What Is A Corporation? Chapter 1
metaphor 1 the corporation as a person
"corporations in other words claim to be citizens of the republic not simply for propaganda or good public relations but in the actual legal sense of claiming constitutional rights and protections
3 external mechanisms for directing corporate behavior
law, the market, and performance measurement
all definitions of corporation reflect
the biases and perspectives of the people writing the definitions
2 external mechanisms that are intended to ensure that corporate behavior is consistent with the best interests of society over the long term
1) civil and criminal law a) executive, legislative, and judicial branches of state and local government regulation, legislation, and enforcement. 2) performance measurement a) accounting rules allowing for people outside of the company to understand the company's priorities, progress, effectiveness, and impact
2 connected sets of rules govern the relationships of these corporations to their constituent groups
1) laws imposed by legislature 2) laws imposed by private law established inside the corporation
according to Dean Robert Clark the 4 characteristics essential to the vitality and appeal of the corporate form are
1) limited liability for investors 2) free transferability of investor interests 3) legal personality (entity- attributable powers, life span, and purpose) 4) centralized management
Dean Robert Clark: 3 Developments late 19th century making 4 attributes particularly important
1) need for firms much larger than the norm a) technological advances led to new economies of scale 2) accompanying need for capital from a range of sources broader than in the past 3) the private ownership of investment property had to be accepted as a social norm
descriptive definition of corporation
a structure established by law to allow different parties to contribute capital, expertise, and labor for the maximum benefit of all of them
transferability
ability to transfer ones holding freely partnership interest is complex while stock is as liquid as cash share holder can control risk by being able to sell out at anytime with no control over the enterprise
legal personality
allows the corporation to act, to own, and to continue past the lifespan of any individual or group
are corporations accountable in theory?
corporations are held accountable by the "invisible hand" of the market and the government
metaphor 2 the corporation as a complex adaptive system
corporations have ways of maneuvering around society's accountabilities because they are able to adapt and modify from within
are corporate decisions moral?
corporations indirectly make policies through the government to benefit themselves rather than the general public
the purpose of the corporation
determine the goods and services available in the marketplace, and the quality of the air we breathe and the water we drink and even where we live.
what is the role of shareholders in making this system work?
hold management accountable for their conduct business "within the rules"
3 most significant forces governing the direction of corporations and trying to reduce agency costs and maximize sustainable value creation
management, shareholders, and boards of directors
centralized management
partnerships are managed by consensus or majority vote (unless partners explicitly agree otherwise)
limited liability
risk of loss is limited to investment limited liability= limited authority
5 specific purposes corporations serve
satisfying the human need for ambition, creativity and meaning social structure efficiency and efficacy ubiquity and flexibility identity
lawyers and economists neutrally describe corporation as
simply "a nexus of contracts" the corporation is nothing more than the sum of all of the agreements leading to its creation
cases show that when corporations violate the law
they must pay hefty fines which is the only consequence
the purpose and challenge of the corporate structure is to
transcend the ability and lifespan of any individual