This essay is a review of and tribute to the life and contributions of Nina Shapiro, who passed away this year. Shapiro was an American Post-Keynesian economist, who was a bridge figure in radical economics, connecting Marx to Keynes, Schumpeter to Kaldor, the behavior of the firm to the dynamics of the macroeconomy, and the process of innovation to the organization of production and accumulation. She was seminal to important moments in the history of radical economics in the US, including the formation of the Hegel-inspired journal Social Concept in the 1980s and the Rutgers University’s Post-Keynesian circle in the 1980s and 1990s. Shapiro’s deeply philosophical and dialectical approach to firm behavior, innovation, and business cycles led her to theorize the “revolutionary character” of Post-Keynesian economics and to formulate a critique of the competitive neoclassical firm which, she argued, is at odds with the logic of capitalism in which firms seek to make profit and grow.

I share the view expressed by Simon Deakin, David Gindis, and Geoffrey Hodgson (‘DGH’) that social scientists need to consider the constitutive role of law in their disciplines. This is particularly the case for economists working on the theory of the firm and on institutions more generally. Their analyses are often built on assumptions about the legal system which do not correspond to reality. One major issue is the generalized confusion between the concepts of ‘corporation’ and ‘firm’. In day-to-day parlance, the two words are synonyms. But, when the constitutive role of law is considered, the word corporation corresponds to a specific legal device which should be clearly differentiated from a less-specific concept which can be called a ‘firm’ or an ‘enterprise’. The notion of firm usually corresponds to the economic organization of various resources via contracts to produce goods or services. The corporation is a legal institution with peculiar characteristics, including a potentially eternal legal personality, an asset partitioning effect, and several layers of separations of ownership and control. Corporations are often used to legally structure large firms because they are very efficient legal devices to concentrate capital. But, firms are practically and conceptually different from the corporation(s) used to structure them. DGH consider that the understanding of what a firm is should not go against general, day-to-day understanding. In their view, although not all firms are corporations, all corporations are firms. I disagree. Only by clearly explaining that corporations are not firms can lawyers help social scientists consider the constitutive role of the law of corporations in the structuring of our present-day economy.

Oliver Williamson's contributions to the theory of the firm were of course seminal. Yet, they were not originally formulated to address the central question in strategic management: Why do some firms persistently outperform others in financial terms? We suggest that when Williamson did address this question, his efforts were not compelling. We also suggest, however, that with suitable adjustments, the key mechanisms in Williamson's theory can indeed usefully address this question.

In his recent book on Property, Power and Politics, Jean-Philippe Robé makes a strong case for the need to understand the legal foundations of modern capitalism. He also insists that it is important to distinguish between firms and corporations. We agree. But Robé criticizes our definition of firms in terms of legally recognized capacities on the grounds that it does not take the distinction seriously enough. He argues that firms are not legally recognized as such, as the law only knows corporations. This argument, which is capable of different interpretations, leads to the bizarre result that corporations are not firms. Using etymological and other evidence, we show that firms are treated as legally constituted business entities in both common parlance and legal discourse. The way the law defines firms and corporations, while the product of a discourse which is in many ways distinct from everyday language, has such profound implications for the way firms operate in practice that no institutional theory of the firm worthy of the name can afford to ignore it.

An influential set of economic theories argue that the firm is a nexus of contracts that institute a hierarchy to overcome the problems of incomplete contracting in the market. However, the economic theory of the firm as a hierarchy violates the moral requirement to respect the autonomy of those who contract into the firm. The internal logic of the theory depends on a morally unacceptable abdication of a part of the employee’s capacity to set her own ends in the future. So a different theory is needed to understand the nature and purpose of the firm. The development of such a theory can benefit from business ethicists engaging with existing economic theories of the firm to explore concepts like contracts, agency, and property.

Surprisingly, the strategic management literature has had little to say of an explicit nature on the topic of capitalism. However, the discourse on capitalism is vast in economics and many would say the writings of some economists on the topic of capitalism have been inordinately influential. Bearing this in mind, the differences between three world renowned economists on the topic of capitalism are examined with the intention of identifying where scope exists for strategic management to contribute to the discourse on capitalism. The paper concludes that strategic management is well placed to develop its own organization-centric discourse on the subject.

