Numărul 2 / 2006

 

 

LEGITIMACY OF CORPORATIONS REVISITED: CHRISTIAN CONSIDERATIONS

 

Dr. Daniel DEAK

Professor of Law, Corvinus University, Financial and Fiscal Law Dept.

Research Fellow, Taxation Law and Policy Research Institute, Monash University, Melbourne

 

 

Rezumat: Din nou despre legitimitatea corporaţiilor: consideraţii din perspectivă creştină.  Plecându-se de la definiţia unei societăţi comerciale acceptată în sistemul juridic, studiul de faţă îşi propune o viziune bazată pe o introspecţie realizată potrivit moralei creştine asupra a ceea ce doctrina juridică şi economică modernă denumesc CSR (Corporate Social Responsibility ).

 

Legitimacy is a kind of acceptance. It can apply to a political or legal system whether it is valid or not. Its meaning can obviously be extended to companies. In this respect, the question can be raised whether we need companies, and if so, why. In the following, it will be discussed how it is possible to explain the operation of companies as part of a world widely accepted in normal circumstances. The question is thus not raised as to whether certain companies can for any reason legitimise themselves while others are not so much successful in this respect. It will simply be assumed that it is reasonable to have companies in general terms, even if the operation of companies ensues costs to be incurred in the social environment of that company. Hence, the term of legitimacy is interpreted in a positive rather than in a normative way, and suggests general acceptance, a kind of authority. At a glance, law assumes that its directives are binding and its subjects owe obedience or even allegiance to the system which governs them.

Apparently, business enterprises or rather corporations can be legitimised, based on a contractarian approach. From such a perspective, the opportunity costs of the operation of businesses are to be removed by relying on bargaining. The contractual relationships evolved this way suggest that social schemes are established on the horizontal co-ordination of individual market players. As an alternative, the legitimacy of businesses can be explained by invoking state intervention and regulations. This is the viewpoint of bureaucratic co-ordination where both inter- and intra-company relationships are established on the hierarchical ranking evolving in accordance with the prestige distributed. Opportunity costs are thus to be removed, based on the vertical integration of the social players affected in particular cases.

A company can be identified, based on a minimum concept. According to it, a company is the organization of persons and assets -- or the unit of assets and liabilities, capable of functioning by its own means -- which gives the outward appearance as a business entity. Based on a liberal approach, a business cannot be said not to exist until such time as it is wound up or a declaration of nullity is made. From this perspective, an enterprise will be developed just due to a contract of association. In a stricter approach, the use of a deed of association is not yet sufficient in forming a company. It is also important to obtain the approval of the state, while entering a national system of trade registration.

Reviewing the legitimacy of corporations, the ethical considerations are not precluded, no matter whether they are legitimised from the perspective of horizontal or vertical co-ordination. The contractarian approach opens up avenues for constant changes to be made due to the actions of all those who are willing to take part in contributing to the never-ending work of institution-building. Citizens, being principals, giving instructions to agents, remain constantly to be the masters of agreements by way of contractual revision. While shaping, or re-shaping, the social compact, the ethical considerations can be added to the other motives for reaching compromises, necessary for the arrangement of social conflicts, as the case arises. In this course of action, ethical and non-ethical considerations operate simultaneously and inseparably. The moral aspect becomes relevant where corporations are recognised due to the gift-of-state theory and market players are invited to render sacrifice prescribed by the power organized in correspondence with the logic of hierarchical ranking. Still the question remains, however, whether moral values can be enforced during the real-life processes of public and business administration. It is thus not guaranteed at all that the economic conduct will be permeated by the moral insight even under the direct influence of non-economic co-ordination.

In the following, first it will be discussed how much ethical values need be complemented by the divine love radiated to human beings. Then it will be examined whether the economic self-interest can be influenced by the moral insight. The economic conduct oriented to wealth maximization will be confronted with the complexities of the life-world developed in terms of post-industrialist social structures, at least according to Jürgen Habermas and his followers. The view of these complexities may lead us to the observation of ethics and meta-ethics where particular attention is given to the very process in which ethical norms are developed. Similarly to the theories drafted in defence of catallaxy, an Aristotelian approach to the current patterns of the social conduct seems to be non-equivalent as well to those relevant to the domain of the life-world. This is because it is difficult to reconcile the ancient notion of practical wisdom with the autopoietic systems of the post-modern life where ethical considerations are of no authoritative power unless they are authenticated by the sets of preferences developed from case to case. In addition to the basic theoretical considerations, the legitimacy of corporations, strictly speaking, will be discussed in separate sections in the light of the relevant legal regulation. Finally the issue of the economic conduct and enterprises will be put in the context of poverty as seen from the theological point of view of the dialogue as interpreted by Martin Buber. Being filled by the spirit of poverty, it is possible to be liberated from the tribal spirit of exclusion, in particular from the monological way of thinking, that can be surpassed owing to the efforts made in order to initiate dialogues with the Lord who first had loved us before we have lived. The attitude based on this spirit may help us with finding ethical and Christian values, guiding us even in carrying on business and running companies.

