Joseph Mahoney - Corporate Personhood and Fiduciary Duties as Critical Constructs in Developing Stakeholder Management Theory and Corporate Purpose

Joseph Mahoney
Corporate Personhood and Fiduciary Duties as Critical Constructs in Developing Stakeholder Management Theory and Corporate Purpose

15:36:27 Okay, So this presentation is on corporate personhood and fiduciary duties as critical constructs and developing stakeholder management theory and corporate purpose.

15:36:37 The corporation for the Latin corpus was traditionally recognized by the law, at least, since Roman time is being formed by a group of people who could act as one body or one legal person.

15:36:48 However, in the 19 seventies this time honored concept of the corporation became dominated by a reductionist.

15:36:55 Financial economics inspired approach that regards firms as contractual devices with no separate existence apart from its contracting agents known as the principal agent model.

15:37:09 Pragmatically, the corporate personhood concept allows the mediation of legitimate stakeholder interests, which is, do you negatively within the contractual agency theory?

15:37:18 Perspective, because it increases managerial discretion which entails higher agency costs which are defined as the sum of the monitoring costs.

15:37:28 The economic bonding cost and the residual loss, and thereby, from the principal agent point of view, it reduces the economic value of the corporation.

15:37:37 However minimizing agency costs, is not necessarily maximize.

15:37:42 The economic value of the corporation. Indeed, the mediating hierarchy solution depicted here in the far right corner, effectively resolved, ex post conflicts and stakeholder management which can encourage firm specific investments

15:37:58 reduce shirking and mitigate rent, seeking to provide economic value that could exceed the additional agency cost described by the principal agent model in the previous slide.

15:38:11 So this paper maintains that the traditional corporate personhood concept of the corporation, which is currently a minority view in economics, and particularly within the principal agent model, perspective provides a better foundation for a

15:38:26 stakeholder theory of the corporation and economic value creation.

15:38:31 And thus a more holistic conceptualization of corporate government for the fields of organization, theory, institute management compared to the partial nexus of contracts.

15:38:42 View of the principal agent model. A corporation is more than the nexus of contracts.

15:38:46 For 4 reasons related to the interdependent functions of the corporate personhood concept of the corporation.

15:38:55 First corporate personhood provides continuity and clear-cut succession in holding property and implementation of contracts.

15:39:05 As a separate corporate personhood continues to hold property, to be liable for performance under its contracts, even if the individual humans involved die or withdraw from the corporation.

15:39:15 Second corporate personhood provides an identifiable persona, and thus is the bearer of rational and corporate capital to serve as essential actor in carrying out business activities over time.

15:39:30 Third, the corporate personhood provides an economic bonding mechanism that, in the words of Henry husband partitions and shields, an example would be well within that category is limited.

15:39:42 Liability the corporate assets dedicated to the business that separate, then from the personal assets, have been individuals participating in the business which enables then mutual commitment of specialized assets and what Margaret

15:39:55 Blair calls lock-in of those assets to the corporations. Fourth, the corporate personhood status requires a governance structure in the form of a managerial hierarchy, which is taught by a board of directors who are the

15:40:08 mediating hierarchies Hierarch. Excuse me overseeing team production.

15:40:14 In this view the Board of Directors have the fiduciary duties of do care, good faith, and loyalty, for the purpose of increasing the wealth of the whole corporation, as well as the shareholders, by mediating disputes

15:40:26 among the stakeholders as the former Commissioner of the Securities and Exchange Commission.

15:40:32 Steve and Walman Nodes. The fiduciary duties of the Board of Directors are to the corporation itself shareholder.

15:40:40 Privacy is not now, and never has been, the law of the land, bestowing authority to the Board of Directors streamlines.

15:40:48 The decision making, and identifies accountable human persons to act for the corporate personhood.

15:40:54 The Board of Directors serves as an Internal port of appeals to use Oliver Williamson's term, or the final orbiter to follow the rules of appropriateness and privy to provide a dispute

15:41:05 resolution function for the various stakeholders with legitimate claims.

15:41:10 The producer duties are the heart of corporate case law, which deals with the breaches of such duties as noted by Robert Charles Clark, former dean at the Harvard Law school.

15:41:21 So those claiming that the corporation can be fully described as a nexus of contracts, challenge the very idea of fiduciary duties by asserting that they are merely default rules and thus negotiable provisions

15:41:37 in which corporate officers and directors can opt out of their fiduciary duties to by laws, provisions, or employment agreements.

15:41:45 This paper, in contrast, holds that the duty based loyalty to the corporation itself should be considered as a mandatory rule.

15:41:55 That is to do. Sherry duties are duties, and they are non-negotiable.

15:42:01 A fiduciary duties. concept seeks to facilitate trust.

15:42:05 The illegal rules and the logic of appropriateness and probity, and courts.

15:42:12 Attempts at shaming violations of duty by board of directors, and even more critically, the shared institutional logics of action, in which there is more framing than shaming, where the courts chastise the

15:42:27 Board of Directors for not internalizing trustworthiness as an intrinsic value.

15:42:32 Corporate board members, then, are conceived neither as shareholder agents, nor, in fact, as agents of any other stakeholder, but rather as disinterested trustees for the entire corporation cell going back to the seminal work by

15:42:49 Edward Freeman in 1984 in his landmark strategic management of Stakeholder Approach. That's so. the seeds of an alternative fiduciary concept of the corporation the challenge agency theory claimed

15:43:02 that the corporation is solely in excessive contracts.

15:43:04 That was done from a philosophical perspective. The current paper provides an organizational economic foundation for the same conclusion.

15:43:15 A stakeholder theory of the firm redefines the purpose of the corporation to serve as a vehicle for coordinating stakeholder interest.

15:43:22 Donaldson, impressive Under Amr, 1995 article move the conversation forward by noting that stakeholder.

15:43:29 Theory can be directly tied to Emer Dodd.

15:43:33 At Yale Law school's theory of corporate personhood and it's accompanying fiduciary obligations to the institutions of corporation as a whole.

15:43:40 Donaldson Preston provide 3 different ways of viewing this concept, first from a descriptive point of view, as being a relatively better way of describing corporate Wall than Agency theory.

15:43:54 Secondly, instrumentally, is a better way to create economic value within the corporation; and, third, normatively, is a better guide to procedural legitimacy. The judiciary duty of loyalty provide preclude self

15:44:08 dealing, and requires that the Board of Directors acts in the best interest of the corporation itself.

15:44:13 The answer, filling fiduciary duties because of the rational concerns and maintaining the perceived legitimacy of the board.

15:44:20 And I additional safeguard is in place when directors take on the professionalism role of the trustee to the corporation.

15:44:29 The concept of corporate personhood and the Board of Directors role in enacting to do share your duties, provide safeguards that are inexplicably intertwined with enhancing economic value, value, creation and

15:44:42 corporate purpose. The corporate personhood approach, illuminates multi-dimensional constructs for the governance of a corporation at the board level, which is much richer.

15:44:55 Then the nexus of contract view so this paper then is argued that there's a it's a comparative institutional logics perspective, in which there's a comparative institutional assessment of

15:45:07 corporation is contracting visa, the corporation as fiduciary relationship that joins law, economics and organization theory which is needed in the evolving science of organization.