The Legal Primacy Norm

Abstract

Corporate law scholarship revolves around two polar conceptions, known as "shareholder primacy" and "corporate social responsibility." This Article takes the literature in a new direction, arguing that the current dichotomy misses a crucial aspect of corporate law: its norm of legal primacy. Any pursuit of profit, by the corporation, is legally permitted only within the bounds of full compliance with non-corporate positive law. When the corporation acts unlawfully, corporate law provides a powerful, and until now undertheorized, set of remedies against its fiduciaries and shareholders.

As this Article demonstrates, the most effective way to promote socially desirable corporate behavior is by utilizing the legal primacy devices that corporate law already offers, while continuing to strengthen non-corporate law. Connecting legal primacy with corporate practice, this Article discusses a number of doctrines, some of which have recently become high-profile topics of litigation and scholarship: the fiduciary duty of good faith; directors' oversight duties; the mandatory limits on dividends and buybacks; the shift in corporate purpose in the vicinity of insolvency; the seniority of preferred and trust shareholders; and the judicial dissolution of law-breaking corporations. The analysis offered in this Article can help shape the law to better protect stakeholders (without departing from rule of law principles, or the rights that entities and shareholders do have), and chart a more nuanced trajectory for broader discourse on business law, private law, and public regulation.

Keywords: corporate law, corporate goverance, legal primacy, shareholder primacy, corporate social responsibility, CSR, ESG, compliance, private law, law and economics

JEL Classification: G30, G34, K12, K20, K22, K23, K32, K40, K41, K42, M14