Abstract
Corporate governance scholarship is awash with theories of firm: these are stories or metaphors that try to shed light on nature and purpose of as an institution and on one or more of following questions: (i) how institution of evolved (or its economic or social purpose); (ii) whether the firm is a reality or a rhetorical device; and (iii) relationship between the firm and stakeholders, political society and so on. Theories of are used both to explain and to help develop law and policy. If theory is misconceived, or pushed too far, then policy based on that theory can be destructive. This paper will argue that John Finnis' natural law theory (John Finnis, Natural law and natural rights, (Oxford, 2003)) provides: (i) an understanding of as a human community; and (ii) a framework that can be used to evaluate more specialised theories of firm. No single theory of can capture full reality and, so, there is a need for a meta-theory capable of evaluating and sifting more partial and specialised theories of firm. The first part of this paper will explain John Finnis' natural law theory and show how it can be applied to our understanding of firm. The second part will critique Williamsons' Transaction Cost Economics (TCE) and agency theory from perspective of natural law theory. It will be argued that they are flawed because of failures to address goods that drive human behaviour and to understand nature of human communities (and relations within them). Agency theory can be a useful way of thinking about relationship between passive investors and management but not as a generalised account of firm. Several commentators believe that pushing agency theory and TCE too far has been both morally corrupting and economically inefficient.
Published Version
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