Business ethics and the theory of the firm

American Business Law Journal

Volumn 34, Issue 2, 1996, Pages 217-238

  Boatright, John R ^a  

^a NONE

Author keywords

[No Author keywords available]

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EID: 0040601100     PISSN: 00027766     EISSN: None     Source Type: Journal    
DOI: 10.1111/j.1744-1714.1996.tb00697.x     Document Type: Article

References (58)

1. A contract approach to the firm is inherent in the classical liberalism represented by Adam Smith's Wealth of Nations, which describes economic activity as the exchange of property in a market, and the firm as a nexus of contracts is assumed in the controversy over the "personality" of the corporation by those who viewed the corporation as an artificial entity. For an explanation of the artificial entity view see Morton J. Horwitz, "Santa Clara Revisited: The Development of Corporate Theory," West Virginia Law Review, 88 (1985), 173-224. The contractual theory in its modern form is due to Ronald M. Coase, "The Nature of the Firm," Economica, N.S., 4 (1937), 386-405; and it has been developed by economists using an agency or transaction cost perspective. See Armen A. Alchian and Harold Demsetz, "Production, Information Costs, and Economic Organization," American Economic Review, 62 (1972), 777-95; Benjamin Klein, Robert A. Crawford, and Armen A. Alchian, "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, 21 (1978), 297-326; Michael C. Jensen and William H. Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure," Journal of Financial Economics, 3 (1983), 305-60; Eugene F. Fama and Michael C. Jensen, "Separation of Ownership and Control," Journal of Law and Economics, 26 (1983), 301-25; Steven N. S. Cheung, "The Contractual Theory of the Firm," Journal of Law and Economics, 26 (1983), 1-22; and Oliver E. Williamson, The Economic Institutions of Capitalism (New York: The Free Press, 1985). An authoritative development of the theory of the firm in corporate law is Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of the Firm (Cambridge: Harvard University Press, 1991). See also William A. Klein, "The Modern Business Organization: Bargaining under Constraints," Yale Law Journal, 91 (1982), 1521-64; and Henry N. Butler, "The Contractual Theory of the Firm." George Mason Law Review, 11 (1989), 99-123.
2. A contract approach to the firm is inherent in the classical liberalism represented by Adam Smith's Wealth of Nations, which describes economic activity as the exchange of property in a market, and the firm as a nexus of contracts is assumed in the controversy over the "personality" of the corporation by those who viewed the corporation as an artificial entity. For an explanation of the artificial entity view see Morton J. Horwitz, "Santa Clara Revisited: The Development of Corporate Theory," West Virginia Law Review, 88 (1985), 173-224. The contractual theory in its modern form is due to Ronald M. Coase, "The Nature of the Firm," Economica, N.S., 4 (1937), 386-405; and it has been developed by economists using an agency or transaction cost perspective. See Armen A. Alchian and Harold Demsetz, "Production, Information Costs, and Economic Organization," American Economic Review, 62 (1972), 777-95; Benjamin Klein, Robert A. Crawford, and Armen A. Alchian, "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, 21 (1978), 297-326; Michael C. Jensen and William H. Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure," Journal of Financial Economics, 3 (1983), 305-60; Eugene F. Fama and Michael C. Jensen, "Separation of Ownership and Control," Journal of Law and Economics, 26 (1983), 301-25; Steven N. S. Cheung, "The Contractual Theory of the Firm," Journal of Law and Economics, 26 (1983), 1-22; and Oliver E. Williamson, The Economic Institutions of Capitalism (New York: The Free Press, 1985). An authoritative development of the theory of the firm in corporate law is Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of the Firm (Cambridge: Harvard University Press, 1991). See also William A. Klein, "The Modern Business Organization: Bargaining under Constraints," Yale Law Journal, 91 (1982), 1521-64; and Henry N. Butler, "The Contractual Theory of the Firm." George Mason Law Review, 11 (1989), 99-123.
3. A contract approach to the firm is inherent in the classical liberalism represented by Adam Smith's Wealth of Nations, which describes economic activity as the exchange of property in a market, and the firm as a nexus of contracts is assumed in the controversy over the "personality" of the corporation by those who viewed the corporation as an artificial entity. For an explanation of the artificial entity view see Morton J. Horwitz, "Santa Clara Revisited: The Development of Corporate Theory," West Virginia Law Review, 88 (1985), 173-224. The contractual theory in its modern form is due to Ronald M. Coase, "The Nature of the Firm," Economica, N.S., 4 (1937), 386-405; and it has been developed by economists using an agency or transaction cost perspective. See Armen A. Alchian and Harold Demsetz, "Production, Information Costs, and Economic Organization," American Economic Review, 62 (1972), 777-95; Benjamin Klein, Robert A. Crawford, and Armen A. Alchian, "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, 21 (1978), 297-326; Michael C. Jensen and William H. Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure," Journal of Financial Economics, 3 (1983), 305-60; Eugene F. Fama and Michael C. Jensen, "Separation of Ownership and Control," Journal of Law and Economics, 26 (1983), 301-25; Steven N. S. Cheung, "The Contractual Theory of the Firm," Journal of Law and Economics, 26 (1983), 1-22; and Oliver E. Williamson, The Economic Institutions of Capitalism (New York: The Free Press, 1985). An authoritative development of the theory of the firm in corporate law is Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of the Firm (Cambridge: Harvard University Press, 1991). See also William A. Klein, "The Modern Business Organization: Bargaining under Constraints," Yale Law Journal, 91 (1982), 1521-64; and Henry N. Butler, "The Contractual Theory of the Firm." George Mason Law Review, 11 (1989), 990-123.
