘radical critique’ inherited from the Frankfurt School of critical social theory and is therefore insufficiently ‘revolutionary’).
270 These actions are of course subject to constraints of access to democratic political processes (which are radically reduced in authoritarian states) and some economic surplus above a subsistence income.
271 Ralph Waldo Emerson, ‘Man the Reformer’ in Emerson: Essays and Lectures (Joel Porte ed.) (1983) (1841), 147.
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Eric W. Orts
Eric Orts is the Guardsmark Professor at the Wharton School of the University of Pennsylvania. He is tenured member in the Legal Studies & Business Ethics Department with a secondary appointment in the Management Department. He is also currently a Visiting Professor of Law at Columbia Law School (summer 2023 and expected in summer 2024).
Prior to joining Wharton's faculty, he practiced law at Paul Weiss and was a Chemical Bank fellow in corporate social responsibility at Columbia Law School. He has been visiting faculty at Columbia University (law), NYU (law), INSEAD (business), Harvard University (ethics and government), University of Michigan (law), University of Sydney (law), Tsinghua University (economics and management), KU Leuven (law), UC Santa Barbara (environment), and UCLA (law).
He is a graduate of Oberlin College (BA in government and minor in philosophy), the New School for Social Research (MA in political science), the University of Michigan (JD), and Columbia University (JSD).
His primary research interests are in corporate governance, environmental sustainability, business ethics, and business theory. Examples include Business Persons: A Legal Theory of the Firm (Oxford University Press, rev. ed. 2015); The Moral Responsibility of Firms (co-edited with Craig Smith) (Oxford University Press 2017); and ‘The Climate Imperative for Business’ (with Brian Berkey), California Management Review (2021).
His current teaching focuses on a ‘flex-core’ course for Wharton MBAs that he initiated in ‘Business, Social Responsibility, and the Environment’ as well as a course at Columbia Law School on ‘ESG, Social Impact Investing, and Corporate Responsibility.’