Banded Contracts, Mediating Institutions, and Corporate Governance: A Naturalist Analysis of Contractual Theories of the Firm

Abstract

TIMOTHY L. FORT [*] JAMES J. NOONE [**] There are a spate of books [ldots] that suggest that is a mystical [or] a happening. And their mantra is lifted directly from the lips of Yoda--experience the force. No matter how sincere and well intentioned some of these texts are--enough already, please! [1] Size matters not. Look at me. Judge me by my size, do you? Hm? Mmmm. And well you should not. For my ally is the Force. And a powerful ally it is. Life creates it, makes it grow. Its energy surrounds us and binds us. Luminous beings are we[ldots] not this crude matter. You must feel the Force around you. Here, hidden between you[ldots] me[ldots] the tree[ldots] the rock[ldots] everywhere! Yes, even between this land and that ship. [2] I INTRODUCTION Basing a theory of moral on a celluloid science fiction creation may not foster its intellectual stature, but one could substitute quotes similar to Yoda's from Buddhism, [3] Hinduism, [4] many yogis, [5] many native religions, [6] and the Christian tradition, [7] to name just a few religious sources. [8] Indeed the connectedness of reality has philosophical support from Spinoza [9] to Whitehead, [10] as well as in the writings of many feminists [11] and philosophers of science. [12] The engagement with a connected, transcendent reality in these theologies and philosophies is often a starting point for formulating ethical duties. With such a pedigree, experience the deserves neither ridicule nor neglect. Yet, the metaphor force easily can be used in ways that provide little enlightenment and, as Star Wars itself elaborates, can have both and dark sides. This article does not seek to formulate a theory of business ethics according to Yoda or of any particular theistic system. It does, however, relate ethics to notions of transcendence found in nature and anthropology. [13] Like Yoda's force, nature--human and non-human--has a and a dark side: It is ambiguous. Of course, the issues at stake in formulating a corporate governance framework are a deal more serious than science fiction. Nevertheless, the insight into ambiguity is important. Basing a metaphor on an ambiguous term can be a trap that conceals problematic assumptions and undermines good meaning of the metaphor. In particular, therefore, this article addresses the notion of contracts within corporate legal theory because contracts are used as a model both by those who advocate minimalist, agency duties and by others who propound a broad ethic. The agency use of the term by theorists such as Frank Easterbrook and Daniel Fischel, [14] F.A. Hayek, [15] and Oliver Williamson, [16] is quite different from its use by social-contract ethicists such as Steven Salbu, [17] Michael Keeley, [18] and especially Thomas Donaldson and Thomas W. Dunfee. [19] The agency theory of contracting is ultimately unpersuasive because it fails to consider adequately the cultural embeddedness of rationality and choice. Agency contractarians concentrate on a one-sided, dark notion of human nature and do not account adequately for the coercion necessary to sustain the choice that supposedly validates their approach. Similarly, social contractarians provide virtually no account of human nature and also miss the embeddedness problem. By not fully linking contracts to a transcendent reality, social contractarians provide no real reason to choose social contracting over agency contracting. To make this argument, the article first poses a question about the use of metaphor in ethics in Part II. This question is important for two reasons. First, ethical constructs are essentially arguments of metaphors. [20] Whether one follows stakeholder, [21] virtue ethics, [22] rights, [23] contracts, [24] naturalism, [25] or another theory, one is selecting a metaphor to describe a model for the way ought to be conducted. …