• Video

The Corporation as Social Technology [No. 86]

Professor Todd Henderson explains that corporations are a technology invented to help people cooperate for a certain purpose. The purpose can be varied - manufacturing a product, enabling travel, selling goods, or even pursuing a charitable cause as a non-profit organization. Law students who study corporate law can learn useful skills for a variety of both public and private practice areas. https://youtube.com/watch?v=7Uf8sCj_MRo


Corporate law as a subject governs how companies or corporations are formed, the rules on how they're governed, what one might call corporate governance, and the rules about how they can be sued or sue to press rights of the corporate entity. At its base, corporations involve activities done by some people, we call these people managers, who are working on behalf of other people, typically we call these people shareholders. And those managers may act in ways that are not in the interests of the shareholders, giving rise to something that we call agency costs. And a lot of corporate law is about how to constrain or ensure that the agents of the corporation, the corporate managers are acting in the best interests of the shareholders and other stakeholders of the corporation. A corporation is... I like to think that they're something that I would call a social technology. Everything that we do as humans, we by and large do cooperating with other people. And that cooperation now happens at a massive scale globally, hundreds of thousands or millions of people cooperating to do a particular thing. That thing might be: make a product, produce a movie, ship something across the planet, fly people from here to Tokyo. All those things require enormous amounts of a human cooperation. And a corporation is just a particular kind of technology, a social technology, that enables that. More specifically, a corporation is what we call a legal fiction. There is no such thing as Facebook or Amazon, it is just a label that we use to conveniently describe this underlying cooperation that's happening. In section one of the United States Code, so 1 USC Section 1, a corporation is characterized as a legal person. And it's just a fiction. We just call this activity that's happening, Amazon or Boeing or Facebook, and then we organize a bunch of economic activity within that label. And that's what a corporation is. Corporations are ubiquitous in our society. They're not just the way that we do business, but things like the NAACP, the Sierra Club, the City of Chicago, all of these things are organized in the corporate form. So, one reason students would want to study corporate law is that a lot of the social organizations or political organizations that one might work for as a lawyer are corporations. Another reason is that corporations will be defendants in suits brought by interest groups of various kinds, whether they're environmental or other social organizations. So, corporations are predominant in our society, and understanding them is essential for lawyers, whether you're going to be a corporate general counsel, or a regulator, or someone who is potentially suing companies who you think are misbehaving.

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