Conceptualizing corporations and kinship: comparative law and development theory in a Chinese perspective.

Author:Ruskola, Teemu

There is only a perspective seeing, only a perspective knowing.(1) --Friedrich Nietzsche Ideas and ideologies shape the subjective mental constructs that individuals use to interpret the world around them and make choices.(2) --Douglass North China is currently in the middle of a revolution: New political, economic, and social ideas are being introduced into the Middle Kingdom for the first time. Economic reorganization--which is currently spearheading the revolution--is taking place in tandem with the creation of a legal infrastructure to support market institutions. Except for some experimentation between the twilight of the imperial state and the triumph of Communism in 1949, the business corporation is a radically new legal transplant: It has no counterpart in the indigenous Chinese legal tradition. When the People's Republic of China enacted a Western-style Company Law a few years ago, world history was in the making.(3)

Although this story is familiar and intuitively appealing, it is incorrect, or at least wildly exaggerated. In this Article, I hope to convince the reader that even in late imperial China, there was a tradition of "corporation law," to use an admittedly anachronistic term. Conventional wisdom to the contrary notwithstanding, even before the introduction of European law in the beginning of the twentieth century, the Chinese operated "clan corporations," or relatively large commercial enterprises organized in the guise of the family. As part of the project of excavating this indigenous tradition, the Article also analyzes some of the ways in which the tradition continues to inform the understanding and operation of business enterprises in contemporary China.

In addition to correcting a long-standing oversight in comparative legal scholarship, the Article contrasts the Chinese story of corporate entities with those of American jurisprudence and speculates what role the different legal characterizations of corporation--and family--play in economic organization. Considered from the perspective of development theory, is today's transplanted Company Law likely to remake China's indigenous tradition of corporation law in the image of its Western models? Or will the new transplant remain simply an irrelevant effort at changing the course of Chinese history, as the native economic and legal systems continue along on their own paths? The Article criticizes both of these dominant views--the prophets of eventual convergence for subscribing to a teleological view of the nature of legal reform ("they" will become more like "us") and the divergence theorists for implicit cultural essentialism (law is simply another dimension in the clash of civilizations in a "West versus the Rest" world).

Of course, history matters, and no transplanted law can erase it by fiat; yet neither we nor the Chinese are merely prisoners of our legal traditions. For comparativists, it is important to get their picture of Chinese law and its history right, as this Article indeed sets out to do. However, when it comes to making policy decisions about the proper goals and methods of China's future legal development, those comparative insights have their limits. The precise ways in which transplanted laws will interact with indigenous traditions simply cannot be predicted with any degree of scientific accuracy. Yet one thing is certain: The baseline for any change is set by the indigenous traditions, and all intelligent policy analysis must begin with an informed appreciation of those traditions.

Corporation law has recently become the object of unprecedented cross-cultural scrutiny, and comparative corporate governance has emerged as a subfield in its own right.(4) There is an increasing recognition that corporation law is not simply a response to the classic "agency problem" inherent in any business association where the right to manage is severed from ownership, as suggested by Berle and Means:(5) Corporate governance is as much a function of industrial organization,(6) politics,(7) ideology,(8) and simply of historical accident,(9) as it is the means by which investors monitor those who control the corporation.(10) This Article proceeds from the premise that corporation law--like any other branch of law--grows out of a specific cultural tradition and intellectual history.(11) Or, stated in the parlance of institutional economics and economic sociology, respectively, corporation law is "path-dependent"(12) and "socially embedded."(13)

Given that China's Company Law is largely a foreign transplant, in a new interpretive context, even (or perhaps especially) the provisions most familiar to the American corporate lawyer may turn out to mean something different than they mean in New York City or in Silicon Valley, for example. To understand better what the Company Law means as seen from the Chinese perspective--or Chinese perspectives, as there are likely to be several--it is useful to consider traditional analogues of business corporations and their legal regulation. Yet this is where the enterprising student of Chinese law runs into a wall. According to conventional wisdom, China had no genuine native predecessors to the modern business corporation: Max Weber, most notably, tells us that in the absence of a law governing voluntary associations, most businesses were "merely" family businesses.(14) However, to accept this conclusion without qualification would result in an overly simplistic concept of "corporation." In her recent interpretation of China's late imperial political economy as an unstable dialectic between "tributary" and "petty capitalist" modes of production, anthropologist Hill Gates argues forcefully that many traditional extended families were really "corporations" in an economic sense: The members of large clans stayed together not merely out of affection for their kinfolk, but also to accumulate capital and to pursue profit more effectively.(15) Self-representation aside, many clans were commercial enterprises organized in the idiom of the family. Building on Gates's work, I seek to arrive at a specifically legal conceptualization of what I call the traditional Chinese "clan corporation."(16) Drawing on the implications of Chinese kinship anthropology for traditional clan governance, I build my thesis that even in late imperial China, there was indeed a tradition of corporation law--or, to exaggerate only a little, in traditional China family law performed many of the functions that our corporation law does today.

Because of their different intellectual environments, traditional Chinese and contemporary American corporation law have served different legitimating functions. Americans live in a legal system that happens to think in terms of "persons." Consequently, an important task for Anglo-American corporation law has been to justify the existence of collective entities, such as corporations, in a way that accords with liberal individualism: Every legal actor must be a "person," no matter the conceptual violence. This requirement has ultimately given us the legal fiction of the corporation as a "person" in its own right. Today, after endless arguments about the nature of corporate personality, American corporation law has finally abandoned further metaphysical speculation; in Bayless Manning's tart words, we have worked our way "out of the platonic murk accumulated over ... two thousand years."(17) The most recent American theory of the corporation takes this process to its logical conclusion and thoroughly "individualizes" the corporation by conceptualizing it as nothing more, or less, than a "nexus of contracts" among its individual constituents.

In contrast, in the Confucian view, the collective was morally prior to the individual. Hence, for traditional Chinese law, collective legal personality was a given.(18) The main problem for Chinese business enterprises was the anti-mercantile attitude of orthodox Confucianism and its general ideological hostility to profit-seeking. The idealized Confucian view posited a radical isomorphism among the family on the one hand, and the larger political and social communities on the other: When functioning properly, they were all governed by a similar kinship logic. Starting from the premise that one is not supposed to take advantage of family members, Chinese corporation law has focused on justifying to the state the type of collective that in fact seeks profit at the expense of others--and then divides its profits unevenly among various classes of participants. Hence clan corporations' relentless insistence that they were simply extended families: Status as a kinship group entailed legitimacy and recognition by the state.(19) (By legitimacy I mean simply the appearance of being proper and just.(20)) Coincidentally, this also meant that these clan corporations were governed ultimately by family law, which in turn implied fiduciary duties by clan leadership to clan members.

In practice, however, the ideology of kinship often amounted to little more than a legal fiction serving to hide and justify inequality among the members of the corporation: Neo-Confucian rhetoric defining clansmen as united in "one body" imputed to everyone a shared interest in the family's well-being as a whole, and hence defined all intracorporation conflicts as only apparent. With respect to the internal structure of the clan corporation, the Chinese kinship ideology thus legitimated the intracorporation division of labor and ownership by making hierarchy an ostensibly natural function of familial relationships, much as the "nexus of contracts" metaphor of recent corporate jurisprudence renders it voluntary: In a truly contract-based corporation, all participants in the venture--from the chairman of the board to the lowest-ranking employee--will have agreed to their positions in the corporation. Indeed, just as contract is the paradigmatic form of private ordering in our legal system...

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