Frankenstein Incorporated or Fools’ Parliament? Revisiting the Concept of the Corporation in Corporate Governance

Abstract

In this article the concept of the corporation as separate legal person is revisited and the argument is put forward that Salomon v Salomon & Co Ltd was formal reasoning, giving recognition to what the judiciary conceived to be emerging social and economic reality, but was inadequately justified in terms of principle and policy. The concept was also inadequate for doctrinal purposes in corporate decisionmaking; hence the equation of the good of the company with that of its shareholders which is logically inconsistent with the idea of a separate legal person. The Anglo-Australian approach is narrow, ethnocentric and increasingly isolated from German, Japanese and US corporate governance systems. The lack of adequate principle and policy justification accounts for the incoherence of the Anglo-Australian piercing the veil jurisprudence. The answer lies in development of the concept of the corporation as a firm in its social context and consideration is given to the extent to which modern law and economics scholarship and stakeholder theory assist in that development.