Marquette Law Review Volume 80 Article 2 Issue 2 Winter 1997 The Public, the Private and the Corporation Paul N. Cox Follow this and additional works at: http://scholarship.law.marquette.edu/mulr Part of the Law Commons Repository Citation Paul N. Cox, The Public, the Private and the Corporation, 80 Marq. L. Rev. 391 (1997). Available at: http://scholarship.law.marquette.edu/mulr/vol80/iss2/2 This Article is brought to you for free and open access by the Journals at Marquette Law Scholarly Commons. It has been accepted for inclusion in Marquette Law Review by an authorized administrator of Marquette Law Scholarly Commons. For more information, please contact [email protected]. THE PUBLIC, THE PRIVATE AND THE CORPORATION PAUL N. Cox TABLE OF CONTENTS Preface ........................................... 393 I. Introduction to the Contractual and Communitarian Mod- els .......................................... 401 II. The Contractarian Perspective ..................... 411 A. The Contractual Theory of the Firm .............. 411 B. Individualist Contract and Neoclassical Contract .... 421 1. The Kantian Variation ...................... 422 2. The Humean Variation ..................... 425 3. The Hobbesian Variation .................... 431 4. Some General Distinctions .................. 434 5. Facilitation and Formalism .................. 450 III. The Communitarian Perspective .................... 470 A. Social Construction .......................... 474 B. Community and Morality ...................... 492 1. Communitarian Autonomy and "Positive Liberty" 494 2. Classical (Negative) Liberty ................. 496 3. Classical Liberalism and the Social Source of Mo- rality ................................... 497 4. Community Values and Communitarian Normative Commitments ............................ 505 5. Community and Plasticity ................... 513 C. Decentralization, Direction, and Conformity ....... 516 1. National and Local Communitarianism ......... 516 2. Centralization and Decentralization ............ 520 3. Diverse Community ....................... 524 IV. Conclusion .................................... 529 THE PUBLIC, THE PRIVATE AND THE CORPORATION PAUL N. Cox* PREFACE It has been argued that there is in the 1990's a crisis in corporate law.' The alleged crisis arises from competing claims about normative foundations.2 The antagonists in this competition are said to be contractarians, represented by legal economists of a broadly neoclassical variety, and communitarians.3 There may be a crisis, or at least, a substantial debate, in corporate law theory.4 It is questionable that there is a crisis in corporate law, in * Professor of Law, and Paul Beam Fellow (1996), Indiana University School of Law, Indianapolis. Professor Cox received his B.S. in 1971 from Utah State University, his J.D. in 1974 from the University of Utah, and his L.L.M. in 1980, from the University of Virginia. This article represents an effort to work out, at least to this writer's temporary satisfaction, a contradiction, consisting for him of the simultaneous attractions of contractarian and anti- contractarian thought in approaching the corporation. Some readers will be disappointed to find that the resolution favors a contractarian pole. Nevertheless, I wish to thank William Bratton and Lyman Johnson, whose writing and correspondence forced me into this effort. My disagreement with them does not diminish my admiration for their work. 1. David Millon, Communitarians, Contractarians,and the Crisis in CorporateLaw, 50 WASH. & LEE L. REV. 1373 (1993) [hereinafter Millon, Crisis]. The contractarian/- communitarian dichotomy is also suggested by Ronald Daniel, Stakeholders and Takeovers: Can ContractarianismBe Compassionate?,43 U. TORONTO L. J. 315 (1993) and by Michael DeBow & Dwight Lee, Shareholders, Non-shareholders and Corporate Law: Communitar- ianism and Resource Allocation, 18 DEL. J. CORP. L. 393 (1993). 2. Millon, Crisis, supra note 1, at 1373. 3. Id. at 1377-83. 4. The contractarian position, said by communitarians to constitute the dominant paradigm, is most prominently articulated in FRANK EASTERBROOK & DANIEL FISCHEL, THE ECONOMIC STRUCTURE OF CORPORATE LAW (1991). It is defended, for example, in DeBow & Lee, supra note 1; Stephen Bainbridge, In Defense of the Shareholder Wealth Maximization Norm: A Reply to Professor Green, 50 WASH. & LEE L. REV. 1423 (1993); Henry N. Butler & Larry E. Ribstein, Opting Out of FiduciaryDuties: A Response to the Anti-Contractarians, 65 WASH. L. REV. 1 (1990); Henry N. Butler, The ContractualTheory of the Corporation,11 GEO. MASON L. REV., Summer 1989, at 99 [hereinafter Butler, The ContractualTheory of the Corporation]. The communitarian position is most prominently and consistently