The legal construction of management: a neo-realist framing and genealogical case study

ABSTRACT

The practice of corporate management is not wholly prior to the legal interventions which have sought to shape it since the first emergence of modern industry. A genealogical case study of mine safety legislation discloses the coevolutionary dynamic through which corporate law and practice have been mutually adjusted over time. Revealing the juridical roots of management highlights the importance of law as a normative grounding for the economy. It also validates a neo-realist conception of corporate law, which understands law to be part of the social reality which it constructs. Viewing law this way clarifies the issues at stake in notions of corporate responsibility, both in history, when the vertically integrated business corporation was in the process of being formed, and under current conditions, when it is fragmenting.

KEYWORDS:

• Legal ontology
• genealogy
• corporation
• health and safety
• mining

Acknowledgement

I am grateful to the editors of this Special Issue and to two anonymous referees for feedback on an earlier draft.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Jean-Philippe Robé, ‘The legal structure of the firm’ (201) 1 Accounting, Economics and Law: A Convivium 1-88. See, relatedly, Simon Deakin, David Gindis and Geoffrey M. Hodgson, ‘What is a firm? A reply to Jean-Philippe Robe’ (2021) 17 Journal of Institutional Economics 861-71; Jean-Philippe Robé, ‘Firms versus corporations: a rebuttal of Simon Deakin, David Gindis and Geoffrey M. Hodgson’ (2022) 18 Journal of Institutional Economics 693-701; Simon Deakin, David Gindis and Geoffrey M. Hodgson, ‘A further reply to Jean-Philippe Robé on the firm’ (2022) 18 Journal of Institutional Economics 703-6.

2 On law’s self-reference, see Niklas Luhmann, Social Systems, trans. John Bednarz with Dirk Baecker (Palo Alto, CA: Stanford UP, 1996), at p. 9: ‘The theory of self-referential systems maintain that systems can differentiate only by self-reference, which is to say, only insofar as systems refer to themselves (be this to elements of the same system, to operations of the same system, or to the unity of the same system) in constituting their elements and their elemental operations. To make this possible, systems must create and employ a description of themselves; they must at least be able to use the difference between system and environment within themselves, for orientation and as a principle for creating information’. While other paradigms could be chosen as a basis for analysing the law-economy relation, systems theory is particularly relevant by virtue of its attention to the distinctive, self-referential quality of legal (‘juridical’) language, while avoiding seeing legal concepts as remote from their social and economic context. At the same time, for reasons explored further below, not all aspects of Luhmann’s thought sit straightforwardly with a realist understanding of law; to this extent, use of systems theory in this paper should not be taken to signify agreement with all aspect of Luhmann’s thought, nor with what are generally taken to be conventional understandings of it (disagreements with certain interpretations of it are noted below). For a similar emphasis on the need for realism in law, discussing autopoiesis, mutual constitution and genealogical method, see Brian Tamanaha, A Realistic Theory of Law (Cambridge: CUP 2017).

3 Without a ‘boundary’ between the system and its environment, it is not possible to speak of there being a system in any functional sense. The existence of the boundary is the condition for the internal operation of the system. At the same time, the presence of the boundary does not at all rule out mutual influences between systems; it is, in a sense, their precondition. See Luhmann, Social Systems, at p. 29: boundaries ‘have the double function of separating and connecting system and environment. This double function can be clarified by means of the distinction between system and relation, a clarification that at the same time returns us to the thematic of complexity. As soon as boundaries are defined sharply, elements must be attributed either to the system or to the environment. Yet relations between system and environment can exist. Thus a boundary separates elements, but not necessarily relations. It separates events, but lets causal effects pass through’.

4 Niklas Luhmann, Law as a Social System, trans. Klaus A. Ziegert, Edited by Fatima Kastner, Richard Nobles, David Schiff, and Rosamund Ziegert (Oxford: OUP 2004), at p. 340: ‘with the help of concepts, distinctions can be stored and made available for a great number of decisions. In other words, concepts compound information, thereby producing the redundancy required in the system … The legal system applies a higher-ranking organization of redundancies and for that it requires a terminology that is particular to law … Hence concepts are genuinely historical artefacts, auxiliary tools for the retrieving of past experiences in dealing with legal cases.’

