Fictional Shareholders: 'For Whom is the Corporation Managed,' Revisited

Abstract:     
It is a commonplace of American law that corporations are fictional. This is silly - corporations are all too-real (after all, most of us work for one, most of the physical goods on which we depend are made by them, the quality (and lack of quality) of our physical environment is dependent on their decisions, and much of our cultural life is dominated by them). It is shareholders that are the legal fiction.

The shareholders of corporate law are entirely imaginary creatures who have one interest alone: the maximization of returns from holding shares of a single corporation. The law models shareholders as if they were aliens, with no interest in the society in which the corporation functions; as if they were undiversified, with no investments in competing companies; as if they were shareholders alone, with no interests as employees, consumers, suppliers, neighbors, citizens or human beings; and as if they were nihilists, with no values or morality to counter-balance their desire for profit.

Moreover the reality of the stockmarket means that these fictional shareholders influence the corporation as if they were eternal and rootless, with no commitments to any particular time, place, product or process. Obviously, no human being shares these interests or values.

Both corporate law and the legally structured marketplace for corporate control give the fictional shareholder - reified as institutional investors and the stockmarket itself - enormous real power in our corporations. In effect, we have enslaved our most powerful governance institutions to an entirely artificial and utterly one-sided role.

Keywords: fictional shareholders, corporate governance, race to the bottom, market for corporate control, stock market power

JEL Classifications: D72,G30,A13,D23,D63,G32,G34,J50,K22,M14,L21,L

Accepted Paper Series