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Taking Corporations Seriously: Some Considerations for Corporate Regulation

Published online by Cambridge University Press:  24 January 2025

Stephen Bottomley
Stephen Bottomley*
Affiliation:
Australian National University
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Extract

Corporate regulation is front-page news in Australia. In recent years we have witnessed the unedifying debate between the Federal and State governments about how the responsibility for, and benefits of regulating companies and securities law should be allocated. Federal Parliamentary committees have conducted inquiries into the law relating to directors' duties, insider trading, and (currently) minority shareholders' rights. The chairman of the National Companies and Securities Commission and the Australian Securities Commission, Mr Tony Hartnell, has gained frequent publicity and support for his concern to “deal with the excesses of the past”.

As this brief survey indicates, the renewed concern about corporate regulation has tended to focus on the task of defining and controlling the conduct of some company personnel (directors, managers, and their advisers) in order to protect the interests of other corporate players (particularly shareholders and creditors). This focus is not surprising, but where does it leave the corporation?

Type
Research Article
Information
Federal Law Review , Volume 19 , Issue 3 , September 1990 , pp. 203 - 222
Copyright
Copyright © 1990 The Australian National University

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Footnotes

Earlier versions of this paper were presented to a staff seminar at the Law School, ANU, and at the Australasian Law Teachers' Association Conference on 'Public/Private, Federal/State Divisions in Australasian Law', September 1990. My thanks to participants for their comments. Particular thanks go to Professor Paul Finn, Professor Roderick A Macdonald, and Dr Stephen Parker.

References

1 Senate Standing Committee on Legal and Constitutional Affairs, Report on Company Directors' Duties (November 1989).

2 House of Representatives Standing Committee on Legal and Constitutional Affairs, Report on Fair Shares for All: Insider Trading in Australia (October 1989).

3 This inquiry is currently being conducted by the House of Representatives Standing Committee on Legal and Constitutional Affairs.

4 “Company law bans loans to directors”, Australian Financial Review, 12 September 1990, 1 is a recent example.

5 The expression is taken from G, Lowe, “Corporations as Objects of Regulation” (1987) 5 Law in Context 35Google Scholar.

6 The heyday of the debate in the Anglo-Australian literature appears to have been during the first half of this century; eg F, Pollock, “Has the Common Law Received the Fiction Theory of Corporations'?” (1911) 27 LQR 219Google Scholar; M, Wolff, “On the Nature of Legal Persons” (1938) 54 LQR 494Google Scholar. For a survey of more recent literature see R Tomasic et al, Corporation Law: Principles, Policy and Process (1990) 1.

7 Perhaps the major contemporary exception to this claim is the body of work that draws on economic theories of law. But by comparison with overseas there is still comparatively little of this worlc in the Australian literature.

8 John C Coates refers to usages of the term in connection with issues of corporate governance, corporate behaviour, and the “most abstract issue of all: what is a corporation'?” in “State Takeover Statutes and Corporate Theory: The Revival of an Old Debate” (1989) 64 New York U L Rev 806.

9 “Corporation” is used here to refer generally to associations incorporated under an Act of Parliament. “Company” refers to the most common encountered example of this broader category, an association incorporated under companies or corporations legislation. Hence this paper does not specifically deal with other unincorporated associations such partnerships.

10 This paper does not therefore specifically address issues of internal corporate governance or decision-making, although corporate theory clearly has implications for them.

11 comprehensive discussion is found in F W Hallis, Corporate Personality: A Study in Jurisprudence (1978).

12 Recent US literature surveying the theoretical terrain is instructive, provided it is recognised that the historical development of the corporate legal form in the US differed from both Australia and Britain. More particularly, arguments from the US “law and economics” literature already exert a strong (if inappropriate) influence on Australian work.

13 For example G, Frug, “The City as a Legal Concept” (1980) 93 Harvard L Rev 1059, 1074-75Google Scholar; M, Horwitz, “The History of the Public/Private Distinction” (1982) 130 U Pennsylvania L Rev 1423Google Scholar. There is scope for much debate about definition within liberal theory, and the interpretation of liberalism used in this paper is not a precise one, referring to a broad “family of ideas”. Tucker, D F B, “Unger on Liberalism” (1987) 43 Bull Aust Soc Legal Phil 174, 176Google Scholar.

14 The distinction between the ideals of autonomy and accountability might also be mentioned, though I suggest that this can be regarded as a derivation of the two distinctions mentioned in the text.

15 TS, Kuhn, The Structure of Scientific Revolutions (1962)Google Scholar.

16 Pocock notes that such an adaptation already moves away from Kuhn's original use of the term: JG A, Pocock, Politics, Language and Time (1973) 14 n 6Google Scholar.

