In his new book, Outsourcing the Board: How Board Service Providers Can Improve Corporate Governance (Cambridge University Press), he and UCLA School of Law Professor Stephen M. Bainbridge propose giving corporations the option of hiring a new kind of firm, a Board Service Provider (BSP), to serve as their boards. Today, corporations hire law firms, accounting firms, and consulting firms to give them the expertise needed to run their highly complicated businesses. So why not a corporate governance firm?
“There is a whole literature that precedes us advocating for professional board members with standards and education,” Henderson said. “But even that plan has shortcomings because it focuses on the individual rather than on the entity. If there were firms that provided board services and that had employees with expertise in all the areas these corporations need, that would be much more efficient than 12 part-time people. The firm could hire all the experts they need and have them down the hall when information is needed.”
“Right now, all that most boards have time for is oversight, but a BSP could spend time on other things because it would be a deeper entity, it would employ all the people it needs, and therefore, could be in compliance at a lower cost,” Henderson observed.
He also explained that BSPs, with their teams of experts, could overcome other corporate problems, such as having to make decisions without full information from management.
John Coates has an interesting new paper out:
Three ongoing mega-trends are reshaping corporate governance: indexing, private equity, and globalization. These trends threaten to permanently entangle business with the state and create organizations controlled by a small number of individuals with unsurpassed power. The essay focuses on indexation. After providing background, the essay describes the rise of and reasons for indexation, noting that “passive” indexed investing takes a variety of forms. Data on indexation are presented — with the bottom line that indexation has progressed farther than most realize, because foreign ownership, institutional indexation, and “closet” indexation are often neglected by observers. Index providers’ incentives, resources, and methods are reviewed, with an emphasis on the how such providers have greater practical importance than simpler analytical approaches might suggest. The essay ends with an outline of policy options, and preliminary analyses of which seem likely to address the “Problem of Twelve” — the likelihood that in the near future roughly twelve individuals will have practical power over the majority of U.S. public companies.
Coates, IV, John C., The Future of Corporate Governance Part I: The Problem of Twelve (September 20, 2018). Available at SSRN: https://ssrn.com/abstract=3247337
Coates points out that:
The prospect of twelve people even potentially controlling most of the economy poses a legitimacy and accountability issue of the first order – one might even call it a small “c” constitutional challenge. Large companies have always tried to influence the law to protect or extend the power of those in control of those companies, through litigation and lobbying, among other means. In the late nineteenth century, the polity responded by passing antitrust laws, using those laws to break up large companies, banning corporate participation in elections, creating an administrative state, and legalizing labor unions. Together, those responses can fairly be seen as a small “c” constitutional response to the threat posed by the concentration of economic and political power created by the country’s first merger wave.
I think Coates has pointed out a genuine problem, which crystalizes an inchoate concern that has motivated both left- and right-wing populists in recent years. As I document in my own recent paper, Corporate Purpose in a Populist Era, available at SSRN: https://ssrn.com/abstract=3237107or https://dx.doi.org/10.2139/ssrn.3237107, I describe the historical concerns of right of center populists with concentrated corporate power:
Some populists were simply doubtful of the corporation’s fitness for purpose, disputing its utility as a way of organizing production. More often, however, right-wing populists objected to the separation of ownership and control inherent in the corporate form, arguing that it separated ownership from responsibility. This concern was not driven by populist sympathy for investors, which is the concern most modern scholars associate with the separation of ownership and control, but rather with the lack of social accountability inherent in dispersed and distant ownership. The Agrarians believed modern corporate capitalism had created a new class of absentee owners, which had broken down older systems in which owners and laborers had recognized their mutual obligations. The Agrarians thus echoed Berle’s contemporaneous complaint that the ownership structure of modern corporations divorced ownership and control, but added to it the further complaint that the public corporate form divorced a business’ owners from the firms workers and the local communities within which the firm did business.
