Academic journal article Journal of Corporation Law

Corporations as Cities: Targeting the Nodes in Overlapping Networks

Academic journal article Journal of Corporation Law

Corporations as Cities: Targeting the Nodes in Overlapping Networks

Article excerpt


Two modes of analysis dominate our understanding of corporate behavior today. The first takes as given that profit-maximi/ation is the purpose of corporate entities and focuses internally on the conflict between the corporation's managers and its owners. This perspective, transaction-cost economics, is particularly central to law scholarship in the United States. The second, perhaps a more traditional understanding of the corporation,1 concentrates on the external manifestations of the corporation, and thus concerns itself only with corporations' benefit or harm to society. This socialresponsibility perspective seeks to modulate the corporations' unfettered profitmaximizing in favor of competing social ends.

There is a discontinuity between these two visions, not just in the basic assumptions, but also in the consequences. Transaction-cost economics is a highly technical analysis of one small aspect of the corporate structure: the relationship between managers and shareholders. Because of this perspective's faith in the markets, its primary concern is to ensure that the managers satisfy their duty of profit maximization for the benefit of the shareholders. The salutary nature of a corporation's impact on society depends on managers' proper execution of that duty.2 When, instead of benefitting society, the shenanigans at Enron and WorldCom damaged the economy, it was because of managers' improper actions, and the prescribed corrective has been regulatory and other constraints on management.3 For its part, the social-responsibility perspective is entirely focused on the enterprise's impact on society.4 It does not look within the corporation, at its components, to see whether the failure of any part could affect the entire mechanism. Instead, it assumes that the construction of an equal but opposite force is the most effective mode of influencing a corporation. In this vein, we have seen activists who prepare to challenge a multinational by building a combatant as large and impressive as the multinational itself. They have organized customers,5 mobilized institutional investors,6 and even called on the United Nations and other supranational organizations.7 The transaction-cost perspective peers inside the corporation and does not dwell on social impacts; the social-responsibility scholarship focuses on these impacts and sees only the corporation's outside boundaries.

A few social actors have sought to exert influence over corporations by a method that presupposes a very different conception of the corporation. These actors have targeted particularly well-connected individuals within the corporation, persons that the transaction-cost and social-responsibility perspectives fail to identify. By targeting these persons, the social actors have affected the entire enterprise, just as surely as an event that affected the electrical grid near Cleveland, Ohio for less than a second pulled the plug on fifty million people from Detroit to Toronto to New York City.8

The social actors' success illustrates a new understanding of the corporation-one that integrates and expands the traditional perspectives. The success of these few social actors supports the view that a corporation is a community. Like other communities, the corporation is both an organization and an institution:9 it is embedded in and composed of interrelated networks operating at multiple levels. This is the intuition that I explore here.

From the social-responsibility scholars, I adopt the notion that the corporation's impact on society is important, and that despite the markets' constraints, we still must monitor the consequences of corporate action.10 From the transaction-cost economists, I accept the recommendation that we look within the corporation, but I expand the concept to study more than managers and their relationships to shareholders. Having bridged the dichotomy between these two schools, I use sociology and network theory to show how and why social actors can be so effective. …

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