JOBNAME: Reyes PAGE: 1 SESS: 3 OUTPUT: Fri Oct 5 10:36:23 2018 Introduction Caveat emptor: This book is normative and it rests upon certain pillars which may be unsettling to some, particularly those brought up intellec- tually within the confines of the mainstream. I intend, nonetheless, to argue in favor of those pillars and to build upon them a kind invitation to see our subject matter not as a finished, undisputable product but, instead, as an opportunity for open debate. Those intertwined pillars are, first, that economics is political philosophy, at best, and not a science in the way that natural science proper is; second, that company law is about how to make good society and is thus political; and, third, that corporate governance without philosophical and historical inquiry is vacuous and deceitful. Few ideas have had an impact on the state of corporate governance study and practice as profound as Jeremy Bentham’s. His utilitarian ethics have served as a sound basis for a neoclassical economic doctrine which rests upon methodological individualism and positive empiricism.1 Its most notorious offspring, law and economics,2 is the dominant school in corporate governance, and, due to its parentage, it benefits from the halo of scientific neutrality despite its heavy ideological bent. It takes as given that the primary goal of company law is to boost efficiency and to address agency problems involving a firm’s shareholders and managers, among shareholders, or the firm vis-à-vis third parties3 – a debatable reductionism which rests upon a value judgement, i.e. that the purpose of a firm, without caveats, is first and foremost to maximize shareholder 1 See David Colander, Hans Föllmer, et al., ‘The Financial Crisis and the Systemic Failure of Academic Economics’ (2009) University of Copenhagen, Department of Economics, Discussion Paper No. 09-03 <http://ssrn.com/ abstract=1355882> accessed 9 January 2016. 2 See Eli Salzberger, ‘The Economic Analysis of Law – The Dominant Methodology for Legal Research?!’ (2007) University of Haifa Faculty of Law Legal Studies Research Paper No. 1044382 <http://ssrn.com/abstract=1044382> accessed 29 January 2016. 3 See Jan Tirole, ‘Corporate Governance’ (1999) Centre for Economic Policy and Research, London, Discussion Paper No. 2086, 1. 1 Javier Reyes - 9781785361050 Downloaded from Elgar Online at 09/23/2021 04:22:25PM via free access Columns Design XML Ltd / Job: Reyes-Reframing_corporate_governance / Division: 00a_Introduction_final /Pg. Position: 1 / Date: 17/8 JOBNAME: Reyes PAGE: 2 SESS: 3 OUTPUT: Fri Oct 5 10:36:23 2018 2 Reframing corporate governance value.4 The latter is a legitimate worldview, specifically regarding how to make a good society, although it essentially paints company law as it is, i.e. political at its core.5 Making such value judgments requires assump- tions to be made, such as conceptions of ‘progress’ and ‘development’, which are deeply embedded in the dominant discourse.6 And because corporations are the vehicle of choice for wealth creation and accumu- lation,7 bringing material wealth parallel to negative consequences, they also function as a moral deflection device8 that requires us to take a step back and study corporate governance from a wider, multidisciplinary perspective. In 2011, systems theorists from the Swiss Federal Institute of Tech- nology in Zurich used a database of 37 million companies worldwide and cross-checked it against all 43,060 transnational corporations and share ownerships, linking them into what can be called a blueprint for the structure of economic ‘muscle’. The results were revealing: 80% of the wealth in the network is controlled by 737 corporations, of which 40% rests placidly in the balance sheet of 147 firms. A considerable part of the revenue of various firms did not even come from operations but was speculative, i.e. financialized arrangements mounted on top of complex, multijurisdictional special purpose vehicles (SPVs). The names of these corporations are well known, for example Barclays, Capital Group, Fidelity, AXA, JP Morgan Chase, Vanguard, UBS, Merrill Lynch, Deutsche Bank, Credit Suisse, Wal-Mart, Goldman Sachs, etc.9 If com- panies were countries (and they are simultaneously powerful wealth producers and capable of immense destructive potential10) and we compared a country’s GDP with corporate revenues, we would find that, for example, Yahoo is bigger than Mongolia, Visa is bigger than 4 See Mitchell Polinsky and Steven Shavell, ‘Economic Analysis of Law’ (2005) Harvard Law and Economics Discussion Paper No. 536 <http://ssrn.com/ abstract=859406> accessed 24 January 2016. 5 See Jukka Mähönen, ‘Do We Need Law and Economics in Company Law?’ Nordisk Tidsskrift For Selskabsret, Nr. 1/2, 2009, pp. 146–157. 6 See Gilbert Rist, The History of Development: From Western Origins to Global Myth (1st edn, Zed Books 1997) 28–37. 7 See Janet Dine, Companies, International Trade and Human Rights (1st edn, Cambridge University Press 2005) 52. 