The Agrarian ideal was small business with local owners who were embedded in the community. Whether it was ever practicable to restore such a bucolic utopia—assuming one ever existed—in a modern industrial economy is highly doubtful. But even if it were, what the Agrarians—among others—failed to understand is that the separation of ownership and control in the corporation is a feature and not a bug. Only the very smallest and most highly localized businesses could exist without separating ownership from control.
In general, most right-wing populists came to recognize that the problem was not the corporate form as such, acknowledging that the corporate form could be used advantageously even by locally owned and operated businesses. The problem thus was not the form itself but rather the massive power wielded by the very largest corporations.
Size and the resulting potential for concentrated economic power are thus recurring themes in the populist critique of the corporation. Late 19thCentury populists thought that the growing power of corporations was a significant threat to their economic and even political liberty. The Southern Agrarians likewise believed, as Agrarian Lyle Lanier observed, that “the corporate form of our economic system makes possible a scale of exploitation unheard of in history.” In particular, the Agrarians saw large corporations as Leviathans trampling on their employees. The labor such corporations provided lacked security. It was performed under dehumanizing conditions. Yet, the law protected it by enshrining the rights of corporations into the constitution. The Southern Agrarians further believed that the concentration of economic power in large corporations had created “a plutocratic capitalist class” that effectively ruled the country and thus stood ready to fully exploit their power over farmers and workers.
Much the same set of concerns motivates many Tea Party members. In response to the Citizens United decision,for example, Tea Party co-founder Dale Robertson complained that “[c]orporations are not like people. Corporations exist forever, people don’t. Our founding fathers never wanted them; these behemoth organizations that never die. ... It puts the people at a tremendous disadvantage.” Tea Party activists also tend to be uncomfortable with business’ political agenda and business’ lack of support for Tea Party social issues. The inability or unwillingness of large corporations to assist in addressing “the political alienation and economic instability” felt by many gave rise to “both left- and right-wing populism” and helped elect Donald Trump.
Coates' analysis thus makes concrete the ways in which changing corporate governance demands the attention of populist reformers, so as to break up a concentration of power almost unprecedented in American economic history.
I broke out my new Joule Sous Vide machine and made duck breast using a recipe from America Test Kitchen's Sous Vide for Everybody cookbook. Worked great.
The sous vide machine:
The duck breasts being sealed in my new Weston vacuum sealer:
The duck breasts in the sous vide machine:
The risotto rice sautéing in the multi-cooker:
The duck breasts after cooking sous vide for two hours:
The duck breast plated after being seared in a blazing hot All-Clad 12-inch pan:
That's a currant port wine sauce on the duck.
The Paraduxx is a blend of 54% Cabernet Sauvignon, 19% Merlot, 16% Zinfandel, and 11% Petit Verdot. Raspberry and blackberry fruit aromas and flavors, with a touch of spice. Grade: 90
The fall royalty check arrived from Foundation and I bought a new toy: a Joule Sous Vide machine. Last night I made NY strip steaks with it.
After setting up the Joule's smartphone app, which was quite easy, I added the sous vide machine to my All-Clad 12-quart stock pot, and let the water come up to the temperature recommended by the app.
I took two NY strip steaks and trimmed off the fat. I seasoned both sides with salt and pepper and popped them into heavy duty vacuum sealer bags with a squirt of Pam, a couple of sprigs of fresh thyme, and a clove of garlic. Next I broke out my other new toy, a Weston vacuum sealer, and sealed both bags using the pulse setting. I added the bags to the pot, attaching them with sous vide cooking clips. I told the app to start the cooking process and it took off. The app recommended a 90 minute cook time, but I actually ended up letting it cook for over two hours to no ill effect, which is one of the beauties of sous vide cooking.
To make the sauce I sautéed about half a tablespoon of finely diced shallot and a minced garlic clove in a large pat of butter. When they were ready I added ¾ cup of tawny port and ¼ cup low sodium chicken broth to the pot, along with a teaspoon of green peppercorns. After the sauce reduced to about a quarter of a cup, I added a tablespoon of Dijon mustard and kept it warm.
