The Corporation as a Social Institution: Revisiting the Public-Private Debate

In 1972, Justice William O. Douglas described modern corporations as “private governments…whose decisions affect the lives of us all.” His opinion in SEC v. Medical Committee for Human Rights challenged the notion that shareholder proposals should be confined to economic concerns, instead recognising the legitimacy of socio-political engagement within corporate governance. This 50 year-old judicial insight anticipated a transformation that has since unfolded across decades of corporate practice and theory.

Today, the public corporation is viewed not merely as an economic actor—it is seen as a socio-political institution, deeply embedded in a web of stakeholder relationships, public expectations, and laws and mechanisms which increasingly tie corporate activity to broader social and environmental objectives. This evolution requires us to rethink the corporation’s role in society and the frameworks we use to understand and regulate it.

From Legal Fiction to Social Reality

The foundational debate between Berle and Means’ conception of the corporation as a social organisation and the later characterisation of the corporation by the law and economics movement as an essentially private economic mechanism (a mere nexus of contracts between real persons)—has shaped decades of scholarship. Although the law and economics perspective has exerted significant influence in scholarship and policy making, it is out of sync with various other disciplinary perspectives, including law, sociology, and political theory. As Eric Orts observed, it “flies in the face of a blizzard of perspectives from other disciplines” that reveal the social reality of firms.

Recent developments reflect attempts to reconcile economic theory with this evolving reality. Hart and Zingales have proposed, for example, a shift from shareholder profit maximisation to shareholder welfare maximisation, acknowledging that shareholders may care about more than just financial returns. This move signals a broader recognition that corporations operate within—and are shaped by—social contexts.

Corporations in the Political Arena

We see three dimensions to the corporation’s socio-political character:

1. Advocate: Corporations increasingly take public stances on social issues—from climate change to human rights—acting as political agents. This advocacy is often driven by internal values, stakeholder expectations, or reputational concerns.
2. Target: Corporations are subject to external pressures from stakeholders, activists, and regulators. Barzuza, Curtis, and Webber describe this as the “social demand” phenomenon, where stakeholders act on their social preferences in their economic lives.
3. Arena: Corporate governance itself has become a site for contesting socio-political issues. Shareholder voting, litigation, and divestment campaigns are now tools of activism, used to influence corporate behaviour and policy. Shareholder proposals under Rule 14a-8 in the US, “Say on Climate” votes, and litigation such as ClientEarth v Shell illustrate how corporate governance mechanisms are being repurposed for socio-political ends. 

Technology and the Rise of the ‘Shapeholder’

Digital platforms have empowered new actors— what we refer to as “shapeholders”, borrowing from the management literature—to influence corporate behaviour outside traditional shareholder structures. Social media, online forums, and decentralised autonomous organisations (DAOs) are reshaping the boundaries of corporate engagement and accountability. These technologies allow individuals and groups to make claims with clarity and force, bypassing conventional governance channels.

This shift is not merely about communication—it is about power. As we have previously argued, technology is changing the nature of shareholder engagement both inside and outside the shareholder meeting. The rise of shapeholders challenges traditional notions of corporate control and opens new avenues for broader stakeholder participation in corporate governance.

Implications for Governance and Theory

The scale and complexity of these developments suggest that efforts to depoliticise the corporation may be not only both impractical, but also and counterproductive. In fact, such efforts may, counterintuitively, reinforce the corporation’s embeddedness in the political process. If corporations are already acting as political entities, then denying this reality risks undermining accountability and transparency.

All of which raises critical questions:

• Do prevailing economic theories adequately describe the modern public corporation?
• Are existing accountability mechanisms sufficient to contain corporate power?
• Should normative claims about corporate purpose be re-evaluated in light of these socio-political dynamics?

As Bratton argued, shareholder democracy and voice have normative value—but also raise concerns about power and legitimacy. Blumberg warned of the “immense economic, social and political power” of large corporations and their increasing politicisation. Latham and Steinmann emphasised the need for internal checks and balances and the importance of balancing conflicting interests in corporate decision-making.

These concerns are not abstract but speak directly to the legitimacy of corporate governance. If corporations are to act as social organisations, then they must be subject to frameworks that ensure accountability, representation, and fairness.

We must reconsider the corporation not just as a neutral economic entity, but rather as a dynamic social institution. This requires a shift in both theory and practice. As corporate governance continues to evolve, so too must our theoretical and normative conceptions and our regulatory frameworks.

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Tim Bowley is an Adjunct Associate Professor at Monash University 

Jennifer Hill is the Bob Baxt AO Chair in Corporate and Commercial Law at Monash University, and an ECGI Research Member

Steve Kourabas is an Associate Professor at Monash University

This blog is based on a discussion which took place at The Corporation in Society: Corporate Law and Criminal Law Perspectives Workshop. Visit the event page to explore more conference-related blogs.

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