From Person to Fiction and Back Again: Law and Economics, Agency Theory and the Schizophrenia of Corporate Personhood

Legal scholars and political theorists have increasingly highlighted how the economic and organizational efficiency of 23 the firm is conditioned upon its existence as a separate legal person or entity, and that this existence is conditioned upon legal and state intervention. In doing so, they criticize economic theories of the firm, agency theory and the nexus-of- contracts approaches for downplaying the role of law and the state in the constitution of legal entity status or personhood. This paper argues that this downplaying is not simply an understatement, but part of a rhetorical and discursive strategy to encase the firm from political contestation, both from above (the state and law) and from below (from worker influence). Agency theory, nexus of contracts and its influence in the economic analysis of corporate law must be understood as part the Law and Economics-movement to encase the corporation from the encroachment of state, law, democracy, worker influence and social and environmental responsibilities. The paper analyzes how the discrepancy between the legal institutional facts of the corporation and the dominant theoretical strains have been produced through a rhetorical redecription of the corporation by disregarding separate legal personhood and reducing the corporation to the actions of utility-maximizing individuals. This rhetorical move has allowed for ‘corporate schizophrenia’, the ability to reap both the economic, organizational and liability benefits of separate legal personality and at the same time the economic benefits of ‘piercing the corporate veil’, by disregarding the separate legal entity status and safeguard the (property) rights of individual shareholders.