For the potatoes I started off by cooking four rashers of thick-cut bacon in my All-Clad 12-inch pan. While they were cooking, I sliced 10 ounces of pee wee Yukon gold potatoes in half and put them in a medium mixing bowl. When the bacon was done, I transferred them to a paper towel-lined plate, and later chopped them into small pieces. I put about 3 tablespoons of bacon drippings in with the potatoes, along with salt, pepper, and chopped up leaves from about 5 sprigs of fresh thyme. The mixture went into a roasting pan and roasted at 400° for about 35 minutes. When they were done, I added the chopped up bacon bits and about half a cup of creme fraiche.
I combined a half tablespoon of bacon drippings with a teaspoon of sherry vinegar and used it to dress some baby arugula.
When everything was ready, I took the steaks out of the water bath. I patted the steaks dry. I put my All-Clad 12-inch pan over high heat. When it was blazing hot, I added the steaks and seared them for one minute per side.
The steaks before searing:
One of the steaks after searing:
The interior of the steak:
With sous vide, steaks are cooked to the same temperature, and thus same doneness (of your choosing!), all the way through. This eliminates the gray band of overcooked meat around the exterior of steaks, which often occurs with traditional pan-roasted methods. Once your sous vide steaks are taken out of the water bath, all that's left to do is to give them a quick sear in a screaming hot pan to create the Maillard browning and flavorful crust.
The 2015 Frog's Leap Merlot (Napa Valley) was a pleasant match for the meal. Plums, prunes, and oak. Grade: 88
In a lengthy address, she discussed "concerns that I have about government attempts to remake corporations for the benefit of so-called stakeholders."
Well worth reading.
Keith Paul Bishop blogged up a storm on the new bill. On September 25th:
Although I have been writing about this bill for several months, it has only recently attracted widespread notice and criticism. Professor Grundfest recently posted a working paper concluding:
"The bill will increase the number of board seats occupied by women by trivial amounts, if at all. These trivial changes will, however, come at great risk to the evolution of affirmative action jurisprudence. California's own legislative analysis concludes that 'the use of a quota-like system, as proposed by this bill … may be difficult to defend.' A successful equal rights challenge means that SB 826 will have no effect at all. The legislation thus offers a poor bargain for diversity advocates: gain a trivial number of board seats, if any, but increase the risk of judicial rulings inimical to broader affirmative action initiatives."
And then SEC Commissioner Hester Peirce made the following observation in a speech given in California:
"Counting the number of female directors may tell you something about how well a company is run. Or it may simply tell you that the company has more female directors. There are studies going both ways. In most cases, the companies themselves are ill equipped to make these determinations."
On September 30th:
Yesterday, Governor Brown signed the bill into law. His signing messageacknowledged that the bill may never be implemented:
"There have been numerous objections to this bill and serious legal concerns have been raised. I don't minimize the potential flaws that indeed may prove fatal to its ultimate implementation."
It turns out that Governor Brown's approval, which came on the last day on which he could sign bills enacted in this session, may have been influenced by the battle in the U.S. Senate Judiciary Committee over the nomination of Judge Brett Kavanaugh:
"Nevertheless, recent events in Washington, D.C.--and beyond--make it crystal clear that many are not getting the message."
Lest there be any doubt about this reference, Governor Brown copied the United States Senate Judiciary Committee on his signing message.
Although SB 826 may be challenged on several unrelated constitutional grounds, I wouldn't be surprised to see a successful challenge mounted in the Delaware courts on the basis of the "internal affairs doctrine". See Why California's Gender Quota Bill Is More Likely To Be Unconstitutional Than California's Pseudo-Foreign Corporation.