4. A contract approach to the firm is inherent in the classical liberalism represented by Adam Smith's Wealth of Nations, which describes economic activity as the exchange of property in a market, and the firm as a nexus of contracts is assumed in the controversy over the "personality" of the corporation by those who viewed the corporation as an artificial entity. For an explanation of the artificial entity view see Morton J. Horwitz, "Santa Clara Revisited: The Development of Corporate Theory," West Virginia Law Review, 88 (1985), 173-224. The contractual theory in its modern form is due to Ronald M. Coase, "The Nature of the Firm," Economica, N.S., 4 (1937), 386-405; and it has been developed by economists using an agency or transaction cost perspective. See Armen A. Alchian and Harold Demsetz, "Production, Information Costs, and Economic Organization," American Economic Review, 62 (1972), 777-95; Benjamin Klein, Robert A. Crawford, and Armen A. Alchian, "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, 21 (1978), 297-326; Michael C. Jensen and William H. Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure," Journal of Financial Economics, 3 (1983), 305-60; Eugene F. Fama and Michael C. Jensen, "Separation of Ownership and Control," Journal of Law and Economics, 26 (1983), 301-25; Steven N. S. Cheung, "The Contractual Theory of the Firm," Journal of Law and Economics, 26 (1983), 1-22; and Oliver E. Williamson, The Economic Institutions of Capitalism (New York: The Free Press, 1985). An authoritative development of the theory of the firm in corporate law is Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of the Firm (Cambridge: Harvard University Press, 1991). See also William A. Klein, "The Modern Business Organization: Bargaining under Constraints," Yale Law Journal, 91 (1982), 1521-64; and Henry N. Butler, "The Contractual Theory of the Firm." George Mason Law Review, 11 (1989), 99-123.
5. A contract approach to the firm is inherent in the classical liberalism represented by Adam Smith's Wealth of Nations, which describes economic activity as the exchange of property in a market, and the firm as a nexus of contracts is assumed in the controversy over the "personality" of the corporation by those who viewed the corporation as an artificial entity. For an explanation of the artificial entity view see Morton J. Horwitz, "Santa Clara Revisited: The Development of Corporate Theory," West Virginia Law Review, 88 (1985), 173-224. The contractual theory in its modern form is due to Ronald M. Coase, "The Nature of the Firm," Economica, N.S., 4 (1937), 386-405; and it has been developed by economists using an agency or transaction cost perspective. See Armen A. Alchian and Harold Demsetz, "Production, Information Costs, and Economic Organization," American Economic Review, 62 (1972), 777-95; Benjamin Klein, Robert A. Crawford, and Armen A. Alchian, "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, 21 (1978), 297-326; Michael C. Jensen and William H. Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure," Journal of Financial Economics, 3 (1983), 305-60; Eugene F. Fama and Michael C. Jensen, "Separation of Ownership and Control," Journal of Law and Economics, 26 (1983), 301-25; Steven N. S. Cheung, "The Contractual Theory of the Firm," Journal of Law and Economics, 26 (1983), 1-22; and Oliver E. Williamson, The Economic Institutions of Capitalism (New York: The Free Press, 1985). An authoritative development of the theory of the firm in corporate law is Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of the Firm (Cambridge: Harvard University Press, 1991). See also William A. Klein, "The Modern Business Organization: Bargaining under Constraints," Yale Law Journal, 91 (1982), 1521-64; and Henry N. Butler, "The Contractual Theory of the Firm." George Mason Law Review, 11 (1989), 99-123.
6. A contract approach to the firm is inherent in the classical liberalism represented by Adam Smith's Wealth of Nations, which describes economic activity as the exchange of property in a market, and the firm as a nexus of contracts is assumed in the controversy over the "personality" of the corporation by those who viewed the corporation as an artificial entity. For an explanation of the artificial entity view see Morton J. Horwitz, "Santa Clara Revisited: The Development of Corporate Theory," West Virginia Law Review, 88 (1985), 173-224. The contractual theory in its modern form is due to Ronald M. Coase, "The Nature of the Firm," Economica, N.S., 4 (1937), 386-405; and it has been developed by economists using an agency or transaction cost perspective. See Armen A. Alchian and Harold Demsetz, "Production, Information Costs, and Economic Organization," American Economic Review, 62 (1972), 777-95; Benjamin Klein, Robert A. Crawford, and Armen A. Alchian, "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, 21 (1978), 297-326; Michael C. Jensen and William H. Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure," Journal of Financial Economics, 3 (1983), 305-60; Eugene F. Fama and Michael C. Jensen, "Separation of Ownership and Control," Journal of Law and Economics, 26 (1983), 301-25; Steven N. S. Cheung, "The Contractual Theory of the Firm," Journal of Law and Economics, 26 (1983), 1-22; and Oliver E. Williamson, The Economic Institutions of Capitalism (New York: The Free Press, 1985). An authoritative development of the theory of the firm in corporate law is Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of the Firm (Cambridge: Harvard University Press, 1991). See also William A. Klein, "The Modern Business Organization: Bargaining under Constraints," Yale Law Journal, 91 (1982), 1521-64; and Henry N. Butler, "The Contractual Theory of the Firm." George Mason Law Review, 11 (1989), 99-123.