17 See T, Daintith, “Legal Research and Legal Values” (1989) 52 Mod L Rev 352Google Scholar.

18 The utility of this adaptation for studying corporate theory is argued in G, Mark, “The Personification of the Business Corporation in American Law” (1987) 54 U Chicago L Rev 1441Google Scholar.

19 Pocock, J G A, supra n 16, 13Google Scholar.

20 I do not intend to present a detailed historical review, although I acknowledge that each paradigm has enjoyed prominence at different times. Given that each of these paradigms still exerts some influence on corporate law doctrine I will refer to them in the present tense.

21 W, Bratton Jr, “The New Economic Theory of the Firm: Critical Perspectives from History” (1989) 41 Stanford L Rev 1471. 1475Google Scholar.

22 J, Dewey, “The Historic Background of Corporate Legal Personality” (1926) 35 Yale L J 655 n 1Google Scholar. Note that in jurisprudential writing the theory is often called 'Fiction Theory'.

23 D, Bonham and D, Soberman, “The Nature of Corporate Personality” in Ziegel, J S (ed) Studies in Canadian Company Law (1967) 3, 5Google Scholar.

24 (1897) AC 22.

25 Ibid 30.

26 G, Frug, supra n 13, 1076-77Google Scholar.

27 M, Wolff, supra n 6, 508Google Scholar.

28 Coates, J C, supra n 8, 812Google Scholar.

29 D, Bonham and D, Soberman, supra n 23, 5Google Scholar. Contra R, Romano, “Metapolitics and Corporate Law Reform” (1984) 36 Stanford L Rev 923, 933-4Google Scholar (arguing that Concession Theory could plausibly support arguments for restricted state regulation).

30 M, Stokes, “Company Law and Legal Theory” in W, Twining (ed) Legal Tl ory and Common Law (1986) 155, 162Google Scholar.

31 Id; cf M, Horwitz “Sonia Clara Revisited: The Development of Corporate Theory” (1985) 88 W Virginia L Rev 173, 186Google Scholar.

32 (1874-80) All ER Rep Ext 2219, 2230.

33 JC, Coates, supra n 8, 814Google Scholar.

34 For example W, Bratton, supra n 21, 1485-6Google Scholar.

35 In the United Kingdom the first statute to permit incorporation by registration was the Joint Stock Companies Act 1844 (7 and 8 Viet c 110).

36 See the figures cited in P, Ireland, “The Rise of the Limited Liability Company” (1984) 12 Int J Sociol Law 239, 245Google Scholar.

37 W, Bratton Jr supra n 21, 1486Google Scholar.

38 I have borrowed this label from JC, Coates supra n 8, 815Google Scholar.

39 See note, “The Constitutional Rights of the Corporate Person” (1982) 91 Yale L J 1641, 1648.

40 See Automatic Self-Cleansing Filter Syndicate Co v Cunninghame [1906] 2 Ch 34 holding that the internal affairs of the company are regulated by the contract contained in the Articles of Association; and Riche v Ashbury Railway Carriage & Iron Co [1874] LR 9 Ex 224 in which a partnership analogy was drawn in some of the judgments in considering the effect of the Memorandum of Association.

41 Stokes, M, supra n 30, 162Google Scholar; cf Horwitz, M, supra n 31, 184Google Scholar; Coates, JC, supra n 8, 815Google Scholar at note 55..

42 P, Ireland, I, Grigg-Spall and D, Kelly, “The Conceptual Foundations of Modem Company Law” (1987) 14 J L & Society 149, 150Google Scholar. Contra s 117(1)(h) Corporations Act 1989 (Cth).

43 M, Stokes, supra n 30, 163Google Scholar. Note also s 78 Companies Act 1981.

44 Coates, J C, supra n 8, 835Google Scholar.

45 The discussion in the text summarises what Bratton describes as the “neo-classical” contractarian position. As he points out, there are variants of this argument: W, Bratton, “The 'Nexus of Contracts' Corporation: A Critical Appraisal” (1989) 74 Cornell L Rev 407, 410Google Scholar.

46 See R, Posner, Economic Analysis of Law (2nd ed 1977) 289-296Google Scholar

47 W, Bratton argues that the “nexus of contracts” argument is, in the hands of lawyers, “merely an assertion, or a legal conclusion”: supra n 4S, 410Google Scholar.

48 M, Jensen and W, Meckling “Theory of the Firm: Managerial Behaviour, Agency Costs and Ownwership Structure” (1976) 3 J Fin Econ 305, 310Google Scholar.

