The Corporate Law Dilemma and the Enlightened Sovereign Control Paradigm: In Search of a New Legal Framework
Brooklyn Journal of Corporate, Financial and Commercial Law, Spring 2018 Forthcoming
50 Pages Posted: 26 Jun 2014 Last revised: 17 Nov 2017
Date Written: June 25, 2014
This article is centred on the proposal of a new model of corporate decision-making: the enlightened sovereign control paradigm. In revisiting the long-standing academic debate on the corporate objective, typically enshrined in the dichotomy between shareholder value and stakeholder theory, a critique of these existing models is put forward. It questions in particular the existing theories’ ability to take account of the complex and multidimensional risks that are created by the company but affect different constituencies both inside and outside it. While the global financial crisis re-ignited the urgency to further define an appropriate legal framework for decision-making in large public firms, there have not been substantial changes in the way this problem is treated in legal and business circles.
The paper is grounded on the recognition of the historical quest to find a legitimisation of corporate power and in particular to create a system of public accountability that could justify managerial decision-making. These tasks have become ever more central in the wake of the many scandals that exploded from the early 2000s to the present day, showing that many constituencies can suffer from the externalities of corporate activities.
While much has been written on this topic, more recent events illustrate the need to find an alternative approach to the question of the corporate objective. This is because of its centrality in defining legal strategies to control managerial behaviour, but also because of the shortcomings related to the application of existing paradigms. The asserted urgency to find a new theoretical model to govern managerial actions and coordinate them with the interests of different corporate constituencies leads to the proposition of a new theory. The enlightened sovereign control paradigm flows from a pluralistic theoretical foundation and provides a novel framework for the balancing of different interests that are affected by the behaviour of large public corporations.
Suggested Citation: Suggested Citation