Journal Article

Private Ordering and Public Policy: The Paradoxical Foundations of Corporate Contractarianism

Marc T. Moore

in Oxford Journal of Legal Studies

Volume 34, issue 4, pages 693-728
Published in print December 2014 | ISSN: 0143-6503
Published online March 2014 | e-ISSN: 1464-3820 | DOI: https://dx.doi.org/10.1093/ojls/gqu006
Private Ordering and Public Policy: The Paradoxical Foundations of Corporate Contractarianism

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This article critically examines the dominant contractarian theory of the firm, and the extent to which its main descriptive propositions are actually manifested within the UK’s legal framework of corporate governance today. The article’s doctrinal analysis is focussed on those principles and rules that together determine the division of decision-making power at the heart of the corporate structure, especially the longstanding contractual principle that underpins both the practical enforceability and normative character of the corporate constitution. The article highlights how the widespread existence of mandatory rules within the UK corporate governance system represents a major empirical aberration to contractarianism’s flexible, private-ordering paradigm of law. It furthermore demonstrates that, while contractarianism attempts to rationalize mandatory rules as being ultimately consistent with a quasi-contractual theory of rule selection, those explanations are either inappropriate to the UK’s law-making environment or else plagued by inherent and self-defeating contradiction. On this basis, the article concludes that contractarian logic is on its own incapable of legitimizing the core legal features of UK corporate governance, and in particular the controversial normative principle of shareholder exclusivity. It accordingly identifies the need to develop a defensible public policy justification for shareholder exclusivity based on public-democratic, as opposed to private-contractual, rationality.

Keywords: corporate governance; UK company law; theory of the firm; contractarianism; regulation; politics

Journal Article.  16933 words. 

Subjects: Law ; Jurisprudence and Philosophy of Law ; Law and Society

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