            1. Ethical orientation complemented by the love God entertains toward us

Obviously, Christians rely on Christian values, while conducting their own personal life, no matter in which sphere of the social life they are active. They search for the Kingdom of God that may well be explored from the signs experienced in this world. Hence, Christians do not cease to follow Christian ideals even in the business life. It may be more problematic for non-Christians to meet the manifestations of the religious faith wile operating companies and getting involved in contractual relationships. For them, the human aspect of the business life will be mediated through purely ethical values. Christians may also be willing to recognize that the religious considerations of the individuals involved in the process of business administration will be presented in the secular world as ethical questions. It is still widely acknowledged both by Christians and non-Christians that moral views need be substantiated by transcendental values. Nevertheless ethical judgments may be exclusive, and so of limited validity, due to the fact that they are not void of subjectivity. In this instance, humanism can only be reached owing to the intervention of God who loves us beforehand.

Those who respect ethical norms are capable to act in an autonomous and sovereign way. They can then reflect themselves in the light of the personal freedom, in correspondence with the far-reaching influence on the social conduct of the reason as interpreted in the era of enlightenment by Immanuel Kant. However, ethical norms, even if envisaging freedom, will inadvertently become defunct to the extent that ethical judgments may be fraught with prejudices. As a consequence, those who are in actions will become unsolicited. In contrast to ethical requirements, the command of loving our neighbour is unambiguous and full of contents. Ethical considerations are preceded by the fact that God has made what he is now commands us to do. That is, he has already loved us. We are able to start dialoguing just because God has initiated dialogue with us ourselves.

            2. Economic self-interest and morality

In the business life, people can easily be allured to follow their financial interests egoistically, contrary to elevated considerations. They may be departed from the morality by the motivation of the greed to seek for profit. Saint Thomas Aquinas re-tells the story, which Cicero presented in his "De Officiis", of the merchant confronted with a moral puzzle. The merchant is en route to a town stricken by famine, carrying grain to the starving townspeople. He knows, however, that other merchants are following him with more grain. Is he bound to tell the townspeople of the additional grain, or may he remain silent and command a higher price? The moral issue is the same for corporations as it is for persons: namely, must corporations divulge information contrary to their interests?

The categories of traditional ethics, which are still used to evaluate the structures of modern societies, were formed within pre-modern societies. They are thus not fruitful for evaluating modern societies and their economies anymore. We need the conception of ethics that goes beyond the traditional idea of the fundamental contradiction between ethics and economics. In a society described by Marx and Max Weber, market players are not able to reconcile with each other the aspects of the moral insight and the economic self-interest within the framework of an institutional (order) ethics. Many ethical concepts are based on the conditions of the zero-sum games of the pre-moderns. They call for altruism, for the priority of the common good and the like. However, a number of sociological polls recently revealed positive correlation between corporate social and financial performance. In practice, managers do not have the single motive of welfare maximization. They have, however, multiple motives, including social responsibility. In a secular society, there are professional motives out of which one can hardly extract transcendental values.

The logic of the market-oriented instrumental rationality can easily be defended from the perspective of utilitarianism where contracts and corporations can finally be traced back to the right of bargaining, or rather to the capability of developing horizontal relationships of the parties to agreements, or simply to a kind of social compact. This is ethical consequentialism from the perspective of which market-oriented interests are presented as equivalent to social interests. Another type of consequentialism can be seen with Aristotle and Thomas Aquinas where the market economy need eventually be subordinated to the regulatory power of the brave prince due to its asymmetries.

In accordance with the apology of the market economy, from the perspective of functionalism, the economic analysis of law is anticipated where the company law is seen as an instrument of constraining value-reducing forms of opportunism among the constituencies of the corporate enterprise. This is a rather simple approach to economy and society. In this context, the design of "homo oeconomicus" underlies on the maximization of shareholder returns, seen, in general, as the best means by which corporate law can serve the broader goal of advancing overall social welfare.

The criticism of the above views ensues the procedural approach to economy and society. A procedural offer can fist be made by relying on the subtle notions of the structured reasoning as introduced by Kant. This tradition can be continued today with reference to the collective equilibrium as interpreted by John Rawls or to the internal reconstruction of argumentative discourse Karl-Otto Apel suggested to introduce.

            3. In defence of catallaxy versus the internal reconstruction of argumentative discourse

 

The design of "homo oeconomicus" is the product of quite a naïve notion of the human nature. It resembles the idea of Jean-Jacques Rousseau that cannot bear criticism either that people would be good once they have been born and that they would have innate rights. The Gospel does not cherish the illusion that man is naturally good and self-sufficient. People born to this world are, of course, invited by God to prefer the values of good to those of evil. It is, however, the choice, and responsibility, of each individual what to choose finally. The patterns of the market-oriented social conduct cannot be seen taken by themselves because the schemes of market are imbedded in the complexities of social institutions.

