Rethinking the History of Corporate Law and Social Responsibility

There is at least one point of agreement in contemporary debates over corporate purpose and social responsibility: during the period of special incorporation prior to the nineteenth century, Anglo-American corporations were expected to fulfill public purposes. The state’s gifting of the charter provided grounds to assert this demand. But why should states have insisted? My recent research on one of the oldest still-cited cases in corporate law argues that the cultural and legal perception of early modern corporations as forms of government required them to pursue public purposes. This analysis has implications both for how we write the history of corporate law as well as the history of business and its social responsibilities.

One of the lengthiest discussions of corporate theory during the period of special incorporation occurred in the Case of Sutton’s Hospital (1612). Sir Edward Coke, whose report we depend upon, wrote that a corporation is ‘invisible, immortal, and rests only in intendment and consideration of the law…’ Coke account was memorable, but also partial. He was both a judge in Sutton and a governor of the hospital. He made no secret of his dislike of the plaintiff’s arguments and explicitly omitted details about them. Noticing this problem suggests both that our knowledge of the specific case is incomplete and that the history of the period’s corporate law often relies on a sliver of printed reports.

Most law reports, however, circulated in manuscript. Three additional case reports survive for Sutton. They reveal that many of the arguments and much of the judicial deliberation focused on whether the hospital was sufficiently established to constitute a government. Those seeking to defeat the incorporation argued that since the hospital had no residents, there could be no government. The governors had no one to rule over. The judges similarly made the issue central to their opinions: the majority determined that the hospital had government in expectancy and therefore was incorporated. They decided in favour of the hospital, which is now the London Charterhouse.

Why were the lawyers and judges in Sutton so preoccupied with corporate government? To answer the question requires thinking in alien historical categories. To the lawyers in Sutton the paradigmatic corporate form was not a commercial company like the East India Company, but rather an incorporated town like Maidstone in Kent. The number of these incorporations as well as those of charities and professional organizations, had grown substantially in England during the sixteenth century. By-law making authority was typically incident to these incorporations. This led to predicable litigation by those challenging regulation. This burst of cases, in turn, stimulated judicial discussion about the extent and limits of corporate authority. No wonder lawyers in Sutton were so preoccupied with issues of corporate government.

Yet they never questioned that corporations should govern, in the sense of having authority over others to bring order to groups and markets. Their assumption rested not on an economic theory as much as on deep cultural and religious beliefs. Without government—direct, interventionist, and hierarchical, ‘the cement and soule of humane affairs’ as one preacher put it at assises—society would collapse. There were, of course, many types of government and corporations were just one among them, but in their diversity they met the larger need for authority in society. Their status as governments meant that corporations, even business corporations, needed to have public purposes.

This analysis of Sutton and its legal context offers several insights into the development of corporate law over time. Historically, cultural and religious ideas have permeated corporate law and provided grounds for claims about social responsibility. As these wider intellectual contexts changed, so too have our ideas about the place of corporations in society. During the later eighteenth century as ideas about spontaneous order emerged, exemplified by Adam Smith’s invisible hand, it was understood that government was no longer always needed to create order. Even the very meaning of ‘economy’ began to change, shifting from denoting the government of material resources in a household to an autonomous sphere of self-regulating order—‘the market’—where some corporations could exist without having to govern.

Why this changed might tell us a lot about shifts in the intellectual context leading up to general incorporation, how claims about social responsibility have been anchored over time, and perhaps even the split in corporate law between for- and non-profits. This distinction was unknown to the lawyers of Sutton’s time, a point that underscores the influence of non-profit corporates on wider developments as Nikolas Bowie, Greg Ablavsky and others, have argued. Historical research is needed to uncover more of this past, research that could make use of a wider array of sources. Sutton is, finally, a reminder of just how much past evidence remains untapped in the history of corporate law.

David Chan Smith is a Professor at Wilfrid Laurier University in the Department of History.