Global Capital Markets Center
|
"Book Review: Trust and Tensions Within Corporations." Book: Progressive Corporate Law. (Lawrence T. Mitchell, ed., Westview Press 1995) Deborah A. DeMott 81 Cornell L. Rev. 1308 (1996) |
ABSTRACT:
Legal theory in corporate law has continued to thrive through an ongoing interest in the contemporary transactions that are dominating the forefront of legal innovation in the practical application of corporate law. In this review, Professor DeMott looks at recent scholarship surrounding the issue of tension between the efficiency-oriented, cost-cutting goals of corporations and the importance of building relationships within the community of the corporation with special attention to the contemporary popularity of corporate downsizing in the United States. Beginning with an overview of the developed theories in this area, the essay provides the classic debate between the conception of corporations as a nexus of contracts as advanced by Fischel and Easterbrook and the importance of trust and reciprocity among the individuals in the corporate community as described by Fukuyama. However, far from limiting the discourse to the corporate context, Professor DeMott then provides examples of how this tension persists even in non-corporate organizations, using interesting illustrations based on a non-profit institution of higher education that has built community to the detriment of its scholarly objectives and on the historical experience of religious orders such as monasteries, and demonstrates at least one alternative for resolution in the practice of internalizing the purposes of the organization such that the sense of worth of the individuals in the community is tied in with the objectives of the organization. Following the principles outlined in this discourse, the essay then considers the recent spate of corporate downsizing as a question of increasing shareholder value and corporate objectives at the price of splintering relationships within the corporate community. The discussion examines the implications of the break in trust and the downturn in employee productivity that results from downsizing as well as the importance of the interests of shareholders to the corporation and the consequences of emphasizing the importance of contractural relations over reciprocity in the community. The essay deals at length with the discussion in current legal scholarship of the theories of contracturalism versus communitarianism as applied to the phenomenon of downsizing, including a critique of the different arguments advanced by various authors in the book, Progressive Corporate Law. Essentially, the tension is one of bargained-for entitlements based on contracts and relationships of trust built up between a corporation and its employees; DeMott encounters and debates the various authors who have suggested reasons for and ways to resolve the tension and who, in doing so, have created a wealth of discourse on normative theories of corporate law and the possibility of reform. She concludes by noting that with continued interest the ongoing changes in corporate law as it is being practiced, legal theory and scholarship in the field will continue to succeed.
Email the author to request a copy of the article
Return to the Corporate Governance Index
Return to the Research Index
