Judges, legislators, corporate practitioners, and scholars of business law all conduct their work based on some working conception of what “corporate law” is. Strangely, however, the question of what this conceptual vessel actually contains is seldom asked, let alone answered with any specificity. In a recent paper, I investigate the domain of corporate law – that is, the scope, content, and boundaries of the field. In so doing, I aim to illuminate why it is that defining the field with any precision has been so difficult, and what such insights have to tell us about corporate law’s nature and significance.
The paper first explores challenges faced in any project of legal taxonomy, focusing on the inherent tension between internal and external views of law and the dynamic relationship between legal doctrine and social context. Positivist approaches tend to emphasize lawmakers and doctrine while realist approaches tend to emphasize adjudicators and factual scenarios, yet they express similar impatience with circular arguments that purport to deduce what a corporation can do from conclusory statements about what a corporation is, divorced from relevant contextual features – the legal landscape giving rise to the corporation for the former, and the social and economic landscape in which the corporation operates for the latter. I argue that approaches to defining the corporation and the associated domain of corporate law have foundered precisely because they have failed to recognize these dynamics.
Through this lens, my analysis turns to the predominant modes of defining corporate law as a field, focusing on corporations with securities trading in public markets. Specifically, I examine frameworks emphasizing core constituencies, core features, and core theories, respectively – as well as our increasing resort to the related though distinct corporate governance concept.
Frameworks emphasizing core constituencies often appear in casebooks, treatises, and other reference texts, where the explanatory aims regarding corporate law’s domain tend to be modest. Such references often purport simply to identify predominant preoccupations of corporate law in an introductory spirit. The emphasis that such discussions place upon the shareholder-manager relationship, in particular – and the correlative exclusion of other constituencies and interests – typically go unexplained.
Another common approach involves highlighting the distinctive features thought to give the corporate form special utility (e.g. legal personality, limited liability, etc.). This approach accommodates a substantial degree of variation, but does so by retreating to a higher level of abstraction, from which vantage point it becomes impossible to draw finer distinctions between subjects that fall within corporate law and those that do not. More troublingly, however, one finds that authoritative texts often do not agree on what the corporate form’s critical features are. For example, some identify election of directors by shareholders as an intrinsic corporate feature, while others emphasize insulation of public company boards from accountability through Berle and Means’ separation of ownership and control. These frameworks have very different ramifications regarding the scope and content of corporate law. Moreover, neither of them can account for the various forms of employee governance roles prevalent in Europe, including board-level co-determination.
Yet another approach involves sketching out the implications of a theory. The aim here is to articulate a theoretical framework that purportedly illuminates corporate law’s fundamental purpose or regulatory strategy, and then to support that claim through a mixed normative and positive argument that corporate law ought to, and in fact does, contain the mix of rules and standards that the given framework would lead one to expect. Three prevailing theories of modern corporate law advance competing normative and positive frameworks along these lines, yet none of them compellingly illuminates the domain of corporate law in the comprehensive and universal manner often claimed. Nexus of contracts theory relies on highly contestable empirical assumptions regarding market efficiency and the plausibility of non-shareholder protections through contract and external regulation, while providing no plausible explanation for doctrinal structures at odds with strong-form shareholder-centrism (e.g. U.S. anti-takeover laws). Team production theory advances a conception of the board as “mediating hierarch” at odds with the lack of a stakeholder mandate, as well as various features of corporate law that plainly favor shareholders. Shareholder primacy theory, meanwhile, typically styles itself as a normative program (at least in its more recent iterations), implicitly acknowledging that corporate law falls well short of the shareholder powers that its proponents advocate.
The lack of a single theoretical account that compellingly illuminates the substance and scope of corporate law helps explain why many have turned to corporate governance. This concept provides a more embracing and trans-doctrinal lens through which to think about corporate power relations. Critically, however, corporate governance framing simply elides the persistent uncertainties regarding corporate law’s domain, leaving the underlying dynamics unexplained.
In light of the strengths and limitations of the foregoing frameworks, my paper turns to contextual and historical dynamics that effectively foreclose a single, stable conception of corporate law’s domain across all places and times. The significance of legal context is amply illustrated by the United States, where the question of corporate law’s scope and boundaries becomes bound up with constitutional idiosyncrasies that affect the division of regulatory competence, blurring the distinction between corporate and “securities” law. The significance of cultural context is explored through the virtual failure to harmonize corporate law across the European Union – exemplified by the 2004 Takeover Directive, which could be enacted only once its most important provisions were made optional. Such harmonization efforts have proven so controversial because the respective national polities do not agree on the scope and content of corporate law, and face persistent differences in their social and economic realities. The significance of market context is reflected in the impact that differing degrees of share ownership concentration can have on how business-related problems are defined. The significance of historical context, meanwhile, emerges from the flux in prevailing concepts and accounts of the field that unfold within a given jurisdiction – generally in response to an evolving legal, cultural, and market landscape.
Failure to appreciate these dynamics obscures critical drivers of difference across jurisdictions and narrows our sense of the possible at home. Strategic definition of the corporation and corporate law may cloak contestable normative claims with an air of inevitability, burying the conclusion in the premise and thereby taking off the table propositions that ought to remain contestable. The goal of my paper is to promote recognition of corporate law’s contingency, and to argue that this is a feature rather than a bug – a capacity for dynamism that allows the corporate form and corporate law to respond to social and economic needs that may differ markedly from one jurisdiction to another, and change markedly within a given jurisdiction over time.
Christopher M. Bruner is the Stembler Family Distinguished Professor in Business Law at the University of Georgia School of Law.