49 E, Fama and M, Jensen, “Separation of Ownership and Control” (1983) 26 J L & Econ 301, 302Google Scholar.

50 R, Posner, supra n 46, 301Google Scholar.

51 See Symposium (1989) 89 Columbia L Rev 139S-17S7 for various contractarian arguments concerning voluntary opting out of corporate law regulation.

52 E, Fama and M, Jensen supra n 49, 302Google Scholar.

53 Ibid 304.

54 R, Posner, supra n 46, 302Google Scholar.

55 Cf the so-<:alled “institutionalists”, see W, Bratton, supra n 45, 421Google Scholar.

56 V, Brudney, “Corporate Governance, Agency Costs, and the Rhetoric of Contract” (1985) 85 Columbia L Rev 1403, 1403-4Google Scholar.

57 JC, Coates, supra n 8, 818-9Google Scholar.

58 R, Romano supra n 29, 930Google Scholar.

59 von Gierke, O, Political Theories of the Middle Age (tr F W Maitland, 1951)Google Scholar.

60 Freund cited in M, Horwitz, supra n 31, 218Google Scholar.

61 R, Romano, supra n 29, 931Google Scholar, citing A, Stepan, The State and Society (1978)Google Scholar.

62 Coates, J C, supra n 8, 823Google Scholar.

63 Hallis, F W, supra n 11, 142Google Scholar.

64 G, Mark, supra n 18, 1470Google Scholar.

65 M, Horwitz, supra n 31, 218Google Scholar.

66 JC, Coates, supra n 8, 819-820Google Scholar.

67 [1957) 1 QB 159, 172; see also Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd (1915) AC 705 per Lord Haldane.

68 M, Horwitz, supra n 31, 219-220Google Scholar gives some examples.

69 JC, Coates, supra n 8, 833Google Scholar; see also W, Bratton Jr, supra n 45, 413-414Google Scholar.

70 M, Stokes, supra n 30, 163Google Scholar.

71 JC, Coates, supra n 8, 826Google Scholar.

72 Stanley, Benn and Gerald, Gauss, “The Liberal Conception of the Public and the Private” in S, Benn and G, Gauss (eds) Public and Private in Social Life (1983) 31Google Scholar.

73 Ibid 33.

74 Id.

75 Ibid 35.

76 Id.

77 Id.

78 Ibid.

79 Id.

80 (1957) 1 QB 159, 172.

81 W, Bratton, supra n 21, 1490Google Scholar.

82 S, Benn and G, Gauss, supra n 72, 42Google Scholar.

83 JC, Coates, supra n 8, 812Google Scholar; and see also M, Horwitz, supra n 31, 181Google Scholar.

84 C, Stanley, “Corporate Personality and capitalist Relations: A Critical Analysis of the Anifice of Company Law” (1988) 19 The Cambrian L Rev 97, 106-107Google Scholar.

85 I specify Australia because that is where my impressions are drawn from. I am not suggesting that there is something necessarily unique to corporate developments in this country.

86 R, Jeffrey Lustig, corporate Liberalism (1982) 9Google Scholar.

87 See S, Parker, “Child Support in Australia: Children's Rights or Public Interest?” (1991) 51 Int J Law and Family (forthcoming)Google Scholar.

88 Associations Incorporation Act 1984 (NSW); Associations Incorporation Act 198l (Vic); Associations Incorporation Act 1981 (Qld); Associations Incorporation Act 1985 (SA); Associations Incorporation Act 1987 (WA); Associations Incorporation Act 1964 (Tas); Associations Incorporation Act 1953 (ACT); Associations Incorporation Act 1963 (NT).

89 Under the Corporations Legislation Amendment Act 1990 (Cth) the Close Corporations Act 1989 (Cth) has neither been repealed nor amended. Nevertheless by virtue of the Corporations Legislation Amendment Act 1990 (Cth) all references to close corporations have been omitted from the Corporations laws.

90 Senate Standing Committee on Finance and Public Administration, Government Companies and their Reporting Requirements, (1989) para 3.4.2.

91 Other examples include the Financial Corporations Act 1974 (Cth}, and various State Acts regulating the activities of trustee corporations eg the Trustee Companies Act 1968 (Qld).

92 G, Frug, “The Ideology of Bureaucracy in America Law” (1984) 97 Harvard L Rev 1276Google Scholar; and also G, Frug, supra n 13Google Scholar.

