The Pluralist Foundations of Corporate Law and Governance

Abstract

For the past several decades, jurists have invested significant efforts in developing the law in general, and private law, in particular, in terms of pluralism. However, the conceptualization of corporate law and governance according to pluralist principles rarely exists. This Article is the first in the legal literature to address this deficiency by providing a unique pluralist theory of corporate governance regimes, based on social systems thinking and the framework of complexity that is rooted in the natural sciences and has since spread to social disciplines, as well. The complexity framework perceives organizations as a subset of social systems that represent a sophisticated web of interconnectivity between human beings and their environment. Organizations are made of interactive, adaptive agents, groups, and departments, that communicate with one another through feedback mechanisms. The features of such exchanges, and their normative implications, may significantly differ between numerous companies that operate in various industries. Accordingly, the complexity framework provides theoretical grounds for skepticism about any policies or structures that are applicable to all times and all contexts. Therefore, rather than perceiving corporate governance as being identically applicable to all corporations, the law must meet the challenge of complexity by designing contextual governance arrangements, following a firm-specific perspective. I believe that the versatility of companies’ characteristics indicates that a “one-size-fits-all” approach should be avoided, and a contextual approach should be embraced when crafting tailor-made law. Furthermore, I argue that in conditions of complexity, corporate governance eco-systems should be designed with a firm-specific perspective that incorporates the effect of the corporation participants’ heterogeneity, the heterogeneity of its internal power relations, and the heterogeneity of industries on their performance. These novel arguments have profound implications for redesigning fundamental legal doctrines—such as fiduciary duties of controlling shareholders; regulation of related party transactions; the company objective; and officers’ duty of care in different legal systems.