A New Social Contract: Corporate Personality Theory and the Death of the Firm

Abstract

In their Article The Death of the Firm, Professors June Carbone and Nancy Levit argue that "the firm as entity is disappearing as a unit of legal analysis." More specifically, they argue that by dismissing the corporation as a mere legal fiction and equating the rights of this legal fiction with the rights of its owners, cases like Hobby Lobby "erode the status of the corporation as an entity that imposes institutional constraints on executive freedom of action, has institutional obligations to its employees, or can be held institutionally accountable as a community citizen." In other words, the firm that has died is the one that "provided security and stability and advanced interests greater than the sum of its parts." In light of this, Carbone and Levit conclude that "Hobby Lobby, in describing the corporation as no more than a vehicle to advance [the interests of its owners], changes the assumptions on which public-private partnerships are based." Owners no longer have any "obligation, morally or legally, to consider the interests of their employees," and thus employee dependence on firms for things like health insurance becomes problematic. Therefore, "the ultimate goal of health care reform should be to eliminate the employer role altogether."

This Response Essay proceeds as follows: Following the Introduction, I will briefly review the path Carbone and Levit chart to reach their conclusion, particularly focusing on the changes in economic and legal analysis that accompanied the shift from the "managerial firm" of the mid-twentieth century to the more modern contractarian view of the firm. I will then provide some hopefully useful commentary on how The Death of the Firm might look when viewed through the lens of corporate personality theory. This will be followed by a brief review of some likely criticisms of relying on corporate personality theory in general, and artificial entity/concession theory in particular, to address the issues discussed herein. Finally, I will provide some concluding remarks.

Keywords: law firm, personality theory, corporations, corporate entity

JEL Classification: K00