The sources and nature of business corporations’ legal personhood and purpose are intensely debated issues in today’s academic and political discourse. As the dominant ‘shareholder primacy’ model comes under an increasing pressure, scholars and practitioners of corporate law are searching for alternative formulations of what a ‘good’ corporation is. This essay (a chapter contribution to an edited volume) broadens the scope of the debate by taking a macro-systemic perspective on the nature and purpose of the corporation. It argues that the modern business corporation is an inherently hybrid public-private entity, an institutional device for conditional outsourcing to private parties of certain essentially public powers and functions. The corporate form is best described as a ‘franchise’ arrangement in which the sovereign public (as franchisor) grants private firms (as franchisees) extraordinary organizational privileges, with the ultimate goal of promoting economic development and publicly beneficial growth.
The proposed franchise view of the corporation has potentially significant normative implications. It pivots the discussion of corporate purpose and personality away from its current preoccupation with the micro-level balancing of competing – and frequently incommensurable – interests of multiple ‘stakeholder’ groups. Taking the inquiry to a macro-level, it emphasizes public policy as the key factor that should determine the scope and substance of corporate powers and social responsibilities. To illustrate these dynamics, the essay (1) examines the ‘special’ case of US banks as classic franchisees of the sovereign public; and (2) explores potential ways of reintroducing robust ‘corporate purpose’ requirements into the general incorporation process.
Omarova, Saule T, The ‘Franchise’ View of the Corporation: Purpose, Personality, Public Policy (July 15, 2021) in Elizabeth Pollman and Robert B Thompson (eds), Research Handbook on Corporate Purpose and Personhood (2021) (forthcoming) , Cornell Legal Studies Research Paper No 21-18.