The Anglo-American misconception of stockholders as ‘owners’ and ‘members’: its origins and consequences

Abstract

That stockholders “own” the corporation and are its “members,” are assumptions deeply embedded in Anglo-American treatments of the business corporation. They are also principal supports of the policy of “shareholder primacy” and, in the United States, of the corporate claim to constitutional rights. This article critiques these assumptions, while also explaining why they took hold. Among several reasons for this, the primary explanation is to be found in the peculiar parentage of England's first major business corporation, the English East India Company (EIC). The EIC did not begin its life as a true business corporation, but as a cross between a guild (a form of member corporation) and a joint stock company (a form of partnership). In the transition to a unified business corporation, its stockholders inherited the monikers of “member” and “owner” from their guild and partner forebears. This mis-description set the legal mold for all subsequent Anglo-American treatments of stockholders.

What is a firm? A reply to Jean-Philippe Robé

“…Jensen and Meckling, following Friedman (1970), invite us to reduce the firm to a set of contractual relationships, with the focus on those between 'owners' and managers, as if shareholders 'own' the firm or the corporation (Friedman explicitly, and Jensen and Meckling impliedly, conflate these terms when it comes to determining ownership), as well as the assets which are placed under the managers' delegated authority. This view, which has been instrumental in (mis-)shaping corporate law and the corporate governance debate of the last few decades, is one that Robé, along with others (e.g., Stout, 2012;Ciepley, 2020), seeks to undermine. We are sympathetic to this position and have argued along these lines ourselves (Deakin, 2012a(Deakin, , 2012bHodgson, 2015a;Deakin et al, 2017).…”

“…This view, which has been instrumental in (mis-)shaping corporate law and the corporate governance debate of the last few decades, is one that Robé, along with others (e.g. Ciepley, 2020; Stout, 2012), seeks to undermine. We are sympathetic to this position and have argued along these lines ourselves (Deakin, 2012a, 2012b; Deakin et al ., 2017; Hodgson, 2015a).…”

Morality of Lobbying for Tax Benefits: A Kantian Perspective

“…Throughout history, regulation has fostered morality in corporate actions to varying degrees. Ciepley (2019Ciepley ( , 2020 elaborates on how initially corporations had to provide public benefits in exchange for the privileges which come with incorporation (e.g. limited liability).…”

Hybrids: where are we?

“…the English East India Company). Their evolution toward the status of unified entities ('firms') with a legal personality of their own is discussed in Gindis (2020) and Ciepley (2020). In this essay, we understand property rights as the legal control by a party over a specific set of assets and their returns, while decision rights are about the capacity to orient the allocation of resources, whether the person/entity in capacity holds property rights or not.…”