In defence of catallaxy, the Chicago School is primarily concerned with prescriptive efficiency, the public choice school with constitutional procedures, and the institutionalists with fairness and rational conflict resolution. It is common in them that ethical principles are underestimated by a kind of pragmatism. Based on the idea of "homo oeconomicus", the suggested anthropology is severely compromised by a one-dimensional vision of the human being, a vision which excludes the great ethical dilemmas and the existential analyses of the meaning of suffering, and sacrifice, of life and death. The dogmatic pragmatism of the early years of the 20th century, which viewed the truths of faith as nothing more than rules of conduct, leads only to an approach which is inadequate, reductive and superficial at the level of speculation. A Christology, for example, which proceeded solely "from below", as is said nowadays, or an ecclesiology developed solely on the model of civil society, would be hard pressed to avoid the danger of such reductionism.

The idea of wealth maximization is idealized from the viewpoint of the American republican literature the representatives of which exercise sharp criticism against the rise of giant corporations, called the co-operative capitalism that has replaced the competition-oriented way of the capitalist economy. The free-trade patterns are not simply presented as a better alternative to the co-operative capitalism. It is also important that these social patterns are described as if they were apt for fulfilling the requirements of economic efficiency and the God-fearing way of life simultaneously. The Church's teaching opposes collectivist and statist economic approaches, indeed. But it also rejects the notion that a free market would automatically produce justice.

According to Laurence Mitchell, at the beginning of the 20th century, the new urban North America was moving from a society, consisting of sovereign individuals, into a society of huge organizations. Moreover, the old self-reliant virtues of Protestant morality that Americans told themselves were their governing ethics transformed into an obsession with material success. With the end of entrepreneurialism, the moral fibre of American life was being destroyed by its economic life, the long-term economic planning has been subdued by speculation. Congress and the US Supreme Court tried to rescue the American economy against the greed of the financier (examples for this are: Sherman Act, Federal Trade Commission, Securities Act, etc.), but in vain. He stresses that the goal of the national economy is to enhance efficiency and economic performance, and to promote training, research and the like. Finance is, however, different. This means the group of professionals, sitting, like Oz, behind the curtain and make big things happen. The investment bankers are, in Tom Wolfe's phrase, the "masters of the universe".

Similarly, as Michael Novak asserts, originally the corporation is a transitory development compared to the property of shareholders. However, after a while, this process has been turned. The corporate scheme has been permanent while there are constant changes in terms of investors. Following Tocqueville, he contends that Christianity has been successful in making possible the reasoned discourse on which civilization depends. Religion, which never intervenes directly in the government of American society, should therefore be considered as the first of their political institutions, for although it did not give them the taste of liberty, it singularly facilitates their use thereof. Business is the first political institution of civil society because it establishes a "commercial republic", a safer foundation on commerce than on the aristocracy, religion or the military.

The above thoughts of Mitchell and Novak do not go beyond journalism and suggest conflicts between the different sectors of the economy, and the relating social strata, that do not exist in reality, or at least not in the way as presented by these authors. Not to mention the easy offer provided by Mitchell and Novak, the growing interest in transcendental values can be explained by the fact that the traditional framework of the institutional ethics has been tight. It has been necessary to open up avenues beyond the contractarian approach. Such steps of opening can take place in respect of third parties, not motivated longer by the catallaxy pursued in defence of the laws of market. An alternative to the old-fashioned view on the market economy of catallaxy is offered by Hans Jonas, having introduced the imperative of (ecological) responsibility (Verwaltungsprinzip). These third-party avenues cannot be described within the traditional philosophical framework of the being and conscience of humans. Instead, a third paradigm is needed. Hence, the irreversibility of the inter-subjective use of language (Nichthintergehbarkeit des intersubjektiven Sprachgebrauchs) and the internal reconstruction of argumentative discourse (Selbstaufstufung des Diskurses) can be highlighted. The discourse is established on certain presuppositions that cannot be challenged unless social players fall in the trap of contradictions characterized by Apel as "performativer Selbstwiderspruch". The discourse can nevertheless be substantiated in a circular way by means of "petitio principii".

The considerations of discourse, aimed at avoiding being subject to "performativer Selbstwiderspruch", cannot be directly connected with the single economic conduct because they cannot be explained but in a circular way. The insight of discourse cannot be transposed to the economic actions of social players ("von der diskursiv gewonnenen Einsicht gibt es keinen gesicherten Transfer zum Handeln"). In this context, the categorical imperative of responsibility as interpreted by Jonas can be transformed in order to comply with the doctrine of discourse ethics: „Act so that the effects of your action are compatible with the permanence of genuine human life." Then: „Act so that the effects of your action are compatible with the permanence of genuine - or even ethical -- human life."

