Corporations without labor: the politics of progressive corporate law.

• Author: Tsuk, Dalia

"We, the rank and file, got burned.... I thought that people had to treat us honestly and deal fairly with us. In my neck of the woods, what happened is not right." (1)

American corporate law ignores workers. They don't figure into the structure of the corporation or its legal duties. But there is no one group of people more identified with a corporation and more responsible for its day-to-day conduct than corporate workers. (2)

"People can complain about the corporate culture at Enron, but that doesn't represent the employee culture, the thousands of wonderful people who worked there." (3)

INTRODUCTION

One of the most enduring characteristics of modern American corporate law is its shareholder-centered vision of managerial duties, pointedly expressed by Milton Friedman, according to which corporate managers are agents of shareholders and must manage the corporation in ways that maximize the profits of their principals. (4) Ardent supporters of this vision argue that corporate law requires managers to exercise their power to maximize shareholder value, not the interests of other corporate constituencies, specifically workers. (5) Last year, the collapse of Enron and the losses suffered by its rank-and-file workers brought aspects of this shareholder-centered vision of corporate law (particularly the short-term shareholder-wealth-maximization norm) to the front pages of newspapers around the country. (6)

Many contemporary progressive corporate law scholars (7) like to fault Milton Friedman and his students for the exclusion of workers' interests from corporate law and shareholder centrism more broadly. (8) But the responsibility lies elsewhere. As this Article demonstrates, a shareholder-centered vision of corporate law (on its different aspects) reflects the cumulative effect of a broader phenomenon--namely, the reluctance of American legal scholars (progressives, moderates, and conservatives) to accept the existence of a permanent, working, wage-labor class, and hence their failure to direct law's attention to it and to class analysis more generally. (9)

Focusing on major issues in corporate law--the nature of corporate entities and corporate power--this Article explores how, in the course of the twentieth century, legal scholars and political theorists helped remove the interests of workers (as differentiated from shareholders, officers, and directors) from the core concerns of corporate law and theory. It demonstrates how scholars' conversations about corporate entities and corporate power were influenced by a shared cultural and intellectual objection to Marxist class analysis with its focus on the proletariat. It further explicates how the purging of the working class from scholarly imagination paved a way, first, for the rise of the new classes of managers and owners and the shareholder-centered vision of corporate law and, then, for the emergence of a narrow, shareholder-wealth-maximization norm, which is being questioned today. (10)

Part I of the Article focuses on scholars' attempts to come to terms with the rapid growth of corporate power and changes in business structure during the early decades of the twentieth century. Specifically, it explores how collective entities such as corporations and labor unions were reconfigured as real or natural entities. I argue that this reconfiguration was inspired by a particular, pluralist image of the state, an image that early-twentieth-century scholars adopted as an alternative both to the traditional, liberal vision of the state and to radical (Marxist) class analysis. (11) A pluralist image of the state was an innovative approach within the boundaries of American liberalism. It acknowledged that collective entities were a fact in American political and social life that had to be dealt with if the American democratic experience was to continue to succeed. Drawing on this pluralist image of the state, legal scholars imbued corporations and unions with life and will to act, hoping that this understanding would guarantee labor unions constitutional rights such as freedom of speech while simultaneously subjecting corporations to criminal and tort liability. (12) Yet, as I also argue, by adopting a pluralist image of the state and corporations, legal scholars opened a door for the removal of workers' interests from corporate law and theory.

Traditional class analysis envisioned society as composed of collectives of agents "sharing a common position within the specific relations of production." (13) Its account of history and the state was based on "prevailing modes of production and their potential for epochal change." (14) In turn, a pluralist image of the state envisioned society as composed of multiple groups and associations, of multiple loci of representation, the corporation being an example. (15) Amid heightening social conflict produced by immigration, urbanization, industrialization, and the decline of religious assurance, (16) American intellectuals (and their European colleagues) found solace in a pluralist image of the state, which emphasized the diffusion of social and political power, thus offering a midway between conservative individualism and radical collectivism. (17) Beginning with Arthur Bentley's The Process of Government, (18) which unveiled the impact of interest groups in society, American writers on politics viewed groups not only as the basic political form, (19) but also as constitutive elements of American democracy.

Ironically, early-twentieth-century pluralists were particularly interested in legitimizing labor unions. Yet, rather than endorsing class analysis which put the proletariat at the center of history, (20) pluralists' analyses focused on the (neutral, voluntary, and changing) group as the forum in which individuals found meanings for their ideas and actions. Pluralists recognized that groups differed in their goals, and most important, their powers. Yet, while class analysis viewed class antagonism as intrinsic to capitalism and class struggle as crucial for any process of change, (21) pluralists assumed that power inequalities, specifically between workers and their employers, were historically contingent and could be overcome once all individuals were allowed to associate to promote their collective interests. Pluralists believed that by embracing groups as bases for the modern state, they would transform social warfare into civic deliberation among groups, including labor unions and corporations. By the 1930s, this vision, which was labeled industrial pluralism by some and corporate liberalism by others, resulted in a description of management and labor as "political parties in a representative democracy." (22) Workers had a right to organize and to strike, employers were required to bargain with their workers' collective representative, but the workplace was viewed as "an autonomous realm, resistant to the intrusion of externally-defined rights and obligations." (23)

Labor law scholars have demonstrated how the industrial pluralists' failure to address inequalities of bargaining power between workers and employers was detrimental to workers' interests. (24) This Article adds to their endeavors by looking at another, untold part of the story. It examines how a pluralist image of the state was gradually transformed into a vision of the corporation that focused on the interests of shareholders vis-a-vis managers ultimately to the exclusion of all other corporate constituencies. If the world of industrial disputes was composed of workers and employers, the world of corporate law was limited to conflicts between shareholders and managers. In the pluralistic world of the 1930s, they became the classes of corporate law.

Specifically, Part II of the Article examines how the pluralist reconfiguration of corporations and unions as real entities triggered concerns about corporate power and ways to tame it. Drawing on the works of prominent legal scholars, I explore how, beginning in the 1930s, corporate legal theory struggled to limit potential abuses and excesses of corporate power by describing particular social and economic groups or interests as capable of directing corporate power toward social goals. Interestingly, while such discussions might have brought traditional class analysis into corporate law, this promise was not fulfilled. Reluctant to admit the pervasiveness of class conflict, and viewing workers' interests as protected by their unions, scholars relied upon other, less immutable social interests or classes, namely shareholders and managers, to tame corporate power. For example, Adolf A. Berle, Jr., who was among the first to describe corporations as composed of a variety of individuals and factions with conflicting visions, nonetheless rejected the possibility that class warfare permeated corporate structure. Instead, Berle sought to limit corporate power by requiring managers to exercise it to promote the interests of corporate members--the shareholder class. His contemporary E. Merrick Dodd, Jr., on the other hand, adopted an elitist vision, trusting an elite class of corporate managers to exercise its power responsibly. (25)

Dodd and Berle believed that the constraints they imposed on corporate power would protect the interests of workers (as well as the community at large). Yet, by focusing on entrepreneurs and investors, they helped legitimize a conception of value or wealth that was detached from work and labor. In the post-War years, debates about organizational power shifted to a more technocratic notion of expertise and institutional competence. Then, in the 1980s, with the ascent of an economic theory of the firm that emphasized market efficiency, a limited, shareholder-wealth-maximization norm became the means of constraining corporate power. This norm's potential harm to workers, corporations, and society was uncovered in the aftermath of Enron's collapse. (26)

The recent corporate...