The Corporation as Technology: Re-Calibrating Corporate Governance for a Sustainable Future

Recent decades have witnessed environmental, social, and economic upheaval, with major corporations contributing to a host of interconnected crises. Given the scope of their operations and consequent impacts, the rules that structure and condition the governance of large business corporations have far-reaching significance, and corporate managers and institutional investors generally agree – at least in the abstract – that achieving corporate sustainability has become a fundamental imperative. My new Oxford University Press book, The Corporation as Technology: Re-Calibrating Corporate Governance for a Sustainable Future (introduction available here), represents an effort toward that end, investigating the degree to which the corporate form itself could better align business practices with long-term sustainability goals. The book advances a new understanding of the corporate form and associated rules of corporate law, and builds upon that descriptive account to explore the corporation’s potential to contribute to environmental, social, and economic sustainability.

The corporate form is widely described, and on some accounts defined, by reference to a core set of purportedly fixed, intrinsic attributes – notably, legal personality, limited liability, freely transferable shares, centralized board management, and shareholder election of directors. Such depictions of the corporate form typically reflect strong assumptions about which corporate constituencies should be regarded as internal participants in the corporation – as opposed to contracting with it from the outside – and go hand-in-hand with strong theoretical claims about the corporation’s core utility and corporate law’s correlative content. I argue, however, that such rigid and static depictions of the corporate form and corporate law have fundamentally misconstrued the nature of the entity, reinforcing a host of pathologies that include excessive risk-taking, cost externalization, and insufficient regard for environmental and social impacts. Hidebound conceptions of the corporation have effectively sacrificed the flexibility and dynamism of the form, thereby obscuring potential governance-related regulatory options that could offer promising solutions to a host of vexing problems.

This book presents the corporation not as a fixed and rigid set of legal characteristics, but rather as a dynamic legal technology that can be re-calibrated in varying contexts, and over time, in response to a dynamic landscape. On this view, the corporation is not a set of fixed attributes, but rather a set of flexible capacities – including differing approaches to the structure and operation of the board, the allocation of governance powers among various corporate stakeholders, and exposure to potential liability for corporate decision-making. These flexible capacities are best conceptualized as governance levers that can be adjusted in various ways, and in different combinations, to achieve a range of decision-making structures and levels of risk tolerance, toward a range of potential ends. The book explores both theoretical and practical ramifications of this conception of the corporation, focusing on how the corporate form – properly understood – could help secure an environmentally, socially, and economically sustainable future.

The analysis begins with a discussion of taxonomic challenges and controversies that have plagued efforts to define the corporation, and correlatively corporate law, in a singular and stable way, and then explores various contextual drivers of difference in terms of how the corporation and corporate law are conceptualized – notably, factors relating to legal, cultural, market, and historical contexts. I argue that these contextual dynamics foreclose a single, stable conception of the corporation and corporate law across all places and times, and that this contingency ought to be regarded as a feature rather than a bug – a capacity for adaptation that allows the corporation and corporate law to respond to social and economic needs that may differ markedly from one jurisdiction to another, and change over time.

The book then takes up the task of re-conceptualizing the corporation to more fully and accurately describe its fundamental features and governance capacities, focusing on publicly traded corporations due to the significance of their scale, scope, and impacts, as well as the vigor of contemporary debates regarding their nature and purposes. This part of the book provides an overview of the emergence of the modern public corporation in the United Kingdom and the United States, a story of flux and dynamism indicating that the intrinsic attributes of the corporate form are less static and rigid than contemporary accounts suggest. I then develop a different conception of the corporation as a dynamic legal technology, arguing that the corporation is best conceptualized as a set of flexible capacities – governance levers that policymakers can adjust in various ways to achieve a wide range of potential outcomes:

• Governance centralization. Decision-making power may be more centralized, through a board of directors, or dispersed, in the hands of shareholders or other stakeholders.
• Board liability exposure. Directors may be given more or less insulation from liability exposure – less exposure prompting more comfort with risk-taking and more exposure prompting less comfort.
• Shareholder representation. Composition of the board may be determined solely by shareholders, or other stakeholders may be granted some degree of representation.
• Shareholder orientation. Boards may be duty-bound to focus narrowly on shareholders’ interests, or may be permitted – or even required – to consider the interests of other stakeholders.
• Shareholder enforcement. Shareholders may be given more or less capacity to advance their own interests through lawsuits, either exclusively or in common with other stakeholders.
• Share transferability. Shareholders may be given more or less freedom to move capital into and out of corporate equity investments unilaterally.
• Shareholder liability exposure. Shareholders may be given more or less insulation from liability exposure – less exposure prompting more comfort with risk-taking and more exposure prompting less comfort.

The remainder of the book applies these insights, exploring how this conception of the corporation as a form of governance technology could open up new possibilities for responding to significant problems associated with prevailing approaches to corporate governance. Drawing upon the growing sustainability literature, I consider three of the most significant organizational and market pathologies inhibiting corporate sustainability today – financialization, excessive risk-taking, and cost externalization. I argue that these are mutually reinforcing phenomena associated with the calibration of governance that predominates among U.S. public companies, favoring strong boards elected by shareholders; greater emphasis on generating financial returns for shareholders, who possess substantial capacity to further prioritize their own interests through shareholder lawsuits; a high degree of investment liquidity for shareholders; and limited liability exposure for boards and shareholders alike. The book proceeds, then, to explore a variety of actual and potential re-calibrations of corporate governance to respond to such problems, drawing upon historical examples, contemporary case studies, and emerging reform proposals around the world.

It bears emphasizing that in conceptualizing the corporation as a form of legal technology, I do not refer to the presently existing legal capacity under corporate law to address the sorts of problems noted above on a firm-by-firm basis through charter and bylaw provisions. Rather, I emphasize the capacity and responsibility of lawmakers and regulators to think critically and creatively about the structure of the standard corporate form and the regulatory content of generally applicable corporate law.  This process should be informed, I argue, by recognition that core issues of corporate governance have been addressed in varying ways in response to differing legal, cultural, market, and historical contexts, resulting in context-specific approaches in numerous jurisdictions around the world that deviate from the static conceptions that prevail in contemporary corporate literature. 

The Corporation as Technology concludes that some of the most pressing environmental, social, and economic problems that we face are exacerbated by an unnecessarily static view of the corporate form and corporate law. The account of the corporation presented in the book opens up fresh theoretical perspectives on the corporate form, new avenues of critique in corporate law and governance, and a novel exploration of the corporation’s potential to address a range of sustainability-related problems. Grappling with such challenges requires a nuanced understanding of the various ways in which the levers of corporate governance can be re-calibrated to respond to a dynamic landscape, and a host of potential solutions become available when we embrace the flexible capacities that the corporate technology provides.

Christopher M. Bruner is the Stembler Family Distinguished Professor in Business Law at the University of Georgia School of Law.