Apel is successful in elaborating the theory of transcendental pragmatism in the instance that he surpasses the super-historismus represented by Heidegger and Gadamer where justice is determined barely by the actual history of individual existence and the idea of progression remains out of the scope of knowledge. The discourse as introduced by Habermas and Apel can still be substantiated (by Apel) by transcendental values. Even the economic conduct can then be assessed in the light of, and confronted with, the transcendental values gained from the process of argumentative discourse. In contrast to a solipsist approach to social schemes, one can follow Apel by saying that the enlightened reason of Kant may not lead us to autarchy, but autonomy that can be developed, provided that one does not fall in the pitfall of "performativer Selbstwiderspruch".

            4. Ethics and meta-ethics

Under modern conditions, ethics has to be conceptualised on two different levels, as an ethics of actions and an ethics of conditions of actions, most notably of rules or institutions. The actions appearing on the scene of the life-world (Lebenswelt) as described by Habermas must be distinguished from the legitimacy of these actions. In his respect, it is not important whether in the individual cases of the life-world somebody makes just what he says. Instead, the question is whether the social players are able to present their actions as authentic in the process of the internal reconstruction of argumentative discourse.

In the conditions of the life-world, the emergence of ethical values cannot necessarily be explained simply by the relevant norms to be followed. This way, particular attention can be given to the processes of meta-ethics. This is because the classification of norms as to their contents, and the application of substantive norms are faded and the question arises why the areas are growing where regulations are not predictive longer. A growing body of research and experience in the field of business ethics suggests that the real culprits are not simply codes and compliance systems. Instead, there is a set of complexities that can be summarized as follows:

- goal mesmerization;

- blind precedents;

- uncommon stress;

- isolated teams or performers;

- discussion vacuum; and

- failure to anticipate challenges and develop appropriate principles, stories, examples or language.

Generalizing the above experience, Habermas speaks about the instability of rational motivation, and Rawls mentions the low efficiency of the enforcement of the moral sense.

The fundamental constraint on the practical enforcement of justice comes from the lack of relevant information (people are restrained by the "veil of ignorance"). Liberty taken in the negative sense is aimed at eliminating contingencies. Liberty interpreted in the positive sense includes the possibility of uttering the contents equivalent to various cases, provided that the enforcement of justice can rely on the mobilization of persons acting with liberty and responsibility. Due to the difficulties in applying justice in practice, Rawls deems it inevitable to go beyond "free rider" positions. At the outset his theory is materially corroborated. Simultaneously by taking reference to an original status and by taking the priority of noumenal values over the realm of pure phenomena, Rawls can reach transcendental values. The original, or noumenal, individuals are in his eyes target-oriented as long as they promote to develop a coherent set of individual preferences. By assuming a basic hypothetical contract, Rawls is able to surpass the sacrifice theory of utilitiarianism, which is actually confined to the bare view on financial values.

            5. Aristotelian tradition and the experience of autopoietic social systems

In the centrepiece of the Catholic Church's teaching, one can find the principles like the respect of persons, solidarity and subsidiarity. Although being on a high level of abstraction, they can easily be transposed into the social practice. This is because they do not require particular means of transmission in the sense that, e.g., the respect of personality or solidarity can be directly embedded in the processes where the internal reconstruction of argumentative discourse takes place. They can thus be inherent in the organic process of creating the domain of the life-world. As well, the application of the principle of subsidiarity may well fit into the very basics of the various social mechanisms, being in correspondence to the idea that decisions must be taken at the possible lowest level. It is more problematic to deal with the notion of the public good. It is difficult to interpret it because its contents may change depending on the social environment. It is even more difficult to find a place in the elementary processes of social reconstruction for the ethical and transcendental values like social responsibility, integrity or collectivism, reflected in the works of the authors who try to directly apply the Aristotelian concepts in the analysis of the economic conduct.

The common good can be achieved in different social structures in different ways. What remains constant is the respect of humans. Knowingly, the notion of the common good, to be enforced subject to the protection of the personal dignity and of individual human rights, is merely a blanket to be filled from case to case, albeit always with regard to the respect of personal articulations. The definition suggested by the pastoral constitution "Gaudium et spes" concerns the sum of the social conditions which allow people access to their own fulfilment. From this perspective, the notion of the common good asserts transparency. It certainly does not prejudice particular social methods or economic models. Hence, the notion of the common good does not apt for legitimising any social policy course, taken by itself.