93 Unger, R M, Law in Modern Society (1976) 193Google Scholar.

94 M, Stokes, supra n 30Google Scholar.

95 For a useful survey, see Williamson, P J, Corporatism in Perspective (1989)Google Scholar.

96 For a sample of arguments calling for the application of corporatist analysis to legal phenomena, see H, Collins, The Law of Contract (1986) Ch 12Google Scholar; and P, O'gMalley, Law, Capitalism, and Democracy (1983) Ch 9Google Scholar.

97 This is to distinguish modem corporatist theory from earlier authoritarian variants usually associated with Fascist Italy: P, Williamson, supra n 95, Ch 2Google Scholar.

98 Unger, R M, supra n 93, 200-201Google Scholar. Civil society for the purposes of this paper is defined as the system of relations between private persons: S, Benn and G, Gauss, supra n 72, 51Google Scholar.

99 L, Panitch, “Recent Theorizations of Corporatism: Reflections on a Growth Industry” (1980) 31 Br J of Sociology 159Google Scholar.

100 J, Handler, The Conditions of Discretion (1986) 288Google Scholar.

101 Unger, R M, supra n 93, 202Google Scholar.

102 P, Schmitter, “Still the Century of Corporatism?” (1974) 36 Review of Politics 85Google Scholar; also P, Williamson, supra n 95, 68Google Scholar.

103 O, Newman, The Challenge of Corporatism (1981) 163Google Scholar.

104 M, Stokes, supra n 30, 177Google Scholar; and see R, Romano, supra n 29, 935Google Scholar (corporatism stresses “the individual's identification with a holistic community”).

105 Eg, P, Loveday, “Corporatist Trends in Australia?” (1984) 19 Politics 46Google Scholar; Stewart, R G, “The Politics of the Accord. Does Corporatism Explain It?” (1985) 20 Politics 26CrossRefGoogle Scholar; R, Gerritsen, “The Necessity of 'Corporatism': The Case of the Hawke Labor Government” (1986) 21 Politics 45Google Scholar.

106 The question is framed by Lustig, R J, supra n 86, 255Google Scholar.

107 Ibid 7.

108 S, Benn and G, Gaus, supra n 72Google Scholar.

109 M, Stokes, supra n 30, 176Google Scholar.

110 I am not suggesting that corporations are the only such sites. The family is another example.

111 I, Lustig, supra n 86, 256Google Scholar. Rob McQueen has pointed out that the Close Corporations Act 1989 (Cth) “asserts that privacy is a necessary concomitant of the freedom to trade”: R, McQueen, “The new companies and securities scheme: a fundamental departure?” (1989) The Australian Quarterly 481, 491CrossRefGoogle Scholar.

112 This distinction was actually suggested to me in A, Horwitz, The Social Control of Mental Illness (1982)Google Scholar.

113 Kennedy, , “The Stages of the Public/Private Distinction” (1982) 130 U Pennsylvania L Rev 1349, 1349CrossRefGoogle Scholar.

114 P, Ewick, “In the Belly of the Beast: Rethinking Rights, Persons and Organisations” (1988) 13 Law and Social Inquiiy 175, 181Google Scholar; and see G, Lowe, supra n 5, 40Google Scholar.

115 G, Lowe, supra n 5, 39-40Google Scholar.

116 Cohen, A K, “Criminal Actors: Natural Persons and Collectivities” in New Directions in the Study of Justice, Law and Social Control (1990) 108CrossRefGoogle Scholar.

117 G, Lowe, supra n 5, 37Google Scholar, referring to Grahame, Thompson, “The finn as a 'dispersed' social agency” (1982) 11 Economy and Society 233Google Scholar.

118 V, Brudney, supra n 56Google Scholar.

119 T, Hadden, The Control of Corporate Groups (1983)Google Scholar.

120 Lowe suggests that the specificity of corporate theory extends beyond simply recognising distinct categories of corporations. Even within categories there are no prototypical forms of organisation. The difficulty in devising regulatory schemes for specific applications is further reminder that corporate theory can only partially explain modem corporations: G, Lowe, supra n 5, 36Google Scholar.

121 Centre for National Corporate Law Research, An Agenda for Corporate Law Reform Discussion Paper No 1/1990, 23. See also R, Tomasic, “The Global Dimensions of Corporate Law Research: Some Notes”, paper prepared for National Science Foundation Workshop, Maryland, July 1990Google Scholar.

122 M, Koskenniemi, From Apology lo Utopia (1989), 68-73Google Scholar discusses the connection between liberalism and international law.

123 This point is adopted from G, Lowe, supra n 5, 52-53Google Scholar. His argument goes further, to say that different aspects of corporate activity within particular corporations also require particularised regulation.