Hostname: page-component-cd9895bd7-hc48f Total loading time: 0 Render date: 2024-12-22T11:37:20.843Z Has data issue: false hasContentIssue false
  • English
  • Français

Who are the owners of the firm: shareholders, employees or no one?

Published online by Cambridge University Press:  09 September 2013

VIRGILE CHASSAGNON  and
XAVIER HOLLANDTS
VIRGILE CHASSAGNON*
Affiliation:
ESDES School of Management, Catholic University of Lyon, Lyon, France; GREDEG, Nice, France; and IFGE, Lyon, France
XAVIER HOLLANDTS*
Affiliation:
France Business School, Paris, France; CRCGM, Clermont-Ferrand, France; and IFGE, Lyon, France
*
*Email: vchassagnon@univ-catholyon.fr
**Email: xavier.hollandts@france-bs.com
Get access Rights & Permissions [Opens in a new window]

Abstract:

The issue of firm ownership is an ongoing debate. For several decades, contractarian theory has undoubtedly shaped the academic debate in both law and economics. Proponents of this approach suggest that shareholders can legitimately be considered the owners of a firm because they hold shares. This approach, though attractive, is legally incorrect. Legal scholars have noted that a corporation cannot legally belong to shareholders or other stakeholders; no one owns the firm (and a corporation). The question of firm ownership masks the following crucial issue: Who should govern the firm? In this article, after returning to the theoretical debate on firm ownership and explaining why a firm cannot be owned, we shall analyze power as the core of firm governance. This approach is a potentially relevant and accurate way to address the problems of specific human investment, collective creation and productive (consummate) cooperation in modern firms.

Type
Research Article
Information
Journal of Institutional Economics , Volume 10 , Issue 1 , March 2014 , pp. 47 - 69
Copyright
Copyright © Millennium Economics Ltd 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alchian, A. (1961), Some Economics of Property, Santa Monica: Rand Corporation.Google Scholar
Alchian, A. and Demsetz, H. (1972), ‘Production, Information Costs and Economic Organization’, American Economic Review, 62 (5): 777–795.Google Scholar
Aoki, M. (1988), Information, Incentives and Bargaining in the Japanese Economy, Cambridge: Cambridge University Press.Google Scholar
Armour, J., Hansmann, H., and Kraakman, R. (2009), ‘What is Corporate Law?’, in Kraakman, R., Armour, J., Davies, P., Enriques, L., Hansmann, H., Hertig, G., Hopt, K., Kanda, H. and Rock, E., The Anatomy of Corporate Law: A Comparative and Functional Approach, 2nd edn, Oxford: Oxford University Press, pp. 1–34.Google Scholar
Bainbridge, S. (2008), The New Corporate Governance in Theory and Practice, New York: Oxford University Press.CrossRefGoogle Scholar
Baker, G. P., Gibbons, R., and Murphy, K. J. (2002), ‘Relational Contracts and the Theory of the Firm’, Quarterly Journal of Economics, 107 (1): 39–84.Google Scholar
Barnard, C. I. (1938), The Functions of the Executive, Cambridge: Cambridge University Press.Google Scholar
Baudry, B. and Chassagnon, V. (2010). ‘The Close Relation Between Organization Theory and Oliver Williamson's Transaction Cost Economics: A Theory of the Firm Perspective’, Journal of Institutional Economics, 6 (4): 477–503.Google Scholar
Berle, A. A. Jr (1932), ‘For Whom Corporate Managers are Trustees: A Note’, Harvard Law Review, 45 (8): 1365–1372.Google Scholar
Berle, A. A. Jr (1947), ‘The Theory of Enterprise Entity’, Columbia Law Review, 47 (3): 343–358.Google Scholar
Berle, A. A. Jr and Means, G. (1932), The Modern Firm and Private Property, New York: MacMillan.Google Scholar
Blair, M. M. (1995), Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century, Washington: Brookings Institution Press.Google Scholar
Blair, M. M. (2012), ‘Corporate Law and Team Production Problem’, SSRN Working Paper Series, http://ssrn.com/abstract=2037240.Google Scholar
Blair, M. M. and Stout, L. A. (1999), ‘A Team Production Theory of the Corporate Law’, Virginia Law Review, 85 (2): 247–328.Google Scholar
