Among the legal left, claims about the nature of the corporation are often linked to the fight to hold accountable some of today’s most powerful corporate actors. In a thought-provoking blog post, Carly Knight joins this chorus, arguing that we should resuscitate a largely lost vision of the corporation as a “creation of the state” as part of reviving the progressive argument that corporations have duties to the public.
As Knight reminds us, this “concession” or “state grant theory” of the corporation was dominant prior to the late 19th century. Our contemporary understanding of corporations as private rather than public institutions only arose when this approach was replaced by two alternate and competing theories – the“aggregate theory,” according to which the corporation is no different than its individual shareholders, and the “real” or “natural entity theory,” according to which the corporation is understood as a discernable entity apart from either its founders or explicit state recognition. While in some ways opposed to one another, both of these theories analogized the corporation to natural persons, rationalizing and reifying a particular understanding of the corporate form along neoclassical and neoliberal lines. Symbolic naturalization facilitated corporate privatization, a legacy that, Knight observes, “reverberates in recent decisions like Citizens United and Hobby Lobby.” In response, she suggests that progressives should call back to the bygone era of the concession theory, which offers “powerful rhetoric” to bring today’s business corporations to heel, in addition to being “factually correct.”
In the following post, I challenge both these claims. First, I will argue that concession theory is not more obviously “correct” than its rivals. Second, I will argue that it does not inherently serve progressive purposes; indeed, in at least one way, I believe that it actually works against more radical understandings of the relationship between law and the market. Rather than subscribe to one unified theory of “the corporation,” progressives would be better served by attending to the roles and purposes that the huge variety of legal entities play (or are asked to play) in our society, and determining their rights, protections, and powers accordingly.
What is a Legal Person?
Imagine you’re a judge in a jurisdiction with no incorporation law. A group of people in your jurisdiction decide to start a church: they donate money to acquire a space, pay a religious leader to deliver services, purchase food for events, and so on. Now, let’s say someone steals money from the church coffers, and the church members come before your court for recompense. As there is no incorporation law, the church itself is not recognized as a legal person by statute. What do you do?
Three options immediately present themselves. First, following something like a concession approach, you might simply dismiss the case on the ground that the unincorporated church lacks standing. But this seems hasty; it is clear that a wrong was committed here that the court could (and likely should) address. Second, you could demand that all the church members appear, on the theory that they were each, individually victimized. But membership in such institutions is generally subject to change, perhaps it even has changed since the theft took place. Perhaps the member(s) who donated the money should bring the case? But money is fungible, and how are you to determine exactly which member(s) donated those funds? Furthermore, what if the donator is not themselves a member a member of the church? Finally, recognizing the shortcomings of these and other options, you might decide to recognize that the church itself has standing – that it represents a real, legally-discernible entity that you can recognize, even without an explicit statutory delegation granting it that status.
Examples like churches (and charities and municipalities and unions) go unmentioned in Prof. Knight’s post and receive only passing mention in her accompanying article. Yet these institutions have a large presence in both the history of incorporation law and corporate-law theory. I use one in the hypothetical above because I think doing so helps us approach the core, underlying theoretical issues outside of the heavy shadow of contemporary corporate America. It also underlines the fact that not every collective entity recognized at law is the same – corporate personalities are not merely large, multinational for-profit corporations, but include also charities, libraries, municipalities, foundations, sole proprietorships, unions, political parties and collectives of various kinds. Indeed, the concession theory itself arose at a particular historical moment, in direct opposition to, among other things, the vested rights of municipalities.
Regardless of where you land in this hypothetical (I’m uncertain where I might land myself!), I believe it makes apparent that none of the three theories mentioned above has a claim to being obviously correct. There is nothing straightforwardly mistaken in thinking that the church exists as an entity prior to legal recognition from the state, nor in thinking that its existence cannot be reduced to its individual members.
But even if you accept that a given legal entity is “real,” it’s crucially important to note how little this recognition actually means in terms of determining its legal rights and powers. First off, recognizing the church as a real entity would not require or even suggest that all collective endeavors must be granted equal recognition. (This, for example, would be perfectly in line with Savigny and Gierke, who both recognized cities and villages as natural persons, but not business corporations.) Second, recognizing that the Church is a real entity would not in itself mean that the church must be granted legal standing. (There are plenty of very real persons, like minors, who our legal system doesn’t recognize as legal persons.) It also doesn’t determine what specific rights or powers should be granted to a particular collective entity, nor does it require that a church or charity or business be granted the same rights as an individual. All of this is simply to say that the fact of an entity (real or otherwise) does not determine the specific legal rights and protections that should be accorded to it. These are ultimately different determinations.
Look at Roles, Not Theories
In calling for a return to the concession approach, Prof. Knight aligns with many progressive advocates today. And it’s not hard to see why: by bringing the corporate form back from the private sphere, in which individuals are free to act in their own self-interest, to the state, where public obligations apply, we add fodder to arguments in support of regulating and/or democratizing the corporate sector. But concession theory, in itself, only supports arguments that corporations should be held accountable to state purposes – not to public ones. Why can’t private entities be expected to serve the public? Why must they be explicitly deemed a delegate of the state for us to ground those expectations?
At first blush, advocating for a return to the concession theory seems to denaturalize the private sector, and to promote a new sense of the power of law in underlying markets. On second glance, however, I worry that it does exactly the opposite: by asserting that corporations must be understood as explicit state delegates in order to assert that they serve public purposes, it runs the risk of further entrenching a state vs market approach that I believe much work in the LPE vein has rightfully challenged. Rather than simply opposing the democratic state to an undemocratic and presumably autonomous private sector, much of the very best work in LPE has underlined how law and the state enable the market ab initio, and how alterations to legal architecture can shift the nature of the private sector fundamentally. The question, in this approach, becomes less about which institutions we associate with the private market as opposed to the state, than how to redesign markets at the root.
I believe taking that approach to corporate law demands that we move away from debates about the nature of corporations taken in the abstract, and adopt a more nuanced and role-oriented approach to the entities being granted specific legal powers and protections. As Frederick Maitland put it: “The theory that lies upon the surface is sometimes a borrowed theory which has never penetrated far, while the really vital principles must be sought for in out-of-the-way places.”
Such an approach would look less at the social ontology of the corporate form writ large than at the specific roles that certain legal entities play in our broader socio-legal order. For example, there might be very good reason to understand banks as public instrumentalities and their incorporation a delegation of government authority, while understanding unions as legal entities independent of incorporation law or any explicit state delegation. Churches and business organizations might be understood as different entities, warranting different law and different theory, even if they often adopt more-or-less the same legal form. More generally, we must move beyond the question of whether such entities are state creations, and look more closely at the actual entities at issue—their goals, their makeup, and their function—to determine what legal forms are best warranted to them, real or fictitious or otherwise.