Michael R. Siebecker · November 2010
79 GEO. WASH. L. REV. 161 (2010)
Could a new “discourse theory” of the firm provide a better way than existing corporate law principles to understand the evolving nature of the firm and the role shareholders should play in corporate governance? Two recent developments provide a special urgency for considering the question. First, the Supreme Court’s decision in Citizens United v. FEC, which grants to corporations essentially the same political speech rights as individuals, will affect democracy at its core by allowing corporations to dominate the political agenda and public opinion. Second, the Securities and Exchange Commission’s (“SEC”) promulgation of a new Rule 14a-11, which grants shareholders the right to nominate directors using the corporation’s own proxy, could effectively serve as a check on creeping corporate influence in all realms of society. Those two developments combine to signal a potentially tectonic shift in the nature of the corporation and to beckon for a more descriptively accurate theory of the corporation capable of accommodating such a change.
In light of the likely effect of Citizens United in increasing corporate dominance in society, this Article uses the question of whether shareholders should enjoy enhanced rights to nominate directors as a springboard for advocating a new discourse theory of the firm. Borrowing in large part from the works of Jürgen Habermas, the Article suggests that with the growing influence of corporations in all aspects of economic, social, and political life, shareholders require a greater voice in the deliberative process that leads to the selection of directors. The basic aim of the theory is to demonstrate how rules of deliberation and decisionmaking can enhance the effectiveness of the organizational structures that affect our lives. According to the theory, effective deliberation about the goals and practices of any organization requires crafting rules and incentives that promote autonomous expression of ideas, fair and equal participation in the deliberative process, respectful consideration of expressed viewpoints, and the ability to alter previously accepted positions through continued discourse.
In essence, the business of corporations is no longer simply business. For instance, corporations are increasingly attentive to consumer and investor preferences regarding corporate social responsibility (“CSR”). That attention suggests to some that shareholders already possess sufficient influence over corporate practices and policies. But the move into the realm of CSR by corporations—whether to enhance profits or to embrace a genuine stakeholder sensibility—represents a significant shift in the evolution of the corporation itself. The very fact that corporations engage on the battlefield for satisfying consumer and shareholder preferences regarding CSR signals that corporations now make social and political concerns part of their basic business plans. And with the recent Supreme Court decision in Citizens United, the reach of corporate influence will cascade into more and more aspects of society.
The Article details the increasing dominance of corporations in all aspects of economic, political, and social life as spurred along by the increasing role of CSR, shareholder activism, and the corporate political speech rights conferred by Citizens United. To accomplish the project, Part I describes the evolving nature of the corporation and shareholders in the wake of Citizens United. Part II discusses the basic tenets of discourse theory and explains how those principles might apply within a new discourse theory of the firm. Part III then examines how a new discourse theory of the firm would answer the question of whether shareholders should gain the right to nominate directors using the corporate proxy. In particular, Part III suggests that, within a new discourse theory of the firm, giving shareholders the right to nominate directors using the corporate proxy would not only produce better corporate governance, but also an efficient rule regarding shareholder voting. The Article concludes that, to the extent enhanced discourse promotes efficiency as well as better governance both inside and outside the corporation, a new discourse theory of the firm seems better suited than existing corporate law theories to answer difficult questions regarding the rights and responsibilities of corporations and the evolving constituencies they serve.