Blasi, J., Kruse, D., and Berstein, A. (2003), In the Firm of Owners, the Truth About Stock-Options and Why Every Employee Should Have Them, New York: Perseus Books.Google Scholar
Bolton, P. and Scharfstein, D. S. (1998), ‘Corporate Finance, the Theory of the Firm and Organizations’, Journal of Economic Perspectives, 12 (4): 95–114.Google Scholar
Bratton, W. W. and Wachter, M. L. (2008), ‛Shareholder Primacy's Corporatist Origins: Adolf Berle and the Modern Firm’, Journal of Firm Law, 34 (1): 99–152.Google Scholar
Chassagnon, V. (2011a), ‘The Network-Firm as a Single Real Entity: Beyond the Aggregate of Distinct Legal Entities’, Journal of Economic Issues, 45 (1): 113–136.CrossRefGoogle Scholar
Chassagnon, V. (2011b), ‘The Law and Economics of the Modern Firm: A New Governance Structure of Power Relationships’, Revue d'Economie Industrielle, 134 (2011/2): 25–50.Google Scholar
Chassagnon, V. (2012a), ‘Nature et ontologie sociale de la firme’, Social Science Information, 51 (1): 71–96.Google Scholar
Chassagnon, V. (2012b), ‘Une analyse historique de la nature juridique de la firme. Du nœud de contrats à l'entité (collective) réelle’, Revue de la Régulation, 12 (2): 1–16.Google Scholar
Cioffi, J. W. (2010), Public Law and Private Power. Corporate Governance Reform in the Age of Finance Capitalism, Ithaca and London: Cornell University Press.Google Scholar
Coase, R. (1960), ‘The Problem of Social Cost’, Journal of Law and Economics, 3: 1–40.Google Scholar
Coff, R. W. (1999), ‘When Competitive Advantage Doesn't Lead to Performance: The Resource-Based View and Stakeholder Bargaining Power’, Organization Science, 10 (2): 119–133.Google Scholar
Dahl, R. A. (1957), ‘The Concept of Power’, Behavioral Science, 2 (3): 201–215.Google Scholar
Davies, P. L. (2008), Gower and Davies’ Principles of Modern Company Law, 8th edn, London: Sweet and Maxwell.Google Scholar
Davis, G. F. (2011), ‘The Twilight of the Berle and Means Firm’, Seattle University Law Review, 34 (4): 1121–1138.Google Scholar
Demsetz, H. (1967), ‘Toward a Theory of Property Rights’, American Economic Review, 57 (2): 347–359.Google Scholar
Dodd, E. M. (1932), ‘For Whom Are Corporate Managers Trustees?’, Harvard Law Review, 45 (7): 1145–1163.Google Scholar
Dodd, E. M. (1941), ‘The Modern Firm, Private Property, and Recent Federal Legislation’, Harvard Law Review, 54 (6): 917–948.Google Scholar
Donaldson, T. and Preston, L. E. (1995), ‘The Stakeholder Theory of the Firm: Concepts, Evidence, and Implications’, Academy of Management Review, 20 (1): 65–91.Google Scholar
Dow, G. K. and Putterman, L. (2000), ‘Why Capital Suppliers (Usually) Hire Workers: What We Know and What We Need to Know’, Journal of Economic Behavior and Organization, 43 (3): 319–336.Google Scholar
Dyer, J. H. and Singh, H. (1998), ‘The Relational View: Cooperative Strategy and Sources of Interorganizational Competitive Advantage’, Academy of Management Review, 23 (4): 660–679.Google Scholar
Easterbrook, F. H. and Fischel, D. R. (1985), ‘Limited Liability and the Firm’, University of Chicago Law Review, 52 (1): 89–117.Google Scholar
Easterbrook, F. H. and Fischel, D. R. (1991), The Economic Structure of Corporate Law, Cambridge, MA: Harvard University Press.Google Scholar
Ellerman, D. (1990), The Democratic Worker-Owned Firm: A New Model for the East and West, New York: Unwin Hyman Limited, Harper Collins Academic.Google Scholar
Ellerman, D. (2007), ‘On the Role of Capital in ‘Capitalist’ and in Labor-Managed Firms’, Review of Radical Political Economics, 39 (1): 5–26.Google Scholar
Fama, E. F. (1980), ‘Agency Problems and the Theory of the Firm’, Journal of Political Economics, 88 (2): 288–307.Google Scholar
Fama, E. and Jensen, M. (1983), ‘Separation of Ownership and Control’, Journal of Law and Economics, 26 (2): 301–326.Google Scholar
Fish, J. (2006), ‘Measuring Efficiency in Corporate Law: The Role of Shareholder Primacy’, The Journal of Firm Law, 31 (3): 637–674.Google Scholar
Frey, B. and Osterloh, M. (2005), ‘Yes Managers Should Be Paid Like Bureaucrats’, Journal of Management Inquiry, 14 (1): 96–111.CrossRefGoogle Scholar