Of the many developments in business ethics that Thomas Donaldson has helped pioneer, one is the application of social contract theory to address questions about the responsibilities of business actors. In Corporations and Morality, Donaldson develops one of the most sustained and comprehensive accounts that aims to justify the existence of for-profit corporations and to specify and ground their responsibilities. In order to further our understanding about the purpose and responsibilities of productive organizations, and as a contribution to the scholarship on Donaldson’s thought, this paper gathers together the critical responses to Donaldson’s account along with Donaldson’s replies to his critics. The paper argues that we would do well to continue engaging with Donaldson’s account because of its distinctive and challenging conception of the purpose and responsibilities of productive organizations, but that many of the insights to be gained come from reframing the role played by social contract theory.

This article proposes a theory of the firm based on the common good. It clarifies the meaning of the term “common good” tracing its historical development. Next, an analogous sense applicable to the firm is derived from its original context in political theory. Put simply, the common good of the firm is the production of goods and services needed for flourishing, in which different members participate through work. This is linked to the political common good through subsidiarity. Lastly, implications and challenges arising from the positing of work as the common good of the firm are explored.

Corporate governance and the theory of the firm are discussed primarily from the shareholders' perspective. This point of view neglects the tremendous effects of private pensions and of co-determination as well as interdependencies between codetermination, pensions and corporate governance. Since in the private pension world the firm serves as an investment tool, the focus should be shifted from short-term interests to concepts maximising long-term shareholder value. In this context, also moderate forms of co-determination might serve as a tool for long-term oriented corporate governance. Given the rise of the European Company, co-determination is likely to spread in Europe. Both, private pension-based corporate governance systems and stakeholder-oriented corporate governance systems should be re-examined in the light of the financial and economic crisis and due to the rise of behavioural law and economics.

We apply the paradigm of the firm as a nexus of contracts to the debate on regulatory competition vs. unification of law as an alternative way of regulating the business corporation. This approach views the business corporation as a set of coordinated contracts among different parties. Agency problems and related agency costs are the result of this interaction. The economic analysis of corporate law, securities regulation and bankruptcy law identifies law as a means to minimise such agency costs. In this paper, we develop a model where companies are heterogeneous in their preferences about the legal regulation of contractual relationships. We then compare a regime of regulatory competition with one of single supply of regulation and we analyse their relative costs and benefits.

At the close of the twentieth century, U.S. corporate scholarship was dominated by a principal-agent paradigm that assumed that shareholders were the principals or sole residual claimants in public corporations, and also assumed that corporate directors were the shareholders' agents. This approach led many corporate scholars to assume that the proper purpose of the corporation was to maximize shareholder wealth and that the chief economic problem of interest in corporate law was the “agency cost” problem of getting corporate directors to focus on this goal.

There are basic aspects of U.S. corporate law, however, that the principal-agent model cannot explain. These include directors' extensive and sui generis legal powers; the fact that directors control dividends; the device of legal personality; and the open-ended rules of corporate purpose. These corporate law “anomalies” have prompted contemporary economic and legal scholars to begin to move beyond a focus on agency costs and to pay attention to a second economic problem that arises in public corporations: the problem of protecting specific investment. When corporate production requires more than one individual or group to make specific investments, problems of intrafirm opportunism arise if shareholders try to exploit each other's specific investments or try to exploit the specific investments of creditors, employees, customers, and other groups. Board governance, while worsening agency costs, may provide a second-best solution to such intrafirm rent-seeking. This perspective explains many important corporate law “anomalies” that cannot be explained by the principal-agent model.

It also suggests a pressing need to revisit conventional notions of corporate purpose. Focusing on the problem of specific investment suggests that the proper purpose of the public corporation is not maximizing shareholder wealth, but promoting long-term, value-creating economic production under conditions of complexity and uncertainty, in a fashion that provides surplus benefits not only to shareholders but to other groups that make specific investments in corporations as well. This corporate objective is difficult to measure, much less maximize. Nevertheless, it may provide a better gauge of good corporate governance than the simplistic rubric of shareholder wealth.