7. A contract approach to the firm is inherent in the classical liberalism represented by Adam Smith's Wealth of Nations, which describes economic activity as the exchange of property in a market, and the firm as a nexus of contracts is assumed in the controversy over the "personality" of the corporation by those who viewed the corporation as an artificial entity. For an explanation of the artificial entity view see Morton J. Horwitz, "Santa Clara Revisited: The Development of Corporate Theory," West Virginia Law Review, 88 (1985), 173-224. The contractual theory in its modern form is due to Ronald M. Coase, "The Nature of the Firm," Economica, N.S., 4 (1937), 386-405; and it has been developed by economists using an agency or transaction cost perspective. See Armen A. Alchian and Harold Demsetz, "Production, Information Costs, and Economic Organization," American Economic Review, 62 (1972), 777-95; Benjamin Klein, Robert A. Crawford, and Armen A. Alchian, "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, 21 (1978), 297-326; Michael C. Jensen and William H. Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure," Journal of Financial Economics, 3 (1983), 305-60; Eugene F. Fama and Michael C. Jensen, "Separation of Ownership and Control," Journal of Law and Economics, 26 (1983), 301-25; Steven N. S. Cheung, "The Contractual Theory of the Firm," Journal of Law and Economics, 26 (1983), 1-22; and Oliver E. Williamson, The Economic Institutions of Capitalism (New York: The Free Press, 1985). An authoritative development of the theory of the firm in corporate law is Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of the Firm (Cambridge: Harvard University Press, 1991). See also William A. Klein, "The Modern Business Organization: Bargaining under Constraints," Yale Law Journal, 91 (1982), 1521-64; and Henry N. Butler, "The Contractual Theory of the Firm." George Mason Law Review, 11 (1989), 99-123.
8. A contract approach to the firm is inherent in the classical liberalism represented by Adam Smith's Wealth of Nations, which describes economic activity as the exchange of property in a market, and the firm as a nexus of contracts is assumed in the controversy over the "personality" of the corporation by those who viewed the corporation as an artificial entity. For an explanation of the artificial entity view see Morton J. Horwitz, "Santa Clara Revisited: The Development of Corporate Theory," West Virginia Law Review, 88 (1985), 173-224. The contractual theory in its modern form is due to Ronald M. Coase, "The Nature of the Firm," Economica, N.S., 4 (1937), 386-405; and it has been developed by economists using an agency or transaction cost perspective. See Armen A. Alchian and Harold Demsetz, "Production, Information Costs, and Economic Organization," American Economic Review, 62 (1972), 777-95; Benjamin Klein, Robert A. Crawford, and Armen A. Alchian, "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, 21 (1978), 297-326; Michael C. Jensen and William H. Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure," Journal of Financial Economics, 3 (1983), 305-60; Eugene F. Fama and Michael C. Jensen, "Separation of Ownership and Control," Journal of Law and Economics, 26 (1983), 301-25; Steven N. S. Cheung, "The Contractual Theory of the Firm," Journal of Law and Economics, 26 (1983), 1-22; and Oliver E. Williamson, The Economic Institutions of Capitalism (New York: The Free Press, 1985). An authoritative development of the theory of the firm in corporate law is Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of the Firm (Cambridge: Harvard University Press, 1991). See also William A. Klein, "The Modern Business Organization: Bargaining under Constraints," Yale Law Journal, 91 (1982), 1521-64; and Henry N. Butler, "The Contractual Theory of the Firm." George Mason Law Review, 11 (1989), 99-123.
9. A contract approach to the firm is inherent in the classical liberalism represented by Adam Smith's Wealth of Nations, which describes economic activity as the exchange of property in a market, and the firm as a nexus of contracts is assumed in the controversy over the "personality" of the corporation by those who viewed the corporation as an artificial entity. For an explanation of the artificial entity view see Morton J. Horwitz, "Santa Clara Revisited: The Development of Corporate Theory," West Virginia Law Review, 88 (1985), 173-224. The contractual theory in its modern form is due to Ronald M. Coase, "The Nature of the Firm," Economica, N.S., 4 (1937), 386-405; and it has been developed by economists using an agency or transaction cost perspective. See Armen A. Alchian and Harold Demsetz, "Production, Information Costs, and Economic Organization," American Economic Review, 62 (1972), 777-95; Benjamin Klein, Robert A. Crawford, and Armen A. Alchian, "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, 21 (1978), 297-326; Michael C. Jensen and William H. Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure," Journal of Financial Economics, 3 (1983), 305-60; Eugene F. Fama and Michael C. Jensen, "Separation of Ownership and Control," Journal of Law and Economics, 26 (1983), 301-25; Steven N. S. Cheung, "The Contractual Theory of the Firm," Journal of Law and Economics, 26 (1983), 1-22; and Oliver E. Williamson, The Economic Institutions of Capitalism (New York: The Free Press, 1985). An authoritative development of the theory of the firm in corporate law is Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of the Firm (Cambridge: Harvard University Press, 1991). See also William A. Klein, "The Modern Business Organization: Bargaining under Constraints," Yale Law Journal, 91 (1982), 1521-64; and Henry N. Butler, "The Contractual Theory of the Firm." George Mason Law Review, 11 (1989), 99-123.
10. A contract approach to the firm is inherent in the classical liberalism represented by Adam Smith's Wealth of Nations, which describes economic activity as the exchange of property in a market, and the firm as a nexus of contracts is assumed in the controversy over the "personality" of the corporation by those who viewed the corporation as an artificial entity. For an explanation of the artificial entity view see Morton J. Horwitz, "Santa Clara Revisited: The Development of Corporate Theory," West Virginia Law Review, 88 (1985), 173-224. The contractual theory in its modern form is due to Ronald M. Coase, "The Nature of the Firm," Economica, N.S., 4 (1937), 386-405; and it has been developed by economists using an agency or transaction cost perspective. See Armen A. Alchian and Harold Demsetz, "Production, Information Costs, and Economic Organization," American Economic Review, 62 (1972), 777-95; Benjamin Klein, Robert A. Crawford, and Armen A. Alchian, "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, 21 (1978), 297-326; Michael C. Jensen and William H. Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure," Journal of Financial Economics, 3 (1983), 305-60; Eugene F. Fama and Michael C. Jensen, "Separation of Ownership and Control," Journal of Law and Economics, 26 (1983), 301-25; Steven N. S. Cheung, "The Contractual Theory of the Firm," Journal of Law and Economics, 26 (1983), 1-22; and Oliver E. Williamson, The Economic Institutions of Capitalism (New York: The Free Press, 1985). An authoritative development of the theory of the firm in corporate law is Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of the Firm (Cambridge: Harvard University Press, 1991). See also William A. Klein, "The Modern Business Organization: Bargaining under Constraints," Yale Law Journal, 91 (1982), 1521-64; and Henry N. Butler, "The Contractual Theory of the Firm." George Mason Law Review, 11 (1989), 99-123.