5 Ioannis Kampourakis, ‘Empiricism, constructivism, and grand theory in sociological approaches to law: the case of transnational private regulation’ (2020) 21 German Law Journal 1411-26, at 1416: ‘systems theory posits that society is differentiated into distinct social systems, each with its own code of communication and, inevitably, its own episteme’.

6 Robert Gordon, ‘Critical legal histories’ (1984) 36 Stanford Law Review 57-125, at p. 117: ‘The “economy” is no more “real” than “legal ideas”. It’s an assemblage of conventions of which “legal ideas” such as property, contract, promissory and fiduciary obligation, not to mention money itself, are indispensable elements and propagators’.

7 Roy Bhaskar, A Realist Theory of Science 3rd. ed. (London: Verso 2008), at p. 36: the epistemic fallacy ‘consists in the view that statements about being can be reduced to or analysed in terms of statements about knowledge’. A more complete account of the relevance of Bhaskar’s critical realist philosophy for law is beyond the scope of the current paper.

8 The observation of reflexivity in the construction of knowledge categories is one of the principal contributions made by modern ‘pragmatic’ sociology and the economics of conventions which together form a major school of continental European social theory and empirical study. Thus statistical categories, such as ‘unemployment’, do not passively reflect an external reality, but shape it in numerous ways (Robert Salais, Nicolas Baverez and Bénédicte Reynaud, L’Invention du chômage (Paris: PUF 1999)), while social science ‘data’ more generally are constructed in ways which reflect, while often serving to conceal, normative choices (Alain Desrosières, The Politics of Large Numbers: A History of Statistical Reasoning, trans. Camille Naish (Cambridge, MA: Harvard UP 2002)).

9 For a recent overview of the state of the art in convention theory and related empirical studies see Rainier Diaz-Bone and Guillemette de Larquier (eds.) Handbook of Economics and Sociology of Conventions (Frankfurt: Springer 2022).

10 For this purpose, the category ‘fact’ is indeed something which scientific method constructs in order to make the external world meaningful in terms of its own processes. Thus ‘science does not discover any outside facts; it produces facts’: Kampourakis, ‘Empiricism, constructivism and grand theory’, at p. 1416, citing Gunther Teubner, ‘How the law thinks: towards a constructivist epistemology of law’ (1989) 23 Law and Society Review 727-58, at p. 743. However, it should be clear that to accept this proposition does not entail accepting that there is no ‘world’ or reality, social or otherwise, to which ‘facts’ relate.

11 Science, then, is a method for understanding the world; if it were reducible to that world, it would have nothing to add to it. Luhmann, Social Systems, at p. 56: science ‘does not simply trace how these systems [which it observes] experience themselves and their environment. And it does not simply duplicate the view of the self it observes … In its analysis science uses conceptual abstractions that do not do justice to the observed system’s concrete knowledge of its milieu or to its ongoing self-experience. On the basis of such reductions – and this is what justifies it – more complexity becomes visible than is accessible to the observed system itself’. Thus the sociological study of law, which treats law as an external object, is not the same as the interpretive analysis of legal texts, which can be understood as a process internal to law’s own operations. The distinction between ‘external’ and ‘internal’ viewpoints on law was familiar to twentieth century legal positivism, and, indeed, formed an essential step in its project of differentiating law as a discipline from the then still emerging discipline of sociology: Hans Kelsen, Introduction to the Problems of Legal Theory, trans. Bonnie Litschewski Paulson and Stanley L. Paulson (Oxford: Clarendon Press, 1992; originally published in 1934), at p. 13 (‘cognition of legal norms vs. legal sociology’).

