SEMINAR II : THEORETICAL APPROACHES
Please be sure to read the three articles listed under the heading "Essential Reading". It would be helpful if you could also read some of the other articles listed and we may have some volunteers reporting on some of them.
The main purpose of this seminar will be to help you identify and familiarise yourself with the different theoretical debates concerning company law, how companies should be regulated and what the purpose of Corporate Law is. The seminar will also consider the implications of those theories. At this stage this will be a fairly general discussion, but it is something to which we shall return when we consider other aspects of company law in later seminars.
1. What is Greenfield's view of Corporate Law?
2. What are the different theories identified by Millon? Compare the views of Dodd with those of Friedman (quoted by Millon at p 227). Do you find either of these approaches to be particularly convincing or is there a different theory you prefer?
3. Discuss the following company law problems by reference to theories such as Dodd; Berle; new economic theory (nexus of contracts); Greenfield and Gordon Smith's views etc:
a) Ratae United plc is a publicly owned football club. Its majority shareholder recently died, leaving his share to his widow, Cassandra, who unfortunately hates football. The board of Ratae has recently received an offer from Do-It-Yourself Ltd ("D-I-Y"), a chain of hardware stores. D-I-Y would like to buy Ratae's ground in order that they can demolish it and build a store on its land. Cassandra has heard of this offer and is keen for the sale to go ahead as D-I-Y's offer is very generous. She has been annoyed to discover that the number of people attending Ratae matches has been falling rapidly in recent years, for example only 5000 people attended the last match. The club needs an average attendance of 9000 to be financially viable. If the ground is sold the team will have to play its matches at the ground of Shepshed Dynamo which is located twenty miles from Ratae. Terry, the president of Ratae United Supporters Association, has also heard of the proposed deal and wishes to argue that the fans have a stake in the club so their interests should be considered by the board.
b) Tick Tock plc is a manufacturing company. It has a factory in Gurnley where the majority of employees are required to carry out simple manual labour tasks. Due to the minimal amount of training required of these employees the company has preferred to employ mainly 16 to 18 year old school leavers in order to take advantage of Government subsidies of youth employment. The school leavers are only employed on short term contracts in order that they can be dismissed when the Government funding runs out. The management believe that this policy is the best way to maximise profits. The policy is, however, having an adverse effect on the local community. There are few employment opportunities in the area and former employees of Tick Tock generally remain unemployed.
c) Heskey plc is a company in the unfortunate position of having an asset value which exceeds the value of a controlling interest in its shares. It has a factory which occupies a very valuable piece of land; in addition it has attempted to make the working environment more pleasant for employees by buying art works which have now increased in value to a significant extent. The company also owns a racehorse, Thunderbolt, which has won several important races and is now worth millions of pounds. Apart from these wise investments the board of Heskey have generally been doing a poor job as the goods produced in the factory are becoming obsolete and there are no plans to adapt production to make a different product. The board of Shark plc has noticed this situation and proposes a take-over of Heskey with a view to stripping the company of its assets and placing the empty shell into liquidation. If the take-over goes ahead there will be a significant impact on the local community as a large proportion of this community rely on the factory for employment.
The first article provides a good overview of the different theoretical frameworks and their implications. Read them first to get an overview of the issues.
- Millon, "Theories of the Corporation"  Duke Law Journal 201 and Westlaw (read this primarily to gain an overview of the different theories, the analysis in Part IV of the article need not be read in detail).
Then read these two articles and we will debate whether you agree with Greenfield or Gordon Smith and why.
- Kent Greenfield, Debate: Saving the World with Corporate Law? "Proposition: Saving The World with Corporate Law" (2008) 57 Emory Law Journal 948
- D.Gordon Smith Debate: Saving the World with Corporate Law? Response: "The Dystopian Potential of Corporate Law" .(2008) 57 Emory Law Journal 985
- Worthington, Shares, Shareholders, Property, Power and Entitlement (part 1) (2001) 22 Company Lawyer 258 (part 2) (2001) 22 Company Lawyer 307 and Westlaw
- Stokes, "Company Law and Legal Theory" in W. Twining (ed.), Legal Theory and Common Law (1986) pp. 155-183; also available in Wheeler (ed.), The Law of the Business Enterprise (1994).
- J Armour and M.J. Whincop," The proprietary foundations of corporate law". 27 Oxford Journal of Legal Studies (2007) 429-465
- B.Sheehy, The Importance of Corporate Models: Economic and Jurisprudential Values and the Future of Corporate Law (2004) 2 DePaul Business and Commercial law Journal 463 - a useful up to date survey of the field with critiques of major theories and lots of useful references - Westlaw
- Bebchuck, The Debate on Contractual Freedom in Corporate Law (1989) 89 Columbia Law Review 1319 and Westlaw;
- R.M.Buxbaum, Facilitative and Mandatory Rules in the Corporation Laws of the United States (2002) 50 American Journal of Comparative Law 249 and Westlaw - a brief discussion of the "Contractarian" view that the law should permit the parties to fix their own rules and its historical development in the USA.
- Easterbrook and Fischel, The Corporate Contract (1989) 89 Columbia Law Review 1416 and Westlaw - classic Economic Analysis of Law argument;
- W.W. Bratton, Enron and the Dark Side of Shareholder Value (2002) 76 Tulane Law Review 1275 and Westlaw - the lessons from Enron for the self regulatory corporate governance system discussing Enron as an example of the application of nexus of contract ideas to achieve shareholder value and the lesson that can be drawn from its failure - mainly to regulate auditors but not others more tightly.
- C.A. Harwell Wells, The Cycles of Corporate Social Responsibility: An Historical Retrospective for the Twenty-First Century (2002) 51 University of Kansas Law Review 77 and Westlaw - a useful review of the development up to the present of these ideas;
- Dalia Tsuk, Corporations Without Labor: the politics of progressive corporate law (2003) 151 University of Pennsylvania Law Review p1861 - How US Corporate Law developed by ignoring class issues and so excluding the work force as a factor in the corporation.
- C.W. Maughan, S.F.Copp, Company Law reform and Economic Methodology Revisited (2000) 21 Company Lawyer 14-22 - an application of the economic analysis to UK law reform on directors' duties.