11. A contract approach to the firm is inherent in the classical liberalism represented by Adam Smith's Wealth of Nations, which describes economic activity as the exchange of property in a market, and the firm as a nexus of contracts is assumed in the controversy over the "personality" of the corporation by those who viewed the corporation as an artificial entity. For an explanation of the artificial entity view see Morton J. Horwitz, "Santa Clara Revisited: The Development of Corporate Theory," West Virginia Law Review, 88 (1985), 173-224. The contractual theory in its modern form is due to Ronald M. Coase, "The Nature of the Firm," Economica, N.S., 4 (1937), 386-405; and it has been developed by economists using an agency or transaction cost perspective. See Armen A. Alchian and Harold Demsetz, "Production, Information Costs, and Economic Organization," American Economic Review, 62 (1972), 777-95; Benjamin Klein, Robert A. Crawford, and Armen A. Alchian, "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, 21 (1978), 297-326; Michael C. Jensen and William H. Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure," Journal of Financial Economics, 3 (1983), 305-60; Eugene F. Fama and Michael C. Jensen, "Separation of Ownership and Control," Journal of Law and Economics, 26 (1983), 301-25; Steven N. S. Cheung, "The Contractual Theory of the Firm," Journal of Law and Economics, 26 (1983), 1-22; and Oliver E. Williamson, The Economic Institutions of Capitalism (New York: The Free Press, 1985). An authoritative development of the theory of the firm in corporate law is Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of the Firm (Cambridge: Harvard University Press, 1991). See also William A. Klein, "The Modern Business Organization: Bargaining under Constraints," Yale Law Journal, 91 (1982), 1521-64; and Henry N. Butler, "The Contractual Theory of the Firm." George Mason Law Review, 11 (1989), 99-123.
12. Criticism of the theory of the firm by business ethicists has focused primarily on the rejection of corporate social responsibility by Milton Friedman in Capitalism and Freedom (Chicago: University of Chicago Press, 1963) and in "The Social Responsibility of Business Is to Increase Its Profits," New York Times Magazine, September 12, 1970, pp. 32-33, 122, 124, 126. Ronald M. Green, "Shareholders as Stakeholders: Changing Metaphors of Corporate Governance," Washington and Lee Law Review, 50 (1993), 1409-21 contains a more direct attack on the contractual theory, although Friedman's view is still the point of departure for Green's discussion. Much of the stakeholder literature contains implicit criticism of the contractual theory. See R. Edward Freeman, Strategic Management: A Stakeholder Approach (Boston: Pitman, 1984); R. Edward Freeman and William M. Evan, "Stockholders and Stakeholders: A New Perspective on Corporate Governance," California Management Review, 25 (1983), 88-106; Freeman and Evan, "Corporate Governance: A Stakeholder Interpretation," Journal of Behavioral Economics, 19 (1990), 337-59; and Thomas Donaldson and Lee E. Preston, "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications," Academy of Management Review, 20 (1995), 65-91.
13. Criticism of the theory of the firm by business ethicists has focused primarily on the rejection of corporate social responsibility by Milton Friedman in Capitalism and Freedom (Chicago: University of Chicago Press, 1963) and in "The Social Responsibility of Business Is to Increase Its Profits," New York Times Magazine, September 12, 1970, pp. 32-33, 122, 124, 126. Ronald M. Green, "Shareholders as Stakeholders: Changing Metaphors of Corporate Governance," Washington and Lee Law Review, 50 (1993), 1409-21 contains a more direct attack on the contractual theory, although Friedman's view is still the point of departure for Green's discussion. Much of the stakeholder literature contains implicit criticism of the contractual theory. See R. Edward Freeman, Strategic Management: A Stakeholder Approach (Boston: Pitman, 1984); R. Edward Freeman and William M. Evan, "Stockholders and Stakeholders: A New Perspective on Corporate Governance," California Management Review, 25 (1983), 88-106; Freeman and Evan, "Corporate Governance: A Stakeholder Interpretation," Journal of Behavioral Economics, 19 (1990), 337-59; and Thomas Donaldson and Lee E. Preston, "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications," Academy of Management Review, 20 (1995), 65-91.
14. Criticism of the theory of the firm by business ethicists has focused primarily on the rejection of corporate social responsibility by Milton Friedman in Capitalism and Freedom (Chicago: University of Chicago Press, 1963) and in "The Social Responsibility of Business Is to Increase Its Profits," New York Times Magazine, September 12, 1970, pp. 32-33, 122, 124, 126. Ronald M. Green, "Shareholders as Stakeholders: Changing Metaphors of Corporate Governance," Washington and Lee Law Review, 50 (1993), 1409-21 contains a more direct attack on the contractual theory, although Friedman's view is still the point of departure for Green's discussion. Much of the stakeholder literature contains implicit criticism of the contractual theory. See R. Edward Freeman, Strategic Management: A Stakeholder Approach (Boston: Pitman, 1984); R. Edward Freeman and William M. Evan, "Stockholders and Stakeholders: A New Perspective on Corporate Governance," California Management Review, 25 (1983), 88-106; Freeman and Evan, "Corporate Governance: A Stakeholder Interpretation," Journal of Behavioral Economics, 19 (1990), 337-59; and Thomas Donaldson and Lee E. Preston, "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications," Academy of Management Review, 20 (1995), 65-91.