12 For a somewhat different emphasis see Kampourakis, ‘Empiricism, constructivism and grand theory’, at p. 1416: ‘legal autopoiesis, and by extension, societal constitutionalism, relies on a postmodern, constructivist social epistemology, according to which there is no “reality” to be discovered. Instead, “reality” is constructed’. In response, it may be suggested that this process of legal construction does not take place outside society, and can itself be studied, using relevant methods including the sociology and economics of law.

13 Rather than presenting social systems as inherently closed, Luhmann’s theoretical framework is better thought of, as he put it, as rejecting the ‘classical opposition of open and closed systems’ (Social Systems, at p. 37). While he rejects ‘point to point correspondences’ between sub-systems, his approach anticipates ‘mutual adjustments, corrections or supplementations [which] need not necessarily occur at the same time or follow one another continuously’ (ibid, at p. 43). Elsewhere he wrote: ‘It scarcely needs to be repeated that the closure and autopoietic reproduction of the legal system does not exclude causal relations between system and environment (law and society and their environment) but requires them’ (Law as a Social System, at p. 477).

14 Luhmann, Law as a Social System, at p. 233: ‘Evolution is not a gradual, continuous, seamless increase in complexity but a mode for structural change that is altogether compatible with erratic radical changes (“catastrophes”) and with long periods of stagnation (“stasis”)’, referring to Stephen Jay Gould’s theory of punctuated equilibrium. Since it is exactly the coexistence of long periods of statis with sudden rapid change that characterises this understanding of evolution, the question of whether legal change is incremental or rapid in any given period must be an empirical one.

15 Teubner, ‘How the law thinks’; Kampourakis, ‘Empiricism, constructivism and grand theory’.

16 For discussion see Krzysztof Matuszek, ‘Ontology, reality and construction in Niklas Luhmann’s theory’ (2015) 10 Constructivist Foundations 203-10, concluding (at p. 203) that ‘Luhmann is not a realist’.

17 Talcott Parsons, The Structure of Social Action (New York: McGraw Hill 1937).

18 In other words, the separation in historical time of the different sub-systems does not in any way rule out the possibility that they share common discursive or communicative elements, which may facilitate the process by which they translate each other’s communications. Thus the categories used by modern private law to describe economic action, such as ‘contract’, ‘corporation’, ‘employee’ and so on, might be expected to share elements in common with the parallel usages in the economy. How far this is the case is a matter for empirical analysis.

19 Ioannis Kampourakis (‘Empiricism, constructivism and grand theory’), argues that in ‘admitting the possibility of objective empirical knowledge’ empirical legal scholarship ‘follows the currents of logical empiricism and positivism in social sciences’. Although he makes this point in the context of a discussion of quantitative (statistical) approaches to law, the association of empirical legal research with ‘positivism in the social sciences’ is arguably too narrow. There is no reason why empirical legal research, including quantitative approaches, cannot take a form which is consistent with non-positivist (but still realist) approaches to social science, such as ‘pragmatic sociology’ and the economics of conventions (see references in ns. 8 and 9 above); nor are empirical legal studies confined to statistical analyses, the case study set out in this paper being one such example.

20 Zoe Adams, Labour and the Wage: A Critical Perspective (Oxford: OUP 2020), at p. 16 (‘tracing the evolution of a particular concept over time, genealogy allows us to read contingency into the past, to expose all that which is implied by the existence of something that otherwise appears as natural or self-evident’).

21 Mark Freedland, ‘The role of the contract of employment in modern labour law’, in Lammy Betten (ed.) The Employment Contract in Transforming Labour Relations (Deventer: Kluwer). The strictly binary nature of the divide has been mitigated somewhat by the increased use, since the late 1990s, of the ‘worker’ concept: see Zoe Adams, Catherine Barnard, Simon Deakin and Sarah Fraser Butlin, Deakin and Morris’ Labour Law 7th. ed. (Oxford: Hart 2021), at [2.18].

22 Simon Deakin, ‘The contract of employment: a study in legal evolution’ (2001) 11 Historical Studies in Industrial Relations 1-36, at p. 33.