The subsidiarity principle states that, in order to protect basic justice, government should undertake only those initiatives, which exceed the capacities of individuals or private groups acting independently. Thus, government should not replace or destroy smaller communities and individual initiatives. Rather it should help them contribute more effectively to social well-being and supplement their activity when the demands of justice exceed their capacities. This calls for cooperation and consensus-building among the diverse agents of the economic and social life, including government. The precise form of government-involvement in this process cannot be determined from the outset. It will depend on an assessment of specific needs and the most effective ways to address them.

Compared to the notion of the public good, the principle of equality is closer to the possibility to go through the processes of a market economy. The notion of equality must nevertheless be interpreted broadly enough to make reference not only to persons or things comparable to each other, but also to the idea that the legal regulation should be adjusted to the characteristics and the inner nature of things as they are (Sachlichkeit). This notion of equality may lead us to the idea that the principle of proportionality must also be recognized. This is because the use of inappropriate means of grasping the things to be covered by law inadvertently entails the infringement of not only the principle of equality, but also that of proportionality according to which legal measures must be suitable for securing the attainment of the objective which they pursue; and they must not go beyond what is necessary in order to attain it. The legal system can eventually be expected to have provisions that are in conformity to each other. This is a holistic idea of system-oriented conformity (Ordnungssystemjudikatur), that is, legal sources need be interpretable in a close-circuit system, which is legitimised in itself (Geschlossenheit des Rechtsquellensystems). Such a system can be manifested as autopoietic as Gunther Teubner described it. According to him, a social system is autopoietic in the sense that it is able to generate itself while actions and interactions arise from the network of the new and new components of the very system.

An autopoietic sytem can be developed due to the operation of what can be explained in terms of "petitio principii", that is, the consensus reached cannot be legitimised from outside, but due to the internal forces of an autopoietic system. In the life-word single values cannot be necessarily identified. It is not possible to distract out of the life-world either the single motives for the conduct of a "homo oeconomicus", or various moral precepts. In the light of the communicative rationality, the notion of practical wisdom as introduced by Aristotle is monological, not being apt for realizing the inherent logic of the discourse developed in inter-subjective situations. In the world of discourse, there is often no simple link between ethical considerations and the pragmatic schemes of the social conduct. Since ethical considerations as such can hardly be involved in the process of discourse, the morality cannot be more but a kind of consolation. Under these circumstances, ethics presents itself as no more than safeguard ethics.

An Aristotelian approach to morality and economy is balanced to the extent that it is aimed at forms, while reaching noumenal values by means of speculation. The logical judgments are confronted with the peculiar materials as experienced, and the logical schemes may also be complemented by transcendental values, while realizing affections. Such a balanced view may lead to the practical wisdom, indeed. However, the pre-capitalist authors deed not meet the phenomenon of a representative democracy, a secular world, the functional differentiation of the society or the systematic state interference with the economy. Their horizon did not stretch beyond the simple view of isolated communities of the ancient cities. In the modern philosophy, the dividing line separating the facts from the essence, or the empirical from the transcendental, has become impure. There has been increasing experience that discourse did not refer to a particular set of objects, but to a viewpoint from which it is possible to re-describe the totality of the social life. The transcendental does not appear today in the same way as in pre-modern social conditions. In the current world, the noumenal values are typically woven into the myriad of spider webs in the area of communication, based on the discourse.

There remains an open question, which was not relevant for ethics under pre-modern conditions: according to which criteria are rules evaluated and selected? This is especially important, insofar as we can no longer count on common values as a foundation for those criteria. In the age of globalization, the pre-modern consensus on values has gone forever. In study of Aristotle, to date it has been important to distinguish between the universal categories of ethics and the technical rules of practical wisdom. What has been found in a single system in the mind of Aristotle, cannot be conceived longer. The concept of practical wisdom with Aristotle is simply to follow the Socratic tradition that cannot be maintained longer. The ancient philosophy that is able to reflect both economic and ethical considerations was already superseded by the political economy introduced first by Adam Smith, neutral, or even indifferent, to ethical values. After then, reflecting no more than instrumental - always strategic - rationality, even the political economy has been blind to the diverse developments of the life-world. Market players cannot be authentic (glaubwürdig) just due to the fact that they respect laws. They need also be willing to take part in discourses. Promoting discourses, they assume peculiar responsibility for the actions developed during discourses.

The neo-Aristotelians realize the difficulties in describing the new schemes of communication just by means of the mechanics of Aristotle. This is why they speak, for example, about the organization as the modern subject of ethics or about the group of people who bear ethical values instead of isolated individuals. They focus on the typical roles as identified in the collective behaviour, on the integrity of values, including moral ones, and the development of "prima facie" duties discovered in the non-catechetic ethics. However, once they are influenced by the meta-ethics discovered, they cannot be really seen longer as the representatives of a Socratic-Aristotelian view of society. In fact, approaching the complexity of meta-ethical processes, the morality in companies or transactions cannot be easily identified longer.