15. Criticism of the theory of the firm by business ethicists has focused primarily on the rejection of corporate social responsibility by Milton Friedman in Capitalism and Freedom (Chicago: University of Chicago Press, 1963) and in "The Social Responsibility of Business Is to Increase Its Profits," New York Times Magazine, September 12, 1970, pp. 32-33, 122, 124, 126. Ronald M. Green, "Shareholders as Stakeholders: Changing Metaphors of Corporate Governance," Washington and Lee Law Review, 50 (1993), 1409-21 contains a more direct attack on the contractual theory, although Friedman's view is still the point of departure for Green's discussion. Much of the stakeholder literature contains implicit criticism of the contractual theory. See R. Edward Freeman, Strategic Management: A Stakeholder Approach (Boston: Pitman, 1984); R. Edward Freeman and William M. Evan, "Stockholders and Stakeholders: A New Perspective on Corporate Governance," California Management Review, 25 (1983), 88-106; Freeman and Evan, "Corporate Governance: A Stakeholder Interpretation," Journal of Behavioral Economics, 19 (1990), 337-59; and Thomas Donaldson and Lee E. Preston, "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications," Academy of Management Review, 20 (1995), 65-91.
16. Criticism of the theory of the firm by business ethicists has focused primarily on the rejection of corporate social responsibility by Milton Friedman in Capitalism and Freedom (Chicago: University of Chicago Press, 1963) and in "The Social Responsibility of Business Is to Increase Its Profits," New York Times Magazine, September 12, 1970, pp. 32-33, 122, 124, 126. Ronald M. Green, "Shareholders as Stakeholders: Changing Metaphors of Corporate Governance," Washington and Lee Law Review, 50 (1993), 1409-21 contains a more direct attack on the contractual theory, although Friedman's view is still the point of departure for Green's discussion. Much of the stakeholder literature contains implicit criticism of the contractual theory. See R. Edward Freeman, Strategic Management: A Stakeholder Approach (Boston: Pitman, 1984); R. Edward Freeman and William M. Evan, "Stockholders and Stakeholders: A New Perspective on Corporate Governance," California Management Review, 25 (1983), 88-106; Freeman and Evan, "Corporate Governance: A Stakeholder Interpretation," Journal of Behavioral Economics, 19 (1990), 337-59; and Thomas Donaldson and Lee E. Preston, "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications," Academy of Management Review, 20 (1995), 65-91.
17. Criticism of the theory of the firm by business ethicists has focused primarily on the rejection of corporate social responsibility by Milton Friedman in Capitalism and Freedom (Chicago: University of Chicago Press, 1963) and in "The Social Responsibility of Business Is to Increase Its Profits," New York Times Magazine, September 12, 1970, pp. 32-33, 122, 124, 126. Ronald M. Green, "Shareholders as Stakeholders: Changing Metaphors of Corporate Governance," Washington and Lee Law Review, 50 (1993), 1409-21 contains a more direct attack on the contractual theory, although Friedman's view is still the point of departure for Green's discussion. Much of the stakeholder literature contains implicit criticism of the contractual theory. See R. Edward Freeman, Strategic Management: A Stakeholder Approach (Boston: Pitman, 1984); R. Edward Freeman and William M. Evan, "Stockholders and Stakeholders: A New Perspective on Corporate Governance," California Management Review, 25 (1983), 88-106; Freeman and Evan, "Corporate Governance: A Stakeholder Interpretation," Journal of Behavioral Economics, 19 (1990), 337-59; and Thomas Donaldson and Lee E. Preston, "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications," Academy of Management Review, 20 (1995), 65-91.
18. Criticism of the theory of the firm by business ethicists has focused primarily on the rejection of corporate social responsibility by Milton Friedman in Capitalism and Freedom (Chicago: University of Chicago Press, 1963) and in "The Social Responsibility of Business Is to Increase Its Profits," New York Times Magazine, September 12, 1970, pp. 32-33, 122, 124, 126. Ronald M. Green, "Shareholders as Stakeholders: Changing Metaphors of Corporate Governance," Washington and Lee Law Review, 50 (1993), 1409-21 contains a more direct attack on the contractual theory, although Friedman's view is still the point of departure for Green's discussion. Much of the stakeholder literature contains implicit criticism of the contractual theory. See R. Edward Freeman, Strategic Management: A Stakeholder Approach (Boston: Pitman, 1984); R. Edward Freeman and William M. Evan, "Stockholders and Stakeholders: A New Perspective on Corporate Governance," California Management Review, 25 (1983), 88-106; Freeman and Evan, "Corporate Governance: A Stakeholder Interpretation," Journal of Behavioral Economics, 19 (1990), 337-59; and Thomas Donaldson and Lee E. Preston, "The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications," Academy of Management Review, 20 (1995), 65-91.
19. Some attention has been given by both philosophers and organizational theorists to agency theory, which is integral to the contractual theory of the firm, and attempts have been made to derive some features of a stakeholder approach from an agency model of the firm. See the chapters in Norman E. Bowie and R. Edward Freeman, eds., Ethics and Agency Theory: An Introduction (New York: Oxford University Press, 1992), especially those by J. Gregory Dees, Richard T. DeGeorge, and Barry M. Mitnick. See also Kenneth E. Goodpaster, "Business Ethics and Stakeholder Analysis," Business Ethics Quarterly, 1 (1991), 53-73; Kathleen M. Eisenhardt, "Agency Theory: An Assessment and Review," Academy of Management Review, 14 (1989), 57-74; Dennis P. Quinn and Thomas M. Jones, "An Agent Morality View of Business Policy," Academy of Management Review, 20 (1995), 22-42; Thomas M. Jones, "Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics," Academy of Management Review, 20 (1995), 404-37.
