By: Steven A. Ramirez
Much misconduct has been laid at the doorstep of the modern
corporation, particularly in light of a historic surge in corporate
corruption beginning in 2001. This Article focuses on what is
right about the modern publicly held corporation and attempts to
decouple these attributes from the debate about what needs to be
fixed. It instead argues for a more austere restructuring that
actually transcends the corporation per se and focuses on the
apparent locus of the difficulties—the management of the large,
publicly held business enterprise.
The misdeeds commonly attributed to the corporation are hardly
inherent to the corporation, or the inexorable result of exclusive
attributes of the corporation. The essence of the modern
corporation consists of two important elements: 1) limited
liability and 2) the ability to lock-in capital regardless of the
desires of individual owners or creditors. Combined with the
shareholder primacy principle, these elements explain why society
has—and needs—the modern corporation. These elements need not
be associated with the misconduct that corporations happen to
perpetrate. Nor do these elements logically create
inappropriate incentives or proclivities towards such
misconduct.
This is not to say there are no structural problems with the
modern corporation. As a profit-maximizing institution, a
corporation will rationally seek to externalize as many costs
associated with its activities that it possibly can. Similarly, a
corporation will fail to see socially desirable investments, which
yield external benefits in excess of costs, if it cannot
internalize sufficient benefits to justify its investment
costs. There are also problems associated with corporate
governance. A Chief Executive Officer of a modern corporation
will often wield tremendous economic power, and be tempted to use
such power to enrich himself without regard to the welfare of the
corporation. These three issues pose economic challenges to
the institutional structure of the corporation, but they do not
give rise, inevitably, to the corporate misbehavior that has been a
recurring historical experience.
Part I will seek to show what is right and wrong with the modern
corporation. Part II will demonstrate, in general, how the law
should respond to this realization of the fundamental strengths and
the more “minor” weaknesses of the modern corporation. Part
III will apply these lessons to the problems of race in America in
2005. The Article concludes that law plays an important role
in the dementia of corporate wrongdoing, but that the legal
foundation of the corporation itself is not to blame. Instead, the
blame lies largely in the legal infrastructure surrounding the
corporation, or the lack thereof.