23 Simon Deakin and Frank Wilkinson, The Law of the Labour Market: Industrialization, Employment and Legal Evolution (Oxford: OUP 2005), at pp. 78-80.

24 Daphne Simon, ‘Master and Servant’, in John Saville (ed.) Democracy and the Labour Movement: Essays in Honour of Dona Torr (London: Lawrence and Wishart 1954); Douglas Hay and Paul Craven (eds.) Masters, Servants and Magistrates in Britain and the Empire, 1562–1955 (Chapel Hill, NC: University of Carolina Press 2004).

25 Douglas Hay, ‘Master and servant in England: using the law in the eighteenth and nineteenth centuries’, in Willibald Steinmetz (ed.) Private Law and Social Inequality in the Industrial Age: Comparing Legal Cultures in Britain, France, Germany and the United States (Oxford: OUP 2000), at p. 232: ‘It is worth noting that the cases that appear in the Law Reports are highly unrepresentative, in many ways, and especially as guides to enforcement, although important for an understanding of both judicial thinking and political conflict’.

26 Relevant sources in the business and labour history literature on this point include Sidney Pollard, The Genesis of Modern Management (Harmondsworth: Penguin 1968), Craig Littler, The Development of the Labour Process in Capitalist Societies (Aldershot: Gower 1986), and Richard Biernacki, The Fabrication of Labour: Germany and Britain, 1640–1914 (Berkeley, CA: University of California Press 1995).

27 Deakin and Wilkinson, The Law of the Labour Market, at pp. 95-100.

28 Ibid.

29 Simon Deakin, ‘The many futures of the contract of employment’, in Joanne Conaghan, Richard Michael Fischl and Karl Klare (eds.) Labour Law in an Era of Globalization: Transformative Practices and Possibilities (Oxford: OUP 2004). The approach to genealogy developed in the current paper does not prejudge how useful to contemporary circumstances a given concept will be found to be. Concepts may be the result of earlier contingencies, but still find new uses, indeed, this is normal. For a somewhat different view of genealogical method, see Emilios Christodoulidis, ‘Labour constitutionalism in a genealogical key’ (2018) 9 Jurisprudence 413-7, according to whom (at p. 117) it is necessary to avoid a ‘domesticated [sic] understanding of genealogy’ in favour of one based on ‘disruption’. Citing Foucault, he rejects the idea that there is any ‘primary’ reality to be studied; ‘everything is already interpretation’. On the dangers of falling into the ‘epistemic fallacy’, which include abandoning the possibility of an empirical social science that can generate new knowledge, see above, section 2.

30 It is also rare to find company law scholarship addressing the issue of the legal understanding of management. A notable exception is Andrew Johnston, Blanche Segrestin and Armand Hatchuel, ‘From balanced enterprise to hostile takeover: how the law forgot about management’ (2019) 39 Legal Studies 75-97.

31 The Companies (Model Articles) Regulations, SI 2008/3229, Sch. 3.

32 Companies Act 2006, s. 174(1) (‘a director of a company must exercise reasonable care, skill and diligence’).

33 This does not absolve a director of a duty to supervise and monitor management (Re Barings plc (No. 3) [1999] BCLC 433), but nor does it impose a non-delegable duty under which the breach committed by the relevant officer or manager is necessarily imputed to an individual director or the board as a whole. See Simon Deakin, ‘What directors do (and fail to do): some comparative notes on board structure and corporate governance’ (2010-11) 55 New York Law School Law Review 525–41.

34 UK Corporate Governance Code (2018) (‘CGC’), para. 25. A new version of the Code, adopted in January 2024, is due to come into force in January 2025. Its references to 'management' are mostly unchanged from the 2018 version. The CGC is a non-binding code of practice, directed at listed companies; in its mode of operation it is highly persuasive, given that non-compliance, in the absence of a satisfactory explanation, can in principle lead to de-listing. For a recent discussion of trends on compliance using a Foucauldian frame, see John Roberts, Paul Sanderson, David Seidl and Antonije Krivokapic, ‘The UK Corporate Governance Code principle of “comply or explain”: understanding code compliance as “subjection”’ (2020) 56 Abacus 602-26.

