Deprogramming Corporations
The 2024 and 2025 reforms of Delaware corporate law passed with unprecedented speed, and Texas and Nevada now compete in an overt race to laxity. Whatever one makes of these developments, most of the existing contestation focuses on the effects on agency costs and shareholder value. That is the vocabulary prevailing frameworks make available, and it is a weak hand to play when stock prices are rising. In a new essay, Deprogramming Corporations, I examine how this impoverished vocabulary is a product of the dominant lenses I call “programming”: prevailing analytical frameworks that artificially narrow corporate law’s scope in ways that misdescribe real-world developments and foreclose normative contestation.
The essay describes how the dominant theoretical frameworks of Law and Economics (L&E) have long operated as conceptual blinders. Four analytical moves stand out: (i) modularity, (ii) corporate law as contract, (iii) agency costs, and (iv) corporate law as product. Modularity treats corporate law as addressing only intra-firm agency problems, leaving every other public policy concern to some other field. Corporate law as contract portrays the corporation as a “nexus of contracts,” and describes corporate law as a special type of contract between managers and shareholders. The agency costs framing implicitly resolves the debate about the purpose of the corporation by embedding in the terminology that managers should serve shareholders’ interests alone. And corporate law as product casts state corporate law as an artifact sold in a market for charters, glorifying the lack of democratic accountability. The problem is not so much that these concepts are wrong, but that they offer a highly partial view of the corporate phenomenon. Together, they operate to obscure critical questions of externalities, inequality, corporate power, and geopolitics. Nor are they purely technocratic efforts focused on corporate law alone. Central L&E theories of the corporation and corporate law emerged as interventions in a broader political agenda.
Michael Jensen and William Meckling’s seminal article, which with the same stroke coined the influential term agency costs and the idea of a nexus of contracts, was a self-conscious effort to rebut growing calls for corporate social responsibility (CSR) in the 1960s and 1970s. The piece originated in a lecture commissioned to counter the idea of CSR then being advocated by progressive nonprofits. Their contemporaneous writings reveal a broader political project: a sustained warning that emerging government regulation threatened the very existence of the business corporation and risked its imminent demise. Jensen and Meckling also argued that markets and democracy were incompatible, and unambiguously favored the former.
Another case of a technical corporate concept being coined for broader aims is Henry Manne’s celebrated account of “the market for corporate control,” a central idea in the L&E canon. Its appeal lies in providing a market-based response to agency costs: poor managerial performance depresses share prices, creating opportunities for management teams hoping to increase value by doing a better job. What is far less recalled is that this was not the primary aim of Manne’s intervention. His principal objective was to legitimate mergers, rescuing them from antitrust suspicion by recasting them as socially valuable mechanisms of managerial discipline.
At the same time, the essay resists a simple denunciation of L&E. Some blinders of standard programming, such as the fetishization of limited liability and corporate separateness, persist despite L&E rather than because of it, with L&E analysis providing the tools to challenge them. Limited liability toward involuntary creditors is a case in point: economic analysis has long suggested its inefficiency as applied to tort victims, especially in corporate groups. Yet the doctrine retains a near-sacred status in standard doctrinal teaching that L&E’s findings do not support.
The essay points to the importance of shifting attention back to the overlooked social and political functions of longstanding corporate law mechanisms. Corporate law is a polyfunctional governance technology that produces social spillovers: its familiar doctrines shape not only intra-firm governance but also broader patterns of accountability, distribution, and corporate power. Consider related-party transactions. When controlling shareholders engage in abusive self-dealing, the harm is not limited to minority investors: such expropriation is usually economically regressive, further concentrates wealth and political power, and may increase systemic risk. Likewise, liability rules, shareholder proposals, and transparency requirements help generate broader forms of public accountability and social control over corporate actors.
The stakes are immediate, as evidenced by the recent race to laxity by Delaware, Texas, and Nevada, as well as developments at the federal level. Although the system was far from ideal before these changes, they represent a marked turn for the worse from the perspective of corporate accountability. Yet the social stakes are hardly part of the calculation or the public debate. One of my main claims is that standard programming has narrowed our analytical frame and vocabulary in ways that imperil our capacity to resist the ongoing erosion of U.S. corporate governance principles, which were greatly influenced by, but never fully adhered to, the tenets of programming. That apparatus was built in view of varied social objectives, from curbing corruption and corporate power to reducing systemic risk and fraud. Even if profoundly imperfect, its deterioration still represents a major loss.
Deprogramming Corporations invites broader and more critical examination of corporate law’s role in our current economic and social order. Corporate law alone cannot save the world, but what if it could help? The difficulties of the task are no justification for retreating into the fictions of existing frameworks, which have never captured corporate law’s real-world operations. A field this central to the economy and polity cannot afford artificial narrowness. Further intellectual resources for a broader examination and strategies to overcome the substantial political economy hurdles to reform are both needed, building on the deprogramming already underway.
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