20. Some attention has been given by both philosophers and organizational theorists to agency theory, which is integral to the contractual theory of the firm, and attempts have been made to derive some features of a stakeholder approach from an agency model of the firm. See the chapters in Norman E. Bowie and R. Edward Freeman, eds., Ethics and Agency Theory: An Introduction (New York: Oxford University Press, 1992), especially those by J. Gregory Dees, Richard T. DeGeorge, and Barry M. Mitnick. See also Kenneth E. Goodpaster, "Business Ethics and Stakeholder Analysis," Business Ethics Quarterly, 1 (1991), 53-73; Kathleen M. Eisenhardt, "Agency Theory: An Assessment and Review," Academy of Management Review, 14 (1989), 57-74; Dennis P. Quinn and Thomas M. Jones, "An Agent Morality View of Business Policy," Academy of Management Review, 20 (1995), 22-42; Thomas M. Jones, "Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics," Academy of Management Review, 20 (1995), 404-37.
21. Some attention has been given by both philosophers and organizational theorists to agency theory, which is integral to the contractual theory of the firm, and attempts have been made to derive some features of a stakeholder approach from an agency model of the firm. See the chapters in Norman E. Bowie and R. Edward Freeman, eds., Ethics and Agency Theory: An Introduction (New York: Oxford University Press, 1992), especially those by J. Gregory Dees, Richard T. DeGeorge, and Barry M. Mitnick. See also Kenneth E. Goodpaster, "Business Ethics and Stakeholder Analysis," Business Ethics Quarterly, 1 (1991), 53-73; Kathleen M. Eisenhardt, "Agency Theory: An Assessment and Review," Academy of Management Review, 14 (1989), 57-74; Dennis P. Quinn and Thomas M. Jones, "An Agent Morality View of Business Policy," Academy of Management Review, 20 (1995), 22-42; Thomas M. Jones, "Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics," Academy of Management Review, 20 (1995), 404-37.
22. Some attention has been given by both philosophers and organizational theorists to agency theory, which is integral to the contractual theory of the firm, and attempts have been made to derive some features of a stakeholder approach from an agency model of the firm. See the chapters in Norman E. Bowie and R. Edward Freeman, eds., Ethics and Agency Theory: An Introduction (New York: Oxford University Press, 1992), especially those by J. Gregory Dees, Richard T. DeGeorge, and Barry M. Mitnick. See also Kenneth E. Goodpaster, "Business Ethics and Stakeholder Analysis," Business Ethics Quarterly, 1 (1991), 53-73; Kathleen M. Eisenhardt, "Agency Theory: An Assessment and Review," Academy of Management Review, 14 (1989), 57-74; Dennis P. Quinn and Thomas M. Jones, "An Agent Morality View of Business Policy," Academy of Management Review, 20 (1995), 22-42; Thomas M. Jones, "Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics," Academy of Management Review, 20 (1995), 404-37.
23. Some attention has been given by both philosophers and organizational theorists to agency theory, which is integral to the contractual theory of the firm, and attempts have been made to derive some features of a stakeholder approach from an agency model of the firm. See the chapters in Norman E. Bowie and R. Edward Freeman, eds., Ethics and Agency Theory: An Introduction (New York: Oxford University Press, 1992), especially those by J. Gregory Dees, Richard T. DeGeorge, and Barry M. Mitnick. See also Kenneth E. Goodpaster, "Business Ethics and Stakeholder Analysis," Business Ethics Quarterly, 1 (1991), 53-73; Kathleen M. Eisenhardt, "Agency Theory: An Assessment and Review," Academy of Management Review, 14 (1989), 57-74; Dennis P. Quinn and Thomas M. Jones, "An Agent Morality View of Business Policy," Academy of Management Review, 20 (1995), 22-42; Thomas M. Jones, "Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics," Academy of Management Review, 20 (1995), 404-37.
24. See G. C. Archibald, "Firm, Theory of," The New Palgrave (London: Macmillan, 1987); Richard M. Cyert & Charles L. Hedrick, "Theory of the Firm: Past, Present, and Future; An Interpretation," Journal of Economic Literature, 10 (1972), 398-412; Fritz Machlup, "Theories of the Firm: Marginalist, Behavioral, Managerial," American Economic Review, 62 (1967), 1-33; Philip L. Williams, The Emergence of the Theory of the Firm (New York: St. Martin's Press, 1979).
25. See G. C. Archibald, "Firm, Theory of," The New Palgrave (London: Macmillan, 1987); Richard M. Cyert & Charles L. Hedrick, "Theory of the Firm: Past, Present, and Future; An Interpretation," Journal of Economic Literature, 10 (1972), 398-412; Fritz Machlup, "Theories of the Firm: Marginalist, Behavioral, Managerial," American Economic Review, 62 (1967), 1-33; Philip L. Williams, The Emergence of the Theory of the Firm (New York: St. Martin's Press, 1979).
26. See G. C. Archibald, "Firm, Theory of," The New Palgrave (London: Macmillan, 1987); Richard M. Cyert & Charles L. Hedrick, "Theory of the Firm: Past, Present, and Future; An Interpretation," Journal of Economic Literature, 10 (1972), 398-412; Fritz Machlup, "Theories of the Firm: Marginalist, Behavioral, Managerial," American Economic Review, 62 (1967), 1-33; Philip L. Williams, The Emergence of the Theory of the Firm (New York: St. Martin's Press, 1979).
27. See G. C. Archibald, "Firm, Theory of," The New Palgrave (London: Macmillan, 1987); Richard M. Cyert & Charles L. Hedrick, "Theory of the Firm: Past, Present, and Future; An Interpretation," Journal of Economic Literature, 10 (1972), 398-412; Fritz Machlup, "Theories of the Firm: Marginalist, Behavioral, Managerial," American Economic Review, 62 (1967), 1-33; Philip L. Williams, The Emergence of the Theory of the Firm (New York: St. Martin's Press, 1979).