35 CGC 2018, para. 2.

36 CGC 2018, para. 8.

37 CGC 2018, Principle H.

38 CGC 2018, para. 13.

39 CGC 2018, p. 8.

40 CGC 2018, Principle J and para. 19.

41 CGC 2018, para. 23.

42 CGC 2018, Principle Q and paras. 32-41.

43 Mines and Quarries Act 1954, s. 181(1).

44 MQA 1954, s. 1(1)(a).

45 MQA 1954, s. 2(2).

46 MQA 1954, s. 2(2)(a).

47 MQA 1954, s. 2(1).

48 MQA 1954, s. 3(1).

49 MQA 1954, s. 3(2).

50 MQA 1954, s. 6(4).

51 MQA 1954, s. 8.

52 MQA 1954, s. 11.

53 MQA 1954, s. 12.

54 MQA 1954, s. 12(1)(b).

55 MQA 1954, s. 13(1).

56 MQA 1954, ss. 1(1)(a), 181(1).

57 MQA 1954, s. 13(1)(c).

58 MQA 1954, ss. 1(1)(a), 2(2).

59 MQA 1954, s. 2(2).

60 MQA 1954, s. 3(1), (2), (3).

61 MQA 1954, s. 12(1)(b).

62 MQA 1954, ss. 8, 13(1)(b).

63 MQA 1954, s. 3(2).

64 The NCB was set up under the Coal Industry Nationalisation Act 1946 (‘CINA’), with effect from 1 January 1947. It was renamed the British Coal Corporation in the early 1980s.

65 Under CINA, s. 1(1)(a), the NCB was charged with ‘working and getting the coal in Great Britain, to the exclusion of any other person’.

66 In addition to being charged with ‘securing the efficient development of the coal mining industry’ (CINA, s. 1(1)(b))’, the Board was under a duty to make ‘supplies of coal available, of such qualities and sizes, in such quantities and at such prices, as may seem to them best calculated to further the public interest in all respects, including the avoidance of any undue or unreasonable preference or advantage’ (CINA, s. 1(1)(c)).

67 Report of the Royal Commission on Safety in Coal Mines, Cmd. 5890 (1938).

68 See generally Roy Church, The History of the British Coal Industry Volume 3: 1830-1913: Victorian Pre-eminence (Oxford: OUP 1986).

69 These led to two House of Common Select Committee reports on safety in coal mines, in 1835 (British Parliamentary Papers 1835, vol. V) and 1849 (British Parliamentary Papers 1849, vol. VII.)

70 Mines and Collieries Act 1842 (5 & 6 Vict. c. 99).

71 Coal Mines Inspection Act 1850 (13 & 14 Vict. c. 100).

72 35 & 36 Vict. c. 76.

73 50 & 51 Vict. c. 58.

74 1 & 2 Geo. V c. 50.

75 Church, History of the British Coal Industry.

76 CMRA 1887, s. 75.

77 Ibid.

78 Church, History of the British Coal Industry; on the continuing legal significance of ‘internal contracting’ in mining into the twentieth century, see Deakin and Wilkinson, The Law of the Labour Market, at p. 98.

79 It is not coincidental that the parallel process of identifying the nature of the employer’s liability in tort law, constructed around the concept of the non-delegable duty of care, should have occurred in the context of a mining accident: Wilsons and Clyde Coal Co Ltd v. English [1938] AC 57.

80 ‘Enterprise liability’, or the idea that the enterprise, through the corporate form, should be liable for the risks inherent in its mode of operations can be seen taking shape in numerous areas of law in the final quarter of the nineteenth century and the first half of the twentieth. In tort law, for example, it can be seen in the development of the action for breach of statutory duty, circumventing the limitations posed by the doctrine of employment, and in the specialised statutory scheme of workmen’s compensation legislation. See Simon Deakin, ‘Tort law and workmen’s compensation legislation: complementary or competing models?’, in T.T. Arvind and Jenny Steele (eds.) Tort Law and the Legislature: Common Law, Statute, and the Dynamics of Legal Change (Oxford: Hart 2012).