Gindis, D. (2009), ‘From Fictions an Aggregates to Real Entities in the Theory of the Firm’, Journal of Institutional Economics, 5 (1): 25–46.Google Scholar
Gourevitch, P. A. and Shinn, J. (2005), Political Power and Corporate Control. The New Global Politics of Corporate Governance, Princeton: Princeton University Press.Google Scholar
Greenwood, D. J. H. (1996), ‘Fictional Shareholders: For Whom are Corporate Managers Trustees Revisited?’, Southern California Law Review, 69 (5): 1021–1104.Google Scholar
Hall, P. A. and Soskice, D. (2001), ‘Introduction’, in Hall, P. A. and Soskice, D. (eds.), Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, Oxford: Oxford University Press, pp. 1–68.Google Scholar
Hansmann, H. (1996), The Ownership of Enterprise, Cambridge: The Belknap Press of Harvard University Press.Google Scholar
Hansmann, H. and Kraakman, R. (2001), ‘The End of History of Corporate Law’, Georgetown Law Journal, 89: 439–468.Google Scholar
Hansmann, H., Kraakman, R. and Squire, R. (2006), ‘Law and the Rise of the Firm’, Harvard Law Review, 119: 1333–1351.Google Scholar
Hart, O. D. (1989), ‘An Economist's Perspective on the Theory of the Firm’, Columbia Law Review, 84: 1757–1764.Google Scholar
Hart, O. D. (1995), Firms, Contracts, and Financial Structure, Oxford: Oxford University Press.Google Scholar
Hart, O. D. (1996), ‘The Meaning of Ownership’, in Blair, M. M. (ed.), Wealth Creation and Wealth Sharing, Washington: Brookings Institution Press, pp. 25–32.Google Scholar
Hart, O. D. and Moore, J. (1990), ‘Property Rights and the Nature of the Firm’, Journal of Political Economy, 98 (6): 1119–1158.Google Scholar
Hart, O. D. and Moore, J. (2007), ‘Incomplete Contracts and Ownership: Some New Thoughts’, American Economic Review, 97 (2): 182–186.Google Scholar
Hart, O. D. and Moore, J. (2008), ‘Contracts as Reference Points’, Quarterly Journal of Economics, 123 (1): 1–48.CrossRefGoogle Scholar
Hillman, A. and Keim, G. (2001), ‛Shareholder Value, Stakeholder Management, and Social Issues: What's the Bottom Line?’, Strategic Management Journal, 22 (2): 125–139.Google Scholar
Hodgson, G. M. (2009), ‘The Great Crash of 2008 and the Reform of Economics’, Cambridge Journal of Economics, 33 (6): 1205–1221.Google Scholar
Hodgson, G. M. (2013), From Pleasure Machines to Moral Communities. An Evolutionary Economics Without Homo Economicus, Chicago: University of Chicago Press.Google Scholar
Honoré, A. M. (1961), ‘Ownership’, in Guest, A. G. (ed.), Oxford Essays in Jurisprudence, Oxford: Oxford University Press, pp. 107–147.Google Scholar
Ireland, P. (1999), ‘Firm Law and the Myth of Shareholder Ownership’, Modern Law Review, 62 (1): 32–57.CrossRefGoogle Scholar
Ireland, P. (2010), ‘Limited liability, Shareholder Rights and the Problem of Corporate Irresponsibility’, Cambridge Journal of Economics, 34 (5): 837–856.Google Scholar
Ireland, P., Grigg-Spall, I., and Kelly, D. (1987), ‘The Conceptual Foundations of Modern Firm Law’, Journal of Law and Society, 14 (1): 149–165.Google Scholar
Iwai, K. (1999), ‘Persons, Things and Firms: The Corporate Personality Controversy and Comparative Corporate Governance’, American Journal of Comparative Law, 47 (4): 583–632.Google Scholar
Jensen, M. C. and Meckling, W. H. (1976), ‛Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure’, Journal of Financial Economics, 3 (4): 305–360.Google Scholar
Joo, T. W. (2002), ‘Contract, Property and the Role of Metaphor in Corporations Law’, UC Davis Law Review, 35 (3): 779–820.Google Scholar
Kay, J. and Silberston, A. (1995), ‘Corporate Governance’, National Institute Economic Review, 153 (1): 84–107.Google Scholar
Keynes, J. M. (1936), The General Theory of Employment, Interest and Money, London: Macmillan.Google Scholar
Krippner, G. R. (2005), ‘The Financialization of the American Economy’, Socio-Economic Review, 3 (2): 173–208.Google Scholar
Lan, L. and Heracleous, L. (2010), ‘Rethinking Agency Theory: The View From Law’, Academy of Management Review, 35 (2): 294–314.Google Scholar
Latty, E. R. (1936), ‘The Corporate Entity as a Solvent of Legal Problems’, Michigan Law Review, 34 (5): 597–636.CrossRefGoogle Scholar