Back to Keith's blog on October 2nd:
As noted in Sunday's post, Governor Brown included a signing message with his approval of SB 826, California's new board gender quota law. I took a look at the case law and quickly found several examples of California courts citing gubernatorial signing messages. See, e.g., Gerawan Farming, Inc. v. Agricultural Labor Relations Bd., 3 Cal. 5th 1118, 1132 (2017) and Arias v. Kardoulias, 207 Cal. App. 4th 1429, 1435 (2012).
But why cite the signing message? Although it seems to me that a signing message isn't legislative history (the legislature has already done its thing), at least one California Court of Appeal has characterized a gubernatorial signing message as legislative history. Nguyen v. Nguyen, 158 Cal. App. 4th 1636, 1660 (2008).
Governor Brown's acknowledgement of the potential constitutional infirmities of SB 826 may well make it into case law. When President Franklin Roosevelt signed the Urgent Deficiency Appropriation Act of 1943, he declared:
"The Senate yielded, as I have been forced to yield, to avoid delaying our conduct of the war. But I cannot so yield without placing on record my view that this provision is not only unwise and discriminatory, but unconstitutional."
H. Doc. 264, 78th Cong., 1st Sess. Ultimately, the U.S. Supreme Court concurred in United States v. Lovett, 328 U.S. 303, 313 (1946).
On October 4th:
Some have asked whether corporation incorporated in other countries might be subject to this new law.
He goes on to examine the legal and practical issues.
And on October 5th:
California's recent enactment of a gender quota for boards of publicly held corporations may cause some foreign corporations to consider moving the location of their principal executive offices. The new law, Corporations Code Section 301.3, will apply to publicly held foreign corporations having their principal executive offices in California "according to the corporation’s SEC 10-K form".
He goes on to explore the factors such companies will have to consider in deciding whether to leave California.
The Rights of Man
Human rights are natural rights, which are universal and inviolable. (PT ¶ 9)
In part I of the encyclical, Pope John lists a set of those rights in considerable detail. They include:
Notice that the Pope’s outline of basic human rights includes both negative rights and positive rights. (I have elsewhere expressed a certain skepticism about positive rights, but that discussion is for another time.)
Unlike many accounts of human rights, Pope John explicitly links those rights to corresponding duties:
Thus, for example, the right to live involves the duty to preserve one's life; the right to a decent standard of living, the duty to live in a becoming fashion; the right to be free to seek out the truth, the duty to devote oneself to an ever deeper and wider search for it. (PT ¶ 29)
Human dignity thus encompasses both the right to “act freely” and the duty to do so “responsibly.” (PT ¶ 34)
Pope John concludes the first part of the encyclical with a number of observations about the state of the world as it then was:
The Individual and the State
Part II of Pacem in Terris accepts the legitimacy of the state but insists that the state derives its authority from God. (PT ¶ 45)
We must … reject the view that the will of the individual or the group is the primary and only source of a citizen's rights and duties, and of the binding force of political constitutions and the government's authority. (PT ¶ 78)
Which raises the questions: What happens when a state embraces secularism as a key ordering principle? What happens when the majority of citizens reject religion and embrace secularism?
As with Mater et Magistra, Pacem in Terris embraces the “both/and” of subsidiarity and solidarity. Individuals and “intermediate groups” are rightfully free but they also have a duty to contribute to the common welfare. (PT ¶ 53) We see this again in Part IV of the encyclical, which deals with international relations, where Pope John wrote:
The same principle of subsidiarity which governs the relations between public authorities and individuals, families and intermediate societies in a single State, must also apply to the relations between the public authority of the world community and the public authorities of each political community. (PT ¶ 140)
For those of us who are lawyers, the three paragraphs (¶¶ 70-72) dealing with the social role of the law are especially pertinent (if a tad cryptic):
There can be no doubt that a State juridical system which conforms to the principles of justice and rightness, and corresponds to the degree of civic maturity evinced by the State in question, is highly conducive to the attainment of the common good.