81 See John Brown, The Valley of the Shadow: An Account of Britain's Worst Mining Disaster, the Senghenydd Explosion (Port Talbot: Alun Books 2009); Jen Llewellyn, Remember Senghenydd – The Colliery Disaster of 1913 (Llanrwst: Gwasg Carreg Gwalch 2013).

82 Incidents involving deaths in double figures were recorded throughout the 1970s (see the website of the Coal Mining History Resource Centre, http://www.cmhrc.co.uk/site/disasters/ (accessed 30 December 2022). Any assessment of the NCB’s safety record must also take account of the catastrophic Aberfan disaster of 1967, in which more than 200 schoolchildren were killed when a spoil heap collapsed, causing a landslide which reached an adjoining village. Ian McLean and Martin Johnes set out the culpability of the NCB’s management in Aberfan: Government and Disasters (Cardiff: Welsh Academic Press 2000).

83 The industry was privatized in 1995, and swiftly shrank. The last deep mine (Kellingley Colliery, in Yorkshire) closed in 2015. In 2019 planning permission was given for a new deep mine, Woodhouse Colliery, to be opened near Whitehaven in Cumbria; at the time of writing, the mine is yet to begin operations.

84 By the Management and Administration of Safety and Health at Mines Regulations, SI 1993/1897, which reproduced Part II of the MQA in a modernized form. Thus reg. 10 imposes a duty to ‘(a)establish a management structure (which shall include the manager) that is suitable for the mine and the management structure shall be set down in writing and shall define the extent of authority and responsibility of the persons in it; and (b) ensure that a sufficient number of suitably qualified and competent persons are appointed in the management structure’. The 1993 regulations also use the concept of the ‘employer’ to clarify the obligations of the corporate owner, a departure from the 1954 Act and reflecting the greater use of this terminology in the intervening period, on which see Simon Deakin, ‘The changing concept of the employer in labour law’ (2000) Industrial Law Journal 72-84; Jeremias Adams-Prassl, The Concept of the Employer (Oxford: OUP 2015).

85 This is the language used in section 1(1) of the Coal Industry Nationalisation Act 1946; see above, section 2.

86 David Weil, The Fissured Workplace: Why Work Became So Bad for So Many and What Can be Done About It (Cambridge, MA: Harvard UP 2017).

87 Jeremias Adams-Prassl, Humans as a Service: The Perils and Perils of Work in the Gig Economy (Oxford: OUP 2018); Antonio Aloisi and Valerio De Stefano, Your Boss is an Algorithm: Artificial Intelligence, Platform Work and Labour (London: Bloomsbury 2022).

88 In a similar vein, see Johnston et al., ‘From balanced enterprise to hostile takeover’, arguing that the company law of the early decades of the twentieth century ‘accommodated’ the emergence of professional managers in vertically integrated firms, but without ‘positively supporting’ the management function. This neglect, they argue, paved the way for the reforms implemented in the Companies Act 1948 which asserted the power of shareholders over boards and managers. It thereby helped to create the circumstances for the hostile takeover movement, which ultimately served to disempower productive interests within the firm and in society at large, to the benefit of financial ones.

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Simon Deakin

Simon Deakin is Professor of Law (2006) and Director of the Centre for Business Research at the University of Cambridge., where he leads an interdisciplinary research programme on corporate governance and the economics of law. His books include The Law of the Labour Market (with Frank Wilkinson), Hedge Fund Activism in Japan (with John Buchanan and Dominc Chai) and Is Law Computable? (with Chris Markou). He is editor in chief of the Industrial Law Journal and an editor of the Cambridge Journal of Economics. In 2023 he was voted Cambridge Students Union research supervisor of the year.