Corporate law is in a moment of vibrant and contentious discussions about potential
reforms. As firms exit Delaware, passive investment predominates, private equity expands,
and public markets decline, corporate law faces a growing set of challenges that threaten
its stability and efficacy. At the same time, the world faces pressing crises, including climate
change, social and economic inequalities, and threats to democracy, though corporate
law scholars typically consider these crises to be outside corporate law’s remit.
In this Article, we argue that to understand and address the multidimensional crises
that face both corporate law and society, we must address shortcomings in corporate law
doctrine. We show how modern corporate law, shaped by neoclassical economic theories,
provides an incomplete picture of the firm, and we propose an expanded theoretical perspective
that draws from organization theory, a field long dedicated to understanding the
complexities of the firm. This updated perspective demonstrates how firms actually consist
of multiple constituents, including workers, the environment, and shareholders, who invest
different forms of capital in the firm: labor capital, natural capital, and financial capital.
It further shows that modern corporate law entrenches problematic power imbalances,
privileging boards and insider shareholders over workers, the environment, and minority
shareholders. Moreover, building on organization theory, we explain how corporate law
fundamentally shapes and constrains firm behavior, leading these entrenched power imbalances
to generate far-reaching negative consequences.
To address these shortcomings, we propose redesigning board representation, fiduciary
duties, and executive compensation to empower workers, the environment, and minority
shareholders in relation to boards and insider shareholders. Integrating the organizational
and economic perspectives can help address problematic power imbalances and
ultimately provide a more effective corporate law framework to govern firms and serve
society.