And yet social life is so complex, varied and active in this modern age, that even a juridical system which has been established with great prudence and foresight often seems inadequate to the need.
Moreover, the relations of citizens with each other, of citizens and intermediate groups with public authorities, and the relations between public authorities of the same State, are sometimes seen to be of so ambiguous and explosive a nature, that they are not susceptible of being regulated by any hard and fast system of laws.
In such cases, if the authorities want to preserve the State's juridical system intact—in itself and in its application to specific cases—and if they want to minister to the principal needs of society, adapt the laws to the conditions of modern life and seek solutions to new problems, then it is essential that they have a clear idea of the nature and limits of their own legitimate spheres of action. Their calmness, integrity, clear sightedness and perseverance must be such that they will recognize at once what is needed in a given situation, and act with promptness and efficiency.
Relations Between States
Part III turns to inter-state relations. At the outset, there is a clear rejection of the ideologies that underlay colonialism: “Truth calls for the elimination of every trace of racial discrimination, and the consequent recognition of the inviolable principle that all States are by nature equal in dignity. Each of them accordingly has the right to exist, to develop, and to possess the necessary means and accept a primary responsibility for its own development.” (PT ¶ 86) The following paragraphs tick off in detail why the various justifications invoked by colonialists have no grounding in morality or natural law.
The then-recent experience of World War II is obvious in several portions of this section, including:
Finally, Pope John takes note of the fundamental change effected by the development and use of nuclear weapons. (PT ¶¶ 126-29) Nuclear weapons should be banned, as should testing of those weapons. (PT ¶¶ 111-12) The potential for catastrophic destruction called into question the whole concept of just war.
The World Community
The fourth part of Pacem in Terrisdeals with the then-new United Nations and, more broadly, the world community. Pope John argues that no single nation can provide the common good universally, instead it must be joint effort of the entire world community. (PT ¶¶ 132-35)
The closing part of Pacem in Terrisconsists of series of exhortations directed mainly at the laity. The Pope encourages participation in public life. (PT ¶ 146) In passing, one wonders what Pope John would have made of The Benedict Option?
Ecumenism was a principal concern of Pope John throughout his papacy, so it is not surprising that he devoted considerable attention to the relations between Catholics and non-Catholics in achieving social justice.
The world had radically changed in the seventy years between Pope Leo XIII began the modern era of Catholic social teaching with his encyclical Rerum Novarum,which we discussed last time. Two world wars, the Great Depression, the beginning of the Cold War, the beginning of decolonization, and huge technical advances in a host of fields. An event I think many overlook or underestimate, moreover, was the signing of the Lateran Treaty between the Holy See and the Kingdom of Italy. It ensured the political independence of the Vatican, while freeing the Popes to travel the world as ambassadors of the faith.
All of these developments find voice in the two encyclicals. In this post, I focus on Mater et Magistra.
Mater et Magistra
William F. Buckley, Jr., supposedly quipped “Mater si, magistra no,” which translates literally as "Mother yes, teacher no.” In the Compendium of the Social Doctrine of the Church, however, the Vatican stated that: “Insofar as it is part of the Church's moral teaching, the Church's social doctrine has the same dignity and authority as her moral teaching. It is authentic Magisterium, which obligates the faithful to adhere to it.” (CSD ¶ 80) Does this mean that lay Catholics may not criticize the Social Teaching? Does it mean that the laity has no role in operationalizing the principles of Catholic Social Thought in law and policy?
No. To the contrary, it is the task of Catholic intellectuals to exercise critical reflective judgment with respect to society, the Church, and the relationship between the two. On course, there is a fine line between the exercise of critical evaluative judgment and dissent. When it comes to issues such as the degree of state intervention in the economy, however, the Church outlines basic principles but recognizes substantial latitude with respect to their translation into public policy. Nowhere, for example, does the Church state what percentage of the economy should by controlled by the state, thus leaving a great deal of room for prudential judgment by Catholics. In promulgating their controversial pastoral letter on the economy, for example, the Bishops expressly acknowledged that their “prudential judgments” about specific policy recommendations were not made “with the same kind of authority that marks our declarations of principle.” Likewise, Pope John Paul II explicitly stated that the Catholic “church has no models to present” with respect to the economy and the state.
