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This chapter examines the proposition that before a nation can produce, it must achieve social peace. The first section discusses two political foundations to the firm. First, before serious economic activity can take place, social and economic conflict must be minimized, and the ways modern societies have minimized it can affect, and have affected, the structure of the modern corporation. Second, under one modern and widespread political condition, ownership can not easily separate from control, and the truly public firm can not dominate business. The second section considers the variety of ways and persistence in distancing shareholders from employees.

Chapter 5 discussed the main arguments that have justified, in certain cases, the creation of a financial conglomerate around a bank. This chapter analyzes this situation from the viewpoint of a particular case: the bank-company groups in Germany. The supposed advantages of the presence of banks in German companies are related primarily to their status as controlling shareholders. However, this status can also be taken on or shared by other non-financial shareholders. A controlling shareholder has a greater incentive in the company's supervision and may gain significant savings in the costs associated with investments in specific assets and the co-ordination of decisions. At the same time, the controlling shareholder will try to avoid any opportunistic, short-term behaviour. Therefore, the presence of a controlling shareholder seems to be a distinctive feature of a good system of government for companies.

Ownership and control are concepts axiomatic to corporate governance. This chapter discusses both concepts, and examines the meaning of shareholders ‘owning’ a company. Only when a group of shareholders act together in sufficient weight can they exercise collectively what we might call the control rights of ownership. Each shareholder owns a bundle of rights, but even these may be limited by some particular condition attaching to the shares. Under the present UK laws, fully paid-up shareholders who are beneficial owners have no obligations though they may have certain limited duties, like declaring a stake after it reaches a certain size. Shareholder control and management control is also distinguished. The latter is normally vested in the board of directors — and they delegate it as they think appropriate. Shareholder control on the other hand is limited to certain important specific issues; if in a minority position they must act together, in sufficient strength to have a voting majority or in practice a strong coherent minority.

This chapter discusses a third duty bearing on the consequences of the separation of ownership and control, the duty to act for a proper purpose. It specifically explores this legal duty to the control of managerial discretion and the promotion of management efficiency. This duty has a significant, indirect role in securing compliance with that objective in two ways. First, it helps protect the democratic shareholder controls from being subverted by management. Second, by safeguarding the shareholders' financial interests in a take-over situation it prevents management from insulating the company from the impact of the market for corporate control. Moreover, the developments in redefinition of management duties are shown.

This chapter examines the legal strategies used by representative “core jurisdictions” to support the interests of minority shareholders, employees, and external constituencies. The starting point is the agency problem between controlling and non-controlling shareholders.A variety of strategies are employed to protect minority shareholders: special appointment and decision rights, trusteeship strategies, the equal treatment rule, and other legal constraints. The chapter then reviews the use of corporate law to protect non-shareholder constituencies. It introduces the economic justifications for protecting employees through corporate law, and surveys the strategies adopted in this area. The use of corporate law to protect workers is most conspicuous in Germany, which focuses on appointment rights and, to a lesser extent, decision rights. Core jurisdictions have also increasingly resorted to corporate law strategies to protect external constituencies, and thereby tackle broader social objectives. The chapter concludes by examining the correlation between the “law in the books” and the “law in practice” in these areas, and the differences and similarities encountered among core jurisdictions.

This chapter discusses the rise of corporations in the U.S. during the late nineteenth century and how their emergence was accompanied by decreased protection of minority shareholder rights. It compares the interest of investors in partnerships and corporations and suggests that the willingness of investors to participate in corporations, as opposed to partnerships, was affected by the extent to which their returns could be expropriated by controlling shareholders. The implication of this model is that organizational problems would only dissuade investors from putting their funds in firms whose expected returns were low.

Since the financial crisis of 2007–09, the shareholder orientation of company law has come under increasing question. This chapter first sets out the social benefits potentially provided by a shareholder orientation and analyses the strategies available within the current company law framework to promote these potential benefits. It then moves on to consider more radical critiques of shareholder orientation. The first questions the capacity of non-shareholders to protect themselves via contract, outside company law. This issue is analysed mainly from the standpoint of employee contracting and employee representation within the corporate structure. The second section promotes the idea that companies should state a corporate purpose beyond profit making.

This chapter offers a theory of corporate governance through a two-pronged approach, one that sails closer to the contractarian, pluralist account, the other closer to the rationalist, concession theorists. In the first instance, we look to the values that are explicitly or implicitly endorsed by a particular corporation and then ask if its organization and actions are cultivating relationships consistent with those values. This approach is pluralist in nature, adopting the status quo assumption that we ought to be more deferential to individual corporations’ choice of “normative cores.” The second approach starts with the liberal values implicit in society and then asks whether corporations are structured and regulated to produce relationships consistent with those values. This approach represents a more radical departure from the status quo. Taken together these approaches provide a spectrum of prescriptive analyses of the corporation, ranging from more deferential to more regulative.

This chapter considers the “managerial” approach to the corporation by unpacking Berle and Means’s famous argument about the problems of the modern corporation. This approach is important because it has proven influential in its own right; the “separation of ownership from control” that Berle and Means famously observed, and the resulting power and discretion that managers enjoy, has been an important trope for critics of corporate capitalism. It is also important because it represents precisely the kind of analysis that the Chicago school’s theory of the corporation was meant to counter. The chapter concludes by contextualizing Berle and Means’s account within political theory more generally.