Abstract
Professor Ronald Green challenges the legal model of the firm on behalf of its nonstockholder constituents. Green centers his challenge on the model's principal-agent component. In his view, the fiduciary ideology bound up in the agency concept erects a false ethical barrier to a redefined firm.This Comment makes two points in response. First, it asserts that the principal-agent concept carries insufficient normative force to determine the legal disposition of the constituency problem. Professor Green certainly has good reasons for pointing our attention to the agency notion. Even minimal suggestions of law reform to empower constituencies traverse deeply held values, and the principal-agent concept appears prominently in the articulation of objections.(1) Agency thinking still prompts questions about the legitimacy of the recently enacted constituency statutes and impedes the case for their expansive interpretation.(2) But the law itself does not generate the ethically-charged agency metaphor that Professor Green describes. Although the agency model has its ethical presuppositions, it does not import a strong, ethically-generated norm of absolute respect for beneficiary welfare and subordination of fiduciary self-interest. Appearances deceive here-agency plays a larger role in policy-laden academic descriptions of the doctrinal structure than it plays in the underlying doctrine itself.Second, this Commentary asserts that as we describe corporate law's agency concept more fully, ethical and political barriers start to impede the case for constituency rights. Corporate law's agency component does have ethical implications for the constituency debate. It looms large because it figures instrumentally in a wealth maximization story.(3) The agency concept may be only a metaphor at bottom, but theory of the firm discussants treat it as if it were a component in a production model. Shareholder wealth maximization by managers who play the role of agent is a norm because it is assumed to be the means to the end of maximum wealth for the society as a whole. It is not itself the end in view. Its ethical power derives from the fact that, in a world of scarcity, more is better than less.Thus, to join Professor Green in considering the ethical problems of constituency injury is to restart an old debate over the desireablility of redistributive regulation within the framework of corporate law. On the side against mandated redistribution there come to bear factors such as wealth production incentives, free market ideology, the legal inheritance, and the agency model. On the side favoring redistributive intervention we see disrupted relationships, dashed expectations, pecuniary injuries, and disempowerment. In between the two sides lies a fragile, time- and incentive dependent pot of wealth. Corporate law's historical structure permits redistribution in management's discretion but forecloses redistributive intervention. This Comment predicts that the inherited structure will control in the immediate future.Part I of this Comment summarizes Professor Green's paper. Part II discusses the methodological problem that arises when an ethical perspective such as Professor Green's is advanced in legal academic contexts. It explains why this Comment joins Professor Green in treating the problem in ethical terms despite the legal academy's aversion to such discussions. Part III looks at the doctrine and shows that its agency component does not bear the ethical weight ascribed by Professor Green. Part IV describes ethical problems that constituency rights advocates must confront. It suggests, first, that in practice the problem of constituency rights should be conceived more narrowly as the problem of employee empowerment, and, second, that corporate law, viewed as an institution, offers a substandard framework in which to make the employees' case.I. THE PRINCIPAL-AGENT BARRIER TO THE CASE FOR CONSTITUENTSProfessor Green focuses on the role that the principal-agent model of shareholder-management relationships plays in doctrinal and theoretical models of the corporation. …