Legal-Political and Economic Views
New Perspectives on the Modern Corporation series
Chapter 3: The agency theory model of the firm and its implications
The legal incorporation of a business is not a trivial matter and legal scholars and jurists in service of the state apparatus have always been at pains to balance the benefits of enterprising activities and other societal and economic interests. In the concession tradition of thinking, the incorporated business is a creature of the state wherein the owners of the business are accountable to a variety of objectives and goals in the firm’s environment. As Bratton (1989a; 1989b) makes clear, that image of the firm is today outmoded as few legal theorists advocate such a view of the firm. Still, corporate law remains a tool of the state to carefully balance diverse political interests, not only shareholder welfare, and therefore the role of corporate law must not be trivialized but must be understood within the wider socio-economic and political project to support enterprising and entrepreneurial activities. Taking the strict legal view of corporate law and the firm’s wider legal environment, where there is always a practical difference between laws in books and laws in real life, any attempt made by the state to restrict and hem in free market activities is understood as a form of violation of the free market efficiency proposition. As was discussed in Chapter 2, even in the case where the competitive capitalist economic system is at the brink of collapse, as it was in the early 1930s, free market protagonists did not refrain from pursuing their collectivism critique agenda.
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