Corporations, Directors’ Duties and the Public/Private Divide

Forthcoming in Firm Governance: The Anatomy of Fiduciary Obligations in Business (Arthur Laby and Jacob Russell (eds) (Cambridge University Press, 2020)

European Corporate Governance Institute - Law Working Paper No. 539/2020

Monash University Faculty of Law Legal Studies Research Paper No. 3682754

30 Pages Posted: 3 Sep 2020

See all articles by Jennifer G. Hill

Jennifer G. Hill

Monash University - Faculty of Law; European Corporate Governance Institute (ECGI)

Date Written: August 28, 2020

Abstract

Business history and theory reflect a tension between public and private conceptions of the corporation. This tension and conceptual ambiguity lay close to the surface of The Modern Corporation and Private Property, in which Berle and Means portrayed the modern public corporation as straddling the public/private divide. It is also embodied in the famous Berle-Dodd debate, which provides the basis for contemporary clashes between “different visions of corporatism,” such as the conflict between shareholder primacy and stakeholder-centered versions of the corporation.

This chapter examines a number of recent developments suggesting that the pendulum, which swung so clearly in favour of a private conception of the corporation from the 1980s onwards, is in the process of changing direction.

The chapter provides two central insights. The first is that there is not one problem, but multiple problems in corporate law, and that different problems may come to the forefront at different times. Although financial performance is a legitimate concern in corporate law, it is also important to recognize, and address, the danger that corporate conduct may result in negative externalities and harm to society. The chapter argues that it is therefore, a mistake to view the two sides of the Berle-Dodd debate as binary and irreconcilable. The second insight is that corporate governance techniques (such as performance-based pay), which are designed to ameliorate one problem in corporate law, such as corporate performance, can at the same time exacerbate other problems involving the social impact of corporations.

As the chapter shows, a number of recent developments in corporate law have highlighted the negative externalities and social harm that corporate actions can cause. These developments suggest the emergence of a more cohesive vision of the corporation that encompasses both private and public aspects. The developments also potentially affect the role and duties of company directors, who are no longer seen merely as monitors of corporate performance, but also as monitors of corporate integrity and the risk of social harm.

Keywords: Corporate theory, business history, Berle-Dodd debate, shareholders, stakeholders, corporate culture, directors’ duties and liability

JEL Classification: D70, G30, G34, G38, K10, K19, K22, K39, N4, N20, N80, M14

Suggested Citation

Hill, Jennifer G., Corporations, Directors’ Duties and the Public/Private Divide (August 28, 2020). Forthcoming in Firm Governance: The Anatomy of Fiduciary Obligations in Business (Arthur Laby and Jacob Russell (eds) (Cambridge University Press, 2020) , European Corporate Governance Institute - Law Working Paper No. 539/2020, Monash University Faculty of Law Legal Studies Research Paper No. 3682754, Available at SSRN: https://ssrn.com/abstract=3682754

Jennifer G. Hill (Contact Author)

Monash University - Faculty of Law ( email )

Wellington Road
Clayton, Victoria 3800
Australia

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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