The Compendium thus posits that:
[CST] is not a prerogative of a certain component of the ecclesial body but of the entire community; it is the expression of the way that the Church understands society and of her position regarding social structures and changes. The whole of the Church community — priests, religious and laity — participates in the formulation of this social doctrine, each according to the different tasks, charisms and ministries found within her. (CSD ¶ 79)
Implicit in Buckley’s quip is the view held by many that Mater et Magistra marked a sharp discontinuity with prior Church teaching.
In the first part of Mater et Magistra, Pope John reviews Rerum Novarum(1891) and Quadragesimo Anno(1931). In his view, Rerum Novarumwas particularly concerned with rebutting the notion that economic life was exclusively contractual. It rejected the idea that there was no correlation between economics and morality.
Pope John argues that Quadragesimo Anno (literally "In the 40th Year") was issued by Pope Pius XI to reaffirm “the right and duty of the Catholic Church to work for an equitable solution of the many pressing problems weighing upon human society.” (M&M ¶ 28). Pope John further specified two critical teachings to be drawn from Quadragesimo Anno: (1) The “supreme criterion in economic matters … must not be the special interests of individuals or groups, nor unregulated competition, economic despotism, national prestige or imperialism, nor any other aim of this sort.” (M&M ¶ 38) (2) “… man's aim must be to achieve in social justice a national and international juridical order, with its network of public and private institutions, in which all economic activity can be conducted not merely for private gain but also in the interests of the common good.” (M&M ¶ 38).
While both of these sections implicitly purport to be simply a restatement of what those earlier encyclicals stated, many critics saw a shift towards acceptance of the socialization of economic activity and the power of the state. On the other hand, other commentators argued for the essential continuity between Rerum Novarum and Mater et Magistra.
Whether or not Mater et Magistra marks a discontinuity or merely an evolution in CST, there is no doubt that it marked a change in tone and world view. Indeed, contemporary commentary on Mater et Magistra emphasized the shift in tone from hostility towards modernity and economic class warfare to a more modern and balanced appraisal.
Mater et Magistra: Major Themes
Mater et Magistra: Miscellaneous Notes
From her address to the Michigan Law School:
I want to urge you to expand your vision of how one can serve the public as a lawyer. Representing corporations also can be a form of public interest law because companies contribute so much to the well-being of society. I am not referring to corporate sponsorship of the local minor league baseball team, food bank, or youth orchestra. These charitable activities are laudable, but, to find something good, we need not look beyond the core profit-making activities of the corporation.
The hunt for profit drives companies to strive to identify and meet people’s needs using as few resources as possible. Companies communicate with their customers and suppliers through the price system. People tell companies what they value when they pay for the products and services those companies offer. Suppliers, by raising or lowering prices, tell companies how valuable the resources are that the companies use. Companies respond to what their customers and suppliers tell them. In this way, companies help to ensure that people spend their time wisely and that resources are used for the things society values most. Companies combine the diverse and complementary talents of their employees to research, develop, explore, produce, sell, and provide services to willing customers. In these activities, corporations play an important role in expanding scientific and technological knowledge, enabling people to profit from their hard work, and ensuring that society’s resources are allocated to the uses we most value.
As a lawyer representing companies in the courtroom, the boardroom, or the contract negotiating room, you are helping to build mutually beneficial relationships between companies and their creditors, shareholders, employees, suppliers, and communities. You are part of the process for ensuring that resources and human ingenuity are being put to their best use. It is easy to lose sight of the importance of your role particularly when you are an overtired attorney mired in a document-intense business dispute or interminable contract negotiation.
