Wednesday, April 05, 2006

Can a Corporation Regulate Itself?

Today an economic enterprise can insulate its assets within itself. It can disperse its assets among enterprises, each an independent juridical person. It can exist independent of its shareholders. It can raise capital virtually anywhere that money can flow--and money can flow virtually anywhere today. It can own itself.

But it can now do much more than that. It can exist independent of the regulation of any singular political community. Free movement of capital rules, protections of the rights of establishment and the opportunities created through bilateral investment treaties have opened greater opportunities for an enterprise to be able to choose where to place its assets and operations. In doing so it is choosing more than a place to operate, it is choosing to purchase a bundle of regulations produced by and "sold" by states seeking inbound investment. Because the enterprise can now effectively choose the set of regulations to which it wishes to subject clusters of assets, it can regulate itself.

For the economic enterprise able to disperse assets and operations worldwide, for the enterprise that can access capital markets throughout the globe, the essential role of nation-state based laws of economic organizations (as well as of securities regulation) appears to be to enhance the ability of the multinational economic enterprise to become an autonomous and self regulating entity. But it can become more than autonomous, it can also become an important political actor. Large multinational corporations, as consumers of legislation, have helped commodify economic regulation. Law, like the products of economic enterprises, are objects that can be produced, marketed, sold and consumed. As such, law can no longer be conceived as the product of the will of the people expressed through their government. Instead, law acquires the characteristics of products manufactured to attract consumers. In this sense, law loses its connection to concepts of popular sovereignty. It suggests that the political theories of state organization conflate with economic theory, at least in the context of legislating for economic enterprises operating globally.

I have written a short essay that serves as an introduction to the construction of a theory of institutional autonomy from out of a century of debate about the nature of economic entities. The essay first re-examines the asset partitioning ideas of Hansman and Kraakman the context of the multinational enterprise. It suggests that asset partitioning can be usefully understood as fleshing out the contours of the way in which organizational law shapes enterprise autonomy for creditors. The essay then re-examines the corporate personality analysis of Iwai to suggest that in a global context, Iwai’s insights suggest the possibility of enterprise autonomy from shareholders. The essay then considers the perverse utility of the ancient territorial principle and the principle of regulatory hierarchy. Applied in a global context these principles suggest the possibility of enterprise autonomy from the state. Pulling these three puzzle pieces together, the essay suggests that the nexus of multinational enterprises and globalization provides a foundation for the emergence of self-conscious autonomous self-regulating economic entities.

I would be interested in comments and reactions. The essay can be accessed at:

Larry Cata Backer, "The Autonomous Global Enterprise: On the Role of Organizational Law Beyond Asset Partitioning and Legal Personality" . Tulsa Law Journal, Forthcoming Available at SSRN:

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