Lazonick, W. and O'Sullivan, M. (2000), ‛Maximizing Shareholder Value: A New Ideology for Corporate Governance’, Economy and Society, 29 (1): 13–35.Google Scholar
Macey, J. R. (1999), ‘Fiduciary Duties as Residual Claims: Obligations to Non-shareholder Constituencies from a Theory of the Firm Perspective’, Cornell Law Review, 84 (5): 1266–1281.Google Scholar
Mahoney, J. M., Asher, C. C., and Mahoney, J. T. (2005), ‘Towards a Property Rights Foundation for a Stakeholder Theory of the Firm’, Journal of Management and Governance, 9 (1): 5–32.Google Scholar
Marris, R. (1964), ‘The Economic Theory of ‘Managerial' Capitalism’, New York: MacMillan.Google Scholar
Mikami, K. (2011), Enterprise Forms and Economic Efficiency, Abingdon: Routledge.Google Scholar
Moore, J. (1992), ‘The Firm as a Collection of Assets’, European Economic Review, 36 (2–3): 493–507.Google Scholar
Phillips, M. J. (1994), ‘Reappraising the Real Entity Theory of the Firm’, Florida State University Law Review, 21 (4): 1061–1122.Google Scholar
Putterman, L. G. (1993), ‘Ownership and the Nature of the Firm’, Journal of Comparative Economics, 17 (2): 243–263.CrossRefGoogle Scholar
Radin, M. (1932), ‘The Endless Problem of Corporate Personality’, Columbia Law Review, 32 (4): 643–667.Google Scholar
Rajan, R. G. (2012), ‘The Corporation in Finance’, NBER working paper no. 17760.Google Scholar
Rajan, R. G. and Wulf, J. (2006), ‘The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies’, Review of Economics and Statistics, 88 (4): 759–773.Google Scholar
Rajan, R. G. and Zingales, L. (1998), ‘Power in a Theory of the Firm’, Quarterly Journal of Economics, 113 (2): 387–432.Google Scholar
Rajan, R. G. and Zingales, L. (2000), ‘The Governance of the New Enterprise’, in Vives, X. (ed.), Corporate Governance: Theoretical and Empirical Perspectives, Cambridge: Cambridge University Press, pp. 201–227.Google Scholar
Rajan, R. G. and Zingales, L. (2001), ‘The Firm as a Dedicated Hierarchy: A Theory of the Origins and Growth of Firms’, Quarterly Journal of Economics, 116 (3): 805–851.Google Scholar
Robé, J.-P. (2011), ‘The Legal Structure of the Firm’, Accounting, Economics, and Law, 1 (1): 1–88.Google Scholar
Roe, M. (1994), Strong Managers, Weak Owners, Princeton: Princeton University Press.Google Scholar
Roe, M. (2003), Political Determinants of Corporate Governance. Political Context, Corporate Impact, Oxford: Oxford University Press.Google Scholar
Simon, H. A. (1951), ‘A Formal Theory of the Employment Relationship’, Econometrica, 19 (3): 293–305.Google Scholar
Stout, L. A. (2002), ‘Bad and Not-So-Bad Arguments for Shareholder Primacy’, Southern California Law Review, 75: 1189–1206.Google Scholar
Stout, L. A. (2007), ‘The Mythical Benefits of Shareholder Control’, Virginia Law Review, 93 (3): 789–810.Google Scholar
Stout, L. A. (2008), ‘Why we should Stop Teaching Dodge v. Ford’, Virginia Law and Business Review, 3 (1): 163–176.Google Scholar
Strasser, K. A. (2011), ‘A comment on the Legal Structure of the Firm’, Accounting, Economics, and Law, 1 (1): 13.Google Scholar
Summers, C. W. (1982), ‘Codetermination in the United States: A Projection of Problems and Potentials’, Journal of Comparative Corporate Law and Securities Regulation, 4 (2): 155–170.Google Scholar
Wang, H. and Barney, J. (2006), ‘Employee Incentives to Make Firm Specific Investment: Implications for Resource-Based Theories of Corporate Diversification’, Academy of Management Review, 31 (2): 466–476.Google Scholar
Williamson, O. E. (1975), Markets and Hierarchies: Analysis and Anti-Trust Implications, New York: Free Press.Google Scholar
Williamson, O. E. (1996), ‘Efficiency, Power, Authority and Economic Organization’, in Groenewegen, J. (ed.), Transaction Cost Economics and Beyond, London: Kluwer Academic Publishers, pp. 11–42.Google Scholar
Zattoni, A. (2011), ‘Who Should Control a Firm? Toward a Contingency Stakeholder Model for Allocating Ownership Rights’, Journal of Business Ethics, 103 (2): 255–274.Google Scholar
Zingales, L. (2000), ‘In Search of New Foundations’, Journal of Finance, 55 (4): 1623–1653.Google Scholar