28. William J. Baumol, Business Behavior, Value, and Growth (New York, Macmillan, 1959); Richard M. Cyert & James G. March, A Behavioral Theory of the Firm (Englewood Cliffs, NJ: Prentice Hall, 1963); ROBIN MARRIS, THE ECONOMIC THEORY OF MANAGERIAL CAPITALISM (New York: Free Press, 1964); and Oliver E. Williamson, The Economics of Discretionary Behavior: Managerial Objectives in a Theory of the Firm (Englewood Cliffs, NJ: Prentice Hall, 1964).
29. William J. Baumol, Business Behavior, Value, and Growth (New York, Macmillan, 1959); Richard M. Cyert & James G. March, A Behavioral Theory of the Firm (Englewood Cliffs, NJ: Prentice Hall, 1963); ROBIN MARRIS, THE ECONOMIC THEORY OF MANAGERIAL CAPITALISM (New York: Free Press, 1964); and Oliver E. Williamson, The Economics of Discretionary Behavior: Managerial Objectives in a Theory of the Firm (Englewood Cliffs, NJ: Prentice Hall, 1964).
30. William J. Baumol, Business Behavior, Value, and Growth (New York, Macmillan, 1959); Richard M. Cyert & James G. March, A Behavioral Theory of the Firm (Englewood Cliffs, NJ: Prentice Hall, 1963); ROBIN MARRIS, THE ECONOMIC THEORY OF MANAGERIAL CAPITALISM (New York: Free Press, 1964); and Oliver E. Williamson, The Economics of Discretionary Behavior: Managerial Objectives in a Theory of the Firm (Englewood Cliffs, NJ: Prentice Hall, 1964).
31. William J. Baumol, Business Behavior, Value, and Growth (New York, Macmillan, 1959); Richard M. Cyert & James G. March, A Behavioral Theory of the Firm (Englewood Cliffs, NJ: Prentice Hall, 1963); ROBIN MARRIS, THE ECONOMIC THEORY OF MANAGERIAL CAPITALISM (New York: Free Press, 1964); and Oliver E. Williamson, The Economics of Discretionary Behavior: Managerial Objectives in a Theory of the Firm (Englewood Cliffs, NJ: Prentice Hall, 1964).
32. A. W. Scott, "The Fiduciary Principle," California Law Review, 37 (1949), 539-555; and L. S. Sealy, "Fiduciary Relationships," Cambridge Law Journal, 1962, 69-81.
33. A. W. Scott, "The Fiduciary Principle," California Law Review, 37 (1949), 539-555; and L. S. Sealy, "Fiduciary Relationships," Cambridge Law Journal, 1962, 69-81.
34. Adolf A. Berle, Jr., "For Whom Corporate Managers Are Trustees: A Note," Harvard Law Review, 45 (1932), 1365-72. In the famous exchange with Merrick Dodd, Berle agreed that shareholders are no longer the owners of the corporation, but Berle declined to follow Dodd in allowing corporate mangers to serve the interests of other constituencies, arguing instead that these interests would be better served by an unswerving devotion to shareholder wealth. Corporate law has developed, then, largely as a check on management power in order to harness the benefits of private profit for the public good. See E. Merrick Dodd, Jr., "For Whom Are Corporate Managers Trustees?" Harvard Law Review, 45 (1932), 1145-63. Berle later conceded the correctness of Dodd's view in The 20th Century Capitalist Revolution (New York: Harcourt Brace, 1954), 169.
35. Adolf A. Berle, Jr., "For Whom Corporate Managers Are Trustees: A Note," Harvard Law Review, 45 (1932), 1365-72. In the famous exchange with Merrick Dodd, Berle agreed that shareholders are no longer the owners of the corporation, but Berle declined to follow Dodd in allowing corporate mangers to serve the interests of other constituencies, arguing instead that these interests would be better served by an unswerving devotion to shareholder wealth. Corporate law has developed, then, largely as a check on management power in order to harness the benefits of private profit for the public good. See E. Merrick Dodd, Jr., "For Whom Are Corporate Managers Trustees?" Harvard Law Review, 45 (1932), 1145-63. Berle later conceded the correctness of Dodd's view in The 20th Century Capitalist Revolution (New York: Harcourt Brace, 1954), 169.
36. Adolf A. Berle, Jr., "For Whom Corporate Managers Are Trustees: A Note," Harvard Law Review, 45 (1932), 1365-72. In the famous exchange with Merrick Dodd, Berle agreed that shareholders are no longer the owners of the corporation, but Berle declined to follow Dodd in allowing corporate mangers to serve the interests of other constituencies, arguing instead that these interests would be better served by an unswerving devotion to shareholder wealth. Corporate law has developed, then, largely as a check on management power in order to harness the benefits of private profit for the public good. See E. Merrick Dodd, Jr., "For Whom Are Corporate Managers Trustees?" Harvard Law Review, 45 (1932), 1145-63. Berle later conceded the correctness of Dodd's view in The 20th Century Capitalist Revolution (New York: Harcourt Brace, 1954), 169.
37. Coase, "The Nature of the Firm," note 1.
38. The work of Coase has been extended by Alchian and Demsetz, "Production, Information Costs, and Economic Organization," note 1, who explored the implications not only for firm size but for organizational structure; by Jensen and Meckling, Theory of the Firm: Managerial Behavior, Agency Cost, and Ownership Structure, note 1, who used Coase's insight to explain firms' capital structure; and by Williamson, The Economic Institutions of Capitalism, note 1, who developed transaction cost economics and applied it to problems caused by bounded rationality and opportunistic behavior.
