The corporation is a social institution
University of British Columbia
Master of Laws - LLM
Corporate law theory in Anglo-American countries has long been dominated by economic analysis. While significant efforts have been made to critique the economic theory of the corporation and a number of alternate "progressive" theories have been offered - there is still no single theory that stands in opposition to the Nexus of Contracts theory. This thesis utilizes historical analysis to show that before 1930 there were two dominant and opposing theories of the corporation: Contractual theory (or early economic theory), which conceptualized the corporation as merely a collection of freely contracting individuals; and Entity theory (or early sociological theory), which conceptualized the corporation as a real entity with an existence distinct from its members. The competition between these two contrasting theories created a balance in the corporate law debate between the economic and social aspects of corporations. But Entity theory fell out of favour in Anglo-American countries and the balance was lost. The effects of that loss are evident in modem Anglo-American societies with our disproportionate preference for private interests over public interests. Our fascination with short term profits, our readiness to make lay-offs and rampant mergers and acquisition activity are a few examples of this phenomenon. This thesis argues for the revival of the social theory of the corporation to restore balance to the corporate law debate. Using advances in sociology and in particular developments from organizational theory and institutional analysis, the building blocks of an updated social theory of the corporation are outlined.
Law, Peter A. Allard School of