The Infinity of Residual Rights and the Normative Foundations of Corporate Governance

This paper critically examines the normative foundations of corporate governance, challenging both shareholder and stakeholder theories for their reliance on a transactional conception of justice. We argue that this conception, which seeks to justify managerial authority and corporate decision-making through principles of fair transaction or distribution, is normatively untenable. Drawing on Ronald Coase's insights into residual rights and discretionary authority within firms, we demonstrate that the transactional approach fails to account for the infinite scope of residual rights, making it insufficient for justifying corporate governance structures. Our analysis focuses on corporations in their paradigmatic Anglo-American form, where the limitations of transactional justice are particularly pronounced. By critiquing mainstream theories and their economic underpinnings, we highlight the need for a conceptual shift away from transactional frameworks. We propose that managerial authority be understood in terms of 'purpose fiduciaries' representing the corporation as a self-owning entity, rather than any particular stakeholder group. This reconceptualization challenges dominant economic paradigms and opens new avenues for aligning corporate governance with broader societal goals.