            6. Corporative forms in the law of enterprises

Currently, regulatory interventions are most likely to be successful when they seek to achieve their ends not by direct prescription, but by inducing "second-order effects" on the part of social actors. In other words, this approach aims to "couple" external regulation with self-regulatory processes. Reflexive law therefore has a procedural orientation. What this means, in the context of economic regulation, is that the preferred mode of intervention is for the law to underpin and encourage autonomous processes of adjustment, in particular by supporting mechanisms of group representation and participation, rather than to intervene by imposing particular distributive outcomes. This type of approach finds a particular manifestation in legislation which seeks, in various ways, to devolve or confer rule-making powers to self-regulatory processes. Examples are laws which allow collective bargaining by trade unions and employers to make qualified exceptions to limits on working time or similar labour standards, or which confer statutory authority on the rules drawn up by professional associations for the conduct of financial transactions. According to Gunther Teubner, reflexive law is characterized by a new kind of legal self-restraint. Instead of taking over regulatory responsibility for the outcome of social processes, reflexive law restricts itself to the installation, correction, and re-definition of self-regulatory democratic mechanisms.

Corporations can be seen from the viewpoint of the corporatist phenomenology in a process of collectivisation where groups can emerge as the instrument of gathering and enforcing individual interests. A corporation as a legal entity can be interpreted in the light of the reflexive law. It can be identified as the focal point of the autopoietic circularity in terms of the organization of a corporation. In order to grasp the substrate of a legal person, it is not sufficient to refer to a system of actions, to the group of persons, to peculiar funds or to decision schemes. It is necessary to get involved in the analysis of reflexive communication. To this end, the organization must be discerned as a unit of the process of collectivization. The two sides of collectivism are the realm of collective imaginations (solidarity as interpreted by Parsons) and the reality of the corporative body (capacity for actions in concert as interpreted by Parsons). The individual actions can be transposed from one social scheme to another one, while ascending from one member of the organization to the organization itself. The reflexive communication is able to secure the cyclical connection between the system identity developed in an autopoietic way and the actions presupposed by the system.

            7. Separating ownership and control, legitimising firms, ex ante and ex post regulatory options

The benefits of separating ownership and control come from the interaction of three factors:

- first, under certain conditions and for certain types of decisions, hierarchical decision making may be more efficient than market allocation;

- second, due to economies of scale in both production and decision making, optimal firm size can be quite large; and

- third, optimal investment strategy requires investors to be able to diversify and pool and to be able to change their allocations in response to changing market conditions.

The costs of the separation of ownership and control are the usual principal-agent costs: the monitoring expenditures by shareholders, the bonding expenditures by managers and the residual loss from the divergence of behaviour (even with monitoring and bonding) from the ideal.

Embodied in this statement are two concepts that are at odds with current analyses of the separation of the ownership and control

- first, modern analyses do not take as its ideal the notion that the shareholder should have the ability to monitor or control management; much modern analysis has focused how actors other than shareholders may effectively monitor and constrain managerial behaviour; these other actors include other stakeholders (such as bondholders), lawyers (in the prosecution of derivative and class action suits), regulatory authorities (such as the SEC in the United States) and market participants (such as potential acquirers); and

- secondly, and perhaps more importantly, many modern analyses do not assume that it is socially desirable for managers to act in the best interests of their current principals.

According to the textbook, the decentralized price system is the ideal structure for carrying out economic co-ordination. Why then do we observe some transactions to be removed from the price system to the interior of organizations called firms? The answer, Coase reasoned, must be that there is a „cost to using the price mechanism"; thus was born the idea of transaction costs: costs that stand separate from and in addition to ordinary production costs. More or less simultaneously, Kenneth Arrow's work on welfare economics and information emphasised various limitations of the market mechanism and argued that firms can be understood in terms of market failures which arise under conditions of externality, economies of scale and information asymmetries.

            Theories of the firm may roughly be classified into two categories:

- Principal-agent models allow agents to write elaborate contracts characterized by ex ante incentive alignment under the constraints imposed by the presence of asymmetric information.

- Incomplete contracting models are founded on the assumption that it is costly to write elaborate contracts, and that there is therefore a need for ex post governance.

Historically, principal-agent theories (or simply, agency theory) reach back to early debates on the shareholders-managers relation; following the observation by Berle and Means that ownership of US firms had become separated from management and control, managerialist theories have modelled firm behaviour as the maximisation of managerial objectives (firm size, growth) under a profit constraint. Some argue that from the perspective of economics: it is essentially misguided to draw a hard line between firms and markets; „Although firms are surely legal entities, and although this of course has important economic consequences (for example, limited liability, the right to deduct input purchases from tax statements, infinite lifetime, and so on), that firms are nevertheless merely special kinds of market contracting. What may distinguish them relative to other market contracts lies primarily in the continuity of association among input owners."