articulated by Professor David Millon and Professor Lyman Johnson. See, e.g., Lyman Johnson, The Delaware Judiciary and the Meaning of Corporate Law, 68 TEX. L. REV. 865 (1990) [hereinafter Johnson, The Delaware Judiciary and the Meaning of Corporate Law]; Lyman Johnson, Individual and Collective Sovereignty in the CorporateEnterprise, 92 COLUM. L. REV. MARQUETTE LAW REVIEW [Vol. 80:391 part because it is doubtful that academic debates about the nature of the 5 corporation directly determine concrete questions of corporate law. Still, the current debate reflects and seeks to systematize underlying tensions in both doctrine and practice and is therefore perhaps useful as a means of identifying the implications of these tensions. It is not to be expected, and, perhaps, not to be hoped that the debate will resolve these tensions, particularly if resolution requires a doctrinal victory for one or the other side in the debate. It is not to be expected because the current debate is merely another chapter in a long history of the tension 2215 (1992) [hereinafter Johnson, Individual and Collective Sovereignty]; David Millon, Theories of the Corporation,1990 DUKE L. J. 201; David Millon, Redefining CorporateLaw, 24 IND. L. REV. 223 (1991) [hereinafter Millon, Redefining Corporate Law]; Lyman Johnson & David Millon, The Case Beyond Time, 45 Bus. LAW 2105 (1990). Professor Lawrence Mitchell's work also prominently reflects communitarian themes. E.g., PROGRESSIVE CORPORATE LAW, NEW PERSPECTIVES ON LAW, CULTURE, AND SOCIETY (Lawrence E. Mitchell ed., 1995); Lawrence E. Mitchell, The Cult of Efficiency, 71 TEx. L. REV. 217 (1992) [hereinafter Mitchell, Cult of Efficiency]; Lawrence E. Mitchell, A CriticalLook at Corporate Governance, 45 VAND. L. REV. 1263 (1992). David Millon has published a useful bibliography of "Communitarian Corporate Law Scholarship." Millon, Crisis, supra note 1, at 1391-93. However, one difficulty in identifying communitarians is that there is no clear definition of the communitarian position, largely because different communitarians make quite distinct claims. Thus, although William Bratton must be considered the most effective critic of neoclassical economic analysis of corporate law, it is not clear, at least to me, that the same communitarian label is appropriate for him as for some others, because he tends to concede a large, albeit incomplete role for "contract" and "efficiency." William W. Bratton, Jr., Public Values and Corporate Fiduciary Law, 44 RUTGERS L. REV. 675 (1992) [hereinafter Bratton, Public Values]; William W. Bratton, Jr., Confronting the Ethical Case Against the Ethical Case for Constituency Rights, 50 WASH. & LEE L. REV. 1449 (1993) [hereinafter Bratton, Confronting the Ethical Case]; William Bratton, The New Economic Theory of the Firm: CriticalPerspectives From History, 41 STAN. L. REV. 1471 (1989) [hereinafter Bratton, Perspective From History]; William W. Bratton, Jr., The Nexus of Contracts Corporation: A Critical Appraisal, 74 CORNELL L. REV. 407 (1989) [hereinafter Bratton, CriticalAppraisal]. Moreover, although there are strong communitarian themes in the work of some other critics of the contractarian position, these critics often employ contractarian and efficiency arguments for their positions. See, e.g., Marleen O'Connor, The Human Capital Era: Reconceptualizing Corporate Law to FacilitateLabor- Management Cooperation,78 CORNELL L. REV. 899 (1993) (discussing efficiency arguments); Katherine Van Wezel Stone, Employees as Stakeholders Under State Nonshareholder Constituency Statutes, 21 STETSON L. REV. 45 (1991) (discussing implicit contract theory) [hereinafter Stone, Employees as Stakeholders]. Indeed, such arguments have raised "communitarian" ire. See, e.g., Hugh Collins, OrganizationalRegulation and the Limits of Contract, in CORPORATE CONTROL AND ACCOUNTABILITY: CHANGING STRUCTURES AND THE DYNAMICS OF REGULATION 91 (Joseph McCahery et. al. eds., 1993) (criticizing Stone's implicit contract theory as insufficiently organizational). 5. For similar skepticism, see Bratton, Perspectivesfrom History, supranote 4, at 1516-17; William H. Simon, What Difference Does it Make Whether Corporate Managers Have Public Responsibilities?, 50 WASH. & LEE L. REV. 1697 (1993) [hereinafter Simon, What Differ- ence]. 1997] THE PUBLIC, THE PRIVATE AND THE CORPORATION 395 between the public and private character of the corporation.6 Corporate law doctrine fudges the tension by incorporating both the private claim and the public claim, steadfastly refusing to consistently choose between them.7 There is no apparent reason to expect that the current chapter in law review writing will do more than prior chapters in changing this state of affairs. It is perhaps not to be hoped that the current