Today I'm at Washington & Lee for a corporate law symposium in tribute to the scholarship of David Millon and (my St. Thomas colleague) Lyman Johnson. Both Lyman and David have together expanded our understanding of corporate purpose and social responsibility, and Lyman especially has done tremendous work exploring the religious dimension of corporate law (a subject I'll explore this afternoon). The opening panel addresses theoretical perspectives on the corporation.
Matt Bodie (St. Louis U Law) kicked things off by recounting how Lyman and David have created a countervailing ethos to the dominant shareholder primacy theory, focusing more on norms than on straight law. They keep posing the question, what norms should be operative when we think about the corporation? Matt wants us to move beyond norms and think about real shifts in power within the corporation, giving employees some of the traditional rights of corporate governance. Shareholder primary is based on more than a norm -- it's a function of power given that shareholders have voting rights, so a stakeholder theory grounded in norms rather than power won't go very far. Neither labor law nor contract are mechanisms by which employees will participate meaningfully in corporate governance -- e.g., voting rights, board participation. He also suggests that employers should owe certain fiduciary duties to employees.
Eric Orts (Wharton) expressed gratitude for Lyman and David serving as champions of humanism in the corporate law field and alerting us to the dangers of adhering to a single outlook (economics). He explained how David's work helped bring attention to the wealth distribution effects of corporate law -- we cannot focus solely on its wealth maximization effects. David has also argued that limited liability acts as a kind of subsidy to corporations, which raises questions about the corporation's contributions to society.
Alan Palmiter (Wake Forest Law) presented his paper, "Corporate Governance as Moral Judgment." Science tells us that we have no idea how we make moral judgments; such judgments are not based on rationality. As Lyman and David have encouraged, socially responsible investment and boards' focus on sustainability are increasing, but changes are likely not induced by rational arguments. We make moral judgments instinctively and emotionally, then our reasoning is motivated by those judgments. As Jonathan Heidt argues, intuitions come first, strategic reasoning second. So how do we shift corporate focus? Perhaps by shifting perceptions of risk, adding moral vectors (e.g., caring or sacred), and introducing moral modelers.
Leo Strine (Chief Justice, Delaware Supreme Court), citing Berle and Orwell, noted that, if we want the world to be what we want it to be, we have to be clear-eyed about what it is. He objects to Hobby Lobby and Citizens United as bad corporate law decisions that do not do anything to alter the existing concentration of power with equity holders. He respects the consciences of Hobby Lobby's owners, but not to the extent that they should be empowered to override the publicly mandated benefit packages of their employees. He encourages us to think about power. When we cite companies like Hobby Lobby and Cracker Barrel, we're still supporting the maximization of the interests of equity holders -- we're not broadening traditional corporate law to consider other stakeholders. The money that is in the system makes it very difficult to address important externalities through regulation. If we want to change the world of corporate law, we need to do more than raise the consciousness of independent directors; we need to push for real solutions. E.g., he's a fan of statutes creating benefit corporations.