The firm can be characterized by something more than legal status, namely the technology of team production, by which one can mean production with inseparable individual production functions. This implies that marginal products are costly to measure; this may create a free-rider problem since team production can be a cover for shirking. The solution to this problem is to appoint a monitor who is given the right to fire and hire members of the team, based on his observation of employees' marginal products. Giving him rights to the residual income of the team furthermore means that he is given incentives to perform the efficient amount of monitoring. It is possible to view the firm as a system, specifically as a coherent set of complementary contractual arrangements which mitigate incentive conflicts. It is thus misleading to focus on a single aspect of the coherent whole.

The view that the employment contract is the characteristic feature, which defines the firm is generally associated with Ronald Coase and Herbert Simon; „The behavioral starting points in Williamson's theorizing are, first, Herbert Simon's concept of bounded rationality, which produces contractual incompleteness and a need for adaptive, sequential decision making, and, secondly, opportunism, defined as 'self-interest seeking with guile', which has the implication that contractual agreements need various types of safeguards, such as 'hostages' (for example, the posting of a bond with the other party). ... Given bounded rationality and uncertainty, these are determined by what has increasingly become the central character in Williamson's analysis, namely asset-specificity. Assets are highly specific when they have value within the context of a particular transaction but have relatively little value outside the transaction. This opens the door to opportunism."

The long-term contractual co-operation cannot be secured by safeguard clauses because the development of legal relationships cannot be foreseen due to the asymmetry of information (as interpreted by Oliver Williamson as bounded rationality). The accounting for long-term contracts can be inconsistent to the requirement that accounts must be made periodically. For example, losses may well go beyond the bureaucratic framework as established by fiscal law or historic costs can be in conflict with fair market valuation.

"When it is difficult to write complete state-contingent contracts, for example, when certain variables are either ex-ante unspecifiable or ex-post unverifiable, people often rely on 'unwritten codes of conduct', that is, on implicit contracts. These may be self-enforcing, in the sense that each party lives up to the other party's (reasonable) expectations from a fear of retaliation and breakdown of cooperation. The basic idea in the implicit-contract theory of the firm is that implicit contracts may function differently within firms than between firms". Writers view the firm as a communication network that is designed to minimize both the cost of processing new information and the costs of communicating this information among agents. Communication is costly because it takes time for agents to absorb new information sent by others, but time consumption may be reduced by specializing in the processing of particular types of information. When the benefits to specializing outweigh the costs of communication, teams (firm-like organizations) arise.

 

            8. Trends of development in the law of enterprises

It can occur that the forms of enterprises are very simple. However, in other cases they can also show complexity. The legal status of an enterprise can be traced back in its simplest form to the Roman-law contractual scheme of "societas", on the one hand. On the other hand, the legal regulation of underwriters, designed to intervene in the collection of large amounts of capital, or that of takeovers, aimed at the acquisition of widely traded shares, can be highly sophisticated. The trends of development in the law of enterprises as experienced in the 20th century can be presented in the major stages as follows:

- the contractual contents have been faded by the institutional intervention of the state;

- the law of enterprises addressed to the management of individual market risks has been changed into the law of business organizations with implications for the assumption of social responsibility; and

- the legal form of corporations have been overshadowed by the type (or rather the size) of enterprises.

During the course of the concentration of capital and the de-concentration of the ownership of capital, the legal regulation of the positions held by enterprises cannot be simplified longer to agreements of association or other private law institutions. The contractual expression of the group considerations has been all the more subordinated to a kind of the gift-of-state theory. A shift in emphasis has been made from contracts to the institutions created by the state. In the southern part of Europe, there has been traditionally a large number of corporations limited by shares, even if mainly they serve as quite small family companies. These corporations enjoyed much freedom in drafting their articles until the 20th century. After then, they have been subject to the state-centred, coherent mandatory regulation all the more, however. That was a case in point for the German corporations operating in the form of Ags as well. Because of its rigidity, this legal form of companies was not widely available to families and small investors. It was a problem in Germany that the contractual tradition of "societas" was not strong enough. Under these circumstances, the state wanted to give impetus for the development of the company of the ordinary people through the intervention of the professors' legislation. It provides a more flexible legal form that can now be suitable for small investors. That was the GmBH, the pattern of which has proven very successful even beyond the borders of Germany. The English faced the problem of a private limited liability company in the seventies only when they acceded to the EEC. This meant the compulsory adoption of preliminary legal forms, resulting in fact in a "Copernical" reversal in the English company law.