8 Ibid. 9 See Stefania Vitali, James B. Glattfelder, and Stefano Battiston, ‘The Network of Global Corporate Control’ (2011) PLoS ONE 6(10): e25995 <http:// journals.plos.org/plosone/article?id=10.1371/journal.pone.0025995> accessed 22 January 2016. 10 Dine, Companies, op. cit., 94. Javier Reyes - 9781785361050 Downloaded from Elgar Online at 09/23/2021 04:22:25PM via free access Columns Design XML Ltd / Job: Reyes-Reframing_corporate_governance / Division: 00a_Introduction_final /Pg. Position: 2 / Date: 17/8 JOBNAME: Reyes PAGE: 3 SESS: 3 OUTPUT: Fri Oct 5 10:36:23 2018 Introduction 3 Zimbabwe, eBay is bigger than Madagascar, Nike is bigger than Para- guay, McDonald’s is bigger than Latvia, Amazon is bigger than Kenya, Apple is bigger than Ecuador, Microsoft is bigger than Croatia, Ford is bigger than Morocco, Bank of America is bigger than Vietnam, Berkshire Hathaway is bigger than Hungary, General Electric is bigger than New Zealand, Chevron is bigger than the Czech Republic, and Walmart is bigger than Norway.11 And this is a leverage that has been used time and again. For all the material prosperity that has been brought about through the corporation,12 it has also been a tool for toying with democratic processes that are fundamental in the self-determination of entire com- munities, countries, and regions. Think of the United Fruit Company in cahoots with repressive regimes in Central America,13 or, more recent times and closer to home, BlackRock Inc., the world’s biggest fund manager with over five trillion dollars in assets under administration, using its muscle to influence the gun debate in the United States in a specific political direction.14 With the gargantuan amount of power harnessed by corporations, paired with an unquestioned primacy of shareholder value – both in academia and policy – it is unsurprising that abuses committed through corporations only get more strident with time. As we enter a highly polarized age, in which some claim everything is subject to interpretation and others ritually sacrifice morality to the deities of hyper rationalism, the human capacity both for good and for evil is magnified through the unchained leviathan that is the corporation. In such a landscape, it seems like a disservice to the social disciplines (a.k.a. social sciences) to be 11 See Vicent Trivett, ‘25 US Mega Corporations: Where They Rank If They Were Countries’, Business Insider, 27 June 2011 <http://www.businessinsider. com/25-corporations-bigger-tan-countries-2011-6?IR=T> accessed 8 January 2016. 12 Marian L. Tupy, ‘Julian Simon Was Right: A Half-Century of Population Growth, Increasing Prosperity, and Falling Commodity Prices’, Cato Institute, Economic Development Bulletin No. 29, 16 February 2018 <https://www. cato.org/publications/economic-development-bulletin/julian-simon-was-right-half- century-population-growth> accessed 5 March 2018. 13 Marcelo Bucheli, ‘Multinational Corporations, Totalitarian Regimes and Economic Nationalism: United Fruit Company in Central America, 1899–1975’ [2008] Journal of Business History 50(4): 433–454. 14 BlackRock Inc. Press Release, ‘BlackRock’s Approach to Companies that Manufacture and Distribute Civilian Firearms’, 2 March 2018 <https://www. blackrock.com/corporate/newsroom/press-releases/article/corporate-one/press- releases/blackrock-approach-to-companies-manufacturing-distributing-firearms> accessed 3 March 2018. Javier Reyes - 9781785361050 Downloaded from Elgar Online at 09/23/2021 04:22:25PM via free access Columns Design XML Ltd / Job: Reyes-Reframing_corporate_governance / Division: 00a_Introduction_final /Pg. Position: 3 / Date: 17/8 JOBNAME: Reyes PAGE: 4 SESS: 3 OUTPUT: Fri Oct 5 10:36:23 2018 4 Reframing corporate governance ruled by a thirst for singular causes, i.e. to encroach normative research with a monomaniac, cult-like attempt to explain complex phenomena by causally linking them to a simple motivation – and to disguise such sleight of hand as an exact science. Freud tried it with sex, Marx with class struggle, Foucault with power, and neoclassical economics is doing it with a hyper-rational, selfish being whose sole concern is to maximize pleasure and avoid pain. It is quite ironic, in these circumstances, that the presumption of absolute knowledge – the cardinal sin of the rational spirit – negates creative exploration.15 What legal scholars and their students can do about this state of affairs is the same that some within the field of economics are working hard to achieve from the fringes, i.e. to break the shackles of dogma and look at things from different angles, all in the service not of efficiency but of heterodoxy in the pursuit of knowledge. Political philosophy, the field of study in which both economics and law firmly rest, can be either descriptive or normative. The former is occupied by efforts to point out how things ‘are’ while the latter attempts to speak about how they ‘ought to be’. However, none can be an exact or a natural science (as mainstream economics tries to sell itself) for the simple reason that they deal in morality.