The Post-Revolutionary Period in Corporate Law: Returning to the Theory of the Firm

The consensus on corporate law theory has narrowed the field’s doctrinal and methodological foci. Although the vibrancy of shareholder primacy has at times been called into question as a matter of law, both boardrooms and courts have taken the normative call for shareholder wealth maximization increasingly to heart. There is little doubt that the revolution has not only substantially affected legal theory but also legislation, court decisions, and corporate behavior. It achieved a level of success unusual for an academic discipline; it not only transformed the field but also the world. We now find ourselves in the post-revolutionary period. For some academics, it is time to refine the revolutionary principles and attend to the subsidiary issues that are left to be worked out. But for me, it is time to look forward to the next revolution. This Essay argues that corporate law academics should look to the economic literature on the theory of the firm in taking those next steps. The fundamental question about corporate law is not how to manage the relationships between shareholders, directors, and executives; instead, it is why we have created and sustained corporations in the first place. In going back to basic principles, we need to ask ourselves the following question: Why do we have firms, rather than markets? And how do corporations serve our needs for firms? Can the model be improved? Are there other models to consider