I couldn't agree more. Especially because I said the very same thing over a decade ago, in my article Reflections on Twenty Years of Law Teaching, 56 UCLA Law Review Discourse 1 (2008):
Legal education pervasively sends law students the message that corporate lawyering is a less moral and socially desirable career path than so-called “public interest” lawyering.The corporate world is viewed as essentially corrupting and alienating, while true self-actualization is possible only in a Legal Aid office.
Our students get these messages not only in law school, of course, but also in the media. Films like “A Civil Action” or “Erin Brockovich” illustrate the general ill repute in which corporations—and corporate lawyers—are held, at least here in Hollywood.
In my teaching, I have chosen to unabashedly embrace a competing view. I tell my students about Nicholas Murray Butler, president of Columbia University and winner of the Nobel Peace Prize, who wrote that: “The limited liability corporation is the greatest single discovery of modern times. Even steam and electricity are less important than the limited liability company.”
I tell them about journalists John Micklethwait and Adrian Wooldridge, whose magnificent history, The Company, contends that the corporation is “the basis of the prosperity of the West and the best hope for the future of the rest of the world.”
There is no doubt that the corporation is now the key economic institution in Western nations. In the United States, for example, the corporation is the predominant form of business organization by every measure except sheer number of firms. According to recent census data, although corporations account for only about one fifth of all business organizations, they bring in almost 90% of all business receipts.
The corporation also has proven to be a powerful engine for focusing the efforts of individuals to maintain economic liberty. Because tyranny is far more likely to come from the public sector than the private, those who for selfish reasons strive to maintain both a democratic capitalist society and, of particular relevance to the present argument, a substantial sphere of economic liberty therein serve the public interest. Put another way, private property and freedom of contract were “indispensable if private business corporations were to come into existence.”In turn, by providing centers of power separate from government, corporations give “liberty economic substance over and against the state.”
Yet, two centuries ago, leading business and economic thinkers – including the great Adam Smith – derided the joint stock company. Few businesses were organized as chartered companies. Each company’s charter required a special legislative act. In many places, legislatures granted charters only to quasi-public entities, such as railroads and canals. In most, legislatures rarely resisted the temptation to revise or even repeal existing charters arbitrarily. Even in the United States, where the Supreme Court’s famous Dartmouth Collegedecision gave corporations substantial constitutional protections at a relatively early date, such legislative meddling remained commonplace.
And so I ask my students: What explains the relatively rapid development in the mid-19th century of a recognizably modern corporation and, in turn, that entity’s emergence as the dominant form of economic organization?
The answer has to do with new technologies – especially the railroad – requiring vast amounts of capital, the advantages such large firms derived from economies of scale, the emergence of limited liability that made it practicable to raise large sums from numerous passive investors, and the rise of professional management.
For the most part, these advantages remain true today. The corporation remains the engine of economic growth, both at the level of giants like Microsoft and garage-based start-ups.
The rise of the corporate form thus has “improved the living standards of millions of ordinary people, putting the luxuries of the rich within the reach of the man in the street.”The rising prosperity made possible by the tremendous new wealth created by industrial corporations was a major factor in destroying arbitrary class distinctions, enhancing personal and social mobility. Many of the wealthiest businessmen of the latter half of the 19th Century and the 20th Century began their careers as laborers rather than as scions of coupon-clipping plutocrats.
And so I put it to my students this way: You want to help make society a better place? You want to eliminate poverty? Become a corporate lawyer. Help businesses grow, so that they can create jobs and provide goods and services that make people’s lives better.
The goal isn’t just to make my students feel better about themselves. I firmly believe that too many of our students, when they get out in practice, may be more willing to act in ways that are ethically gray—to act as facilitators rather than gatekeepers—if they’ve been told repeatedly that they’ve already “sold out.”If more legal academics were to celebrate the pro-social aspects of corporate practice, perhaps our students would be better gatekeepers once they get out in practice.