Whether a company is successful is interesting not only for shareholders, but also for the social environment of the company. Thus, social implications for the company operation may be crucial. This leads to the identification of the group of stakeholders, substantially bigger than that of shareholders. In addition to the expansion of the company law, strictly speaking, to the law of business organizations, addressed to stakeholders, it is noteworthy that the "societas animus" has been subject to crisis due to the fact that the legal form has lost some of its significance, comparable to the economic nature and size of enterprises. This means that today large-scale investments may rely on quite simple legal forms. For example, investment vehicles may take on the form of partnerships, operating without legal personality, while collecting large amounts of capital from the public. The company law, subject to a rigid system of preliminarily determined legal forms, has been all the less significant in respect of the innovations of capital markets. Investment funds require a company law, which is flexible enough while the peculiar branches of the legal regulation (law, of securities, accounting, taxation, etc.) have been more important. The questions like publication rules or capital adequacy requirements have gone beyond the competence of the traditional civil law. Under these circumstances, external laws and vicarious particularization have been attached to the traditional company law.

            9. Spirit of poverty and the method of dialogue

The Catholic Church need not have a vision on the economy. No peculiar social structures can be idealized from a Catholic perspective either. However, the Gospel invites us to convert, and the teaching of the Catholic Church provides for man, even if living in this world, the perspective of eternal life. In this respect, the concept of spiritual poverty can be taken into account. It can be extended in the perspective of salvation to the collective, that is, to the entirety of the chosen nation, which is not engaged longer in dealing with the only thing of respecting the law. Through Isaiah, Hosea and Zephaniah the thought is coming all the more upfront that the servant of God recognizes his vocation to be a lam of sacrifice (Is. 53, 1-9). This idea affects all the more the whole people, which can learn devotion and moderation. No people can be deprived of the ability to call on the Lord's name (Zeph. 3, 9). At the same time, it is decent, however, for a nation to consider itself as the remnant of Israel, a modest nation with the only property of hoping in the name of the Lord (Zeph. 3, 13). As long as we, Christians, learn this lesson from the Jews, we shall be able to adopt the spirit of poverty. Then we will certainly not be subject to overpowering arrogance. This requires the attitude that can be maintained by way of conducting dialogue.

Reading Martin Buber, it is essential to seek to be liberated from the tribal spirit of exclusion, and flee from the views subject to ethnic determinations (der Stämmewelt entronnene) by which people are separated not only from each other or from their own nation but, more importantly, also from God. Undoubtedly, it is fundamental to rely on the monological way of thinking where one can refer to God as a creator, firmly standing far away from people (he is "Elohim"). This way of thinking can nevertheless be complemented through Martin Buber by the dialogue between "I and Thou" in which the hiding God (Jahve) can be approached. He is someone who is becoming (Werden) in being (Sein), who is living in the effectiveness of the universe. The Christian-based tradition of faith (like the Greek "pistis") is established on the belief that the work of Jesus Christ is fully true. Indeed, Christ should be the door through which the kingdom of heaven can be entered. This Hellenistic-typed linear way of thinking can still be complemented by another, a concentric, sort of faith (what is called in Hebrew "emuna"): this is to seek to answer the inviting words of God by means of recognizing the signs of revelation, that is, to believe in God in a straightforward way.

The offer of the dialogue Buber suggests can be reaffirmed by the theory of the argumentative discourse as introduced by Habermas and Apel. The sensitivity to inter-subjectivity can also be substantiated by the Catholic Church in the light of the Second Vatican Council. The need for dialogue has been explicitly confirmed by the pope Paul VI in his encyclical letter of "Ecclesiam suam". The Church finds in its own salvation an argument for showing more concern and more love for those who live close at hand, or to whom it can go in its endeavour to make all alike share the blessing of salvation. To this internal drive of charity, which seeks expression in the external gift of charity, one will apply the word "dialogue." God Himself took the initiative in the dialogue of salvation: "He hath first loved us" (1 John 4, 19) . We, therefore, must be the first to ask for a dialogue with men, without waiting to be summoned to it by others.

Although social actions can be surrounded by a number of the superior values of humanity, one cannot be sure if these values will come into effect. Law and morals are of limited validity unless complemented by the internal drive of charity in the above sense Paul VI suggested in his encyclical letter. This idea of charity may be enhanced by referring to the spirit of poverty as communicated by Isaiah, Hosea and Zephaniah, that is, to the consideration of the remnant of Israel, of a modest nation with the only property of hoping in the name of the Lord. Being solicited by God can be helpful with overcoming prejudices. To date it has been important not only to decide for particular substantive values, but also to focus on the procedures in which these values can be proliferated. Subtle views on the social conduct may lead us to the plain idea as well that market economies can be very different from each other, depending on their historic context. Upon studying social structures, first the major patterns of social integration can be discerned like redistribution, self-regulation and reciprocity. They can be described on the formal and abstract level of the development of social schemes. Compared to them, a market economy can then be equivalent to historically determined specific social schemes. Relying on the distinctions between the substantive and procedural values or between the formal and abstract, and historic and specific social structures may be instrumental to the design of conducting a way of life, including businesses life, in attraction of the spirit of poverty as articulated in the above sense.

 

 

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