39. The work of Coase has been extended by Alchian and Demsetz, "Production, Information Costs, and Economic Organization," note 1, who explored the implications not only for firm size but for organizational structure; by Jensen and Meckling, Theory of the Firm: Managerial Behavior, Agency Cost, and Ownership Structure, note 1, who used Coase's insight to explain firms' capital structure; and by Williamson, The Economic Institutions of Capitalism, note 1, who developed transaction cost economics and applied it to problems caused by bounded rationality and opportunistic behavior.
40. The work of Coase has been extended by Alchian and Demsetz, "Production, Information Costs, and Economic Organization," note 1, who explored the implications not only for firm size but for organizational structure; by Jensen and Meckling, Theory of the Firm: Managerial Behavior, Agency Cost, and Ownership Structure, note 1, who used Coase's insight to explain firms' capital structure; and by Williamson, The Economic Institutions of Capitalism, note 1, who developed transaction cost economics and applied it to problems caused by bounded rationality and opportunistic behavior.
41. On this point see Klein, Crawford, and Alchian, "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," note 1.
42. See Eric Orts, "Beyond Shareholders: Interpreting Corporate Constituency Statutes," George Washington Law Review, 61 (1992), 14-135.
43. M. J. Levine, "The Erosion of the Employment-at-Will Doctrine: Recent Developments," Labor Law Journal, 45 (1994), 79-89.
44. Finance has traditionally considered only the claims of explicit contracts in the valuation of a firm, but several writers have observed that implicit claims can also affect firm valuation. Cornell and Shapiro, for example, develop the concept of net organizational capital to reflect the impact of implicit claims on firm valuation. Bradford Cornell and Alan C. Shapiro, "Corporate Stakeholders and Corporate Finance," Financial Management, 16 (1987), 5-14.
45. That this divide runs through American business regulation is a thesis in Allen Kaufman, Lawrence Zacharias, and Marvin Karson, Managers vs. Owners: The Struggle for Corporate Control in American Democracy (New York: Oxford University Press, 1995), although this book identifies the two approaches as trust and contract.
46. See Jonathan R. Macey, "An Economic Analysis of the Various Rationales for Making Shareholders the Exclusive Beneficiaries of the Corporate Fiduciary Duties," Stetson Law Review, 21 (1991), 23-44.
47. For discussions of misappropriations involving bondholders, see M. Barkey, "The Financial Articulation of a Fiduciary Duty to Bondholders with Fiduciary Duties to Stockholders of the Corporation," Creighton Law Review, 20 (1986), 47-74; and involving employees, see Marleen O'Connor, "Restructuring the Corporation's Nexus of Contracts: Recognizing a Fiduciary Duty to Protect Displaced Workers," North Carolina Law Review, 69 (1991), 1189-260.
48. For discussions of misappropriations involving bondholders, see M. Barkey, "The Financial Articulation of a Fiduciary Duty to Bondholders with Fiduciary Duties to Stockholders of the Corporation," Creighton Law Review, 20 (1986), 47-74; and involving employees, see Marleen O'Connor, "Restructuring the Corporation's Nexus of Contracts: Recognizing a Fiduciary Duty to Protect Displaced Workers," North Carolina Law Review, 69 (1991), 1189-260.
49. See Orts, "Beyond Shareholders," note 11; and Katherine Van Wezel Stone, "Employees as Stakeholders under State Nonshareholder Constituency Statutes," Stetson Law Review, 21 (1991), 45-72.
50. See Orts, "Beyond Shareholders," note 11; and Katherine Van Wezel Stone, "Employees as Stakeholders under State Nonshareholder Constituency Statutes," Stetson Law Review, 21 (1991), 45-72.
51. Margaret M. Blair, Ownership and Control: Rethinking Corporate Governance for the Twenty-first Century (Washington, D.C.: Brookings Institution, 1995).
52. Blair, Ownership and Control, note 18, 257. Blair advocates governance structures that encourage employee ownership in firms where employees assume residual risk. Steps in this direction have already been taken by many high-tech firms, especially in the computer industry, which compensate their employees in stock. This form of compensation solves the problem of contracting with highly-skilled workers, who otherwise might seek to protect themselves by starting their own companies.
53. For another example, see O'Connor, "Restructuring the Corporation's Nexus of Contracts," note 16.
54. This analysis of the Japanese firm is derived from Masahiko Aoki, The Cooperative Game Theory of the Firm (London: Oxford University Press, 1984); and Aoki, "Toward an Economic Model of the Japanese Firm," Journal of Economic Literature, 28 (1990), 1-27.
55. This analysis of the Japanese firm is derived from Masahiko Aoki, The Cooperative Game Theory of the Firm (London: Oxford University Press, 1984); and Aoki, "Toward an Economic Model of the Japanese Firm," Journal of Economic Literature, 28 (1990), 1-27.
56. For a discussion of the adverse consequences of liquidity, see Amar Bhide, "The Hidden Costs of Stock Market Liquidity," Journal of Financial Economics, 34 (1993), 31-51.
57. D. Kennedy, "The Stages of the Decline of the Public/Private Distinction," University of Pennsylvania Law Review, 130 (1982), 1349-57; and Christopher D. Stone, "Corporate Vices and Corporate Virtues: Do Public/Private Distinctions Matter?" University of Pennsylvania Law Review, 130 (1982), 1441-509.
58. D. Kennedy, "The Stages of the Decline of the Public/Private Distinction," University of Pennsylvania Law Review, 130 (1982), 1349-57; and Christopher D. Stone, "Corporate Vices and Corporate Virtues: Do Public/Private Distinctions Matter?" University of Pennsylvania Law Review, 130 (1982), 1441-509.