It's Time for a Good Hard Look in the Mirror: The Corporate Law Example
Barrett, John A., Fordham Journal of Corporate & Financial Law
This Article asserts that the move from the industrial age to the information age represents a fundamental change to our society on such a widespread basis that the legal order must reexamine the premises about how our society functions, assessing whether foundational elements of U.S. Common Law remain valid. This Article first confronts briefly the continuing acceptance of certain foundational premises in contract and intellectual property law, illustrating that such premises are no longer supported by the realities of modern society. With fundamental change challenging multiple areas of law in the information age, this problem is worthy of widespread inquiry by legal scholars in various fields. This Article then turns to a detailed analysis of the premises supporting shareholder primacy in corporate law, demonstrating that the historic justifications for allocations of ownership, control and duties no longer support these premises. Based on the relative needs of today's businesses vis-à-vis the contributions of various other constituencies, this Article asserts that employees should also have certain duties owed to them. This Article concludes with a novel model for creating such a stake in the form of a springing right to profit sharing.
Everyone knows how much the world has changed in the last two hundred years. Some changes have been incremental, like moving from horse drawn carriages to automobiles as a basic means of transportation. Others have been quantum, such as moving from an industrial age to an information age. The fundamental question for the legal community is whether the law has adequately changed to keep pace with societal change.
This Article asserts that we have reached such a reflection point in the development of the common law; that the move from the local merchant, isolationist and industrial age to the mass market, globally intertwined, information age1 represents such a fundamental change to our society, that the legal order must step back and reexamine the underlying premises about how our society functions and what is reasonable in each area of U.S. law in order to assess whether those premises remain valid.2 Some areas of law may hardly be affected, as their premises remain valid, whereas other areas may need a radical restructuring to reflect current realities.
This Article will briefly examine the continuing validity of certain foundational premises in contract and intellectual property law merely to illustrate that such premises are no longer supported by the realities of modern society. With fundamental change confronting multiple areas of law in the information age, this is indeed a problem worthy of widespread inquiry by legal scholars in various fields.
The Article will then turn to a detailed analysis of the continuing validity of the premises supporting shareholder primacy,3 looking at the historic justifications for allocating ownership, control and duties to determine whether the premises upon which said structure is founded remain true today. This examination will demonstrate that these premises are no longer valid and that, based on the current relative needs of the business and contributions by various constituencies, employees should have certain duties owed to them as well. This Article concludes with a proposed model for such a stake.
I. THE NEED TO REEXAMINE FOUNDATIONAL PREMISES
A. THE HISTORICAL NEED FOR CHANGE
Law, by its very nature, is designed to help instill order and give predictability to human interactions and undertakings.4 To do this, for any given endeavor, the law must validate either the way people customarily behave in similar circumstances or it must develop a model norm of behavior for people to follow. The United States, as a common law nation, has done precisely this historically. To settle disputes that came before the courts, judges would either look to what were the customary norms of behavior for such activities or would otherwise ask what a "reasonably prudent person" would do in similar circumstances. …