Stephen N. Bretsen argues that the corporation is the result of several elements, both ancient and modern, that were combined by law and market forces in the mid-19th century. The creation of the corporation has led to various theories of the corporation, some viewing the corporation as a private entity solely serving the interests of its shareholders, and others viewing the corporation as an entity separate from its shareholders with public obligations to a larger group of stakeholders. These corporate theories define the ends and means of the corporation and become especially important when ownership and control of the corporation are divided, as in a publicly traded corporation. The faithful business as a publicly traded corporation moves the debate about the ends and means of the corporation beyond these secular theories. By holistically integrating Christian and theological principles throughout its operations, the faithful corporation is primarily serving God rather than shareholders or stakeholders and, in the process, rejecting the assumptions underlying secular corporate theory. Mr. Bretsen is Associate Volkman Professor of Business and Law at Wheaton College.
The corporation is a vehicle for combining capital and know-how from the past, applying them in the present and amassing them for the future. Although corporations are ubiquitous, the corporate form itself is a relatively new legal innovation, especially when compared with other forms of doing business, such as the partnership. The corporation as a legal entity that would be recognized in the 21st century dates from the mid-19th century, while the corporation as a powerful economic institution is even younger and dates from the early 20th century. The corporation was created when the law and market forces combined several ancient and modern elements, such as a separate legal existence, limited liability for its owners, ownership interests represented by freely transferable shares and a hierarchical management structure, into a single entity.
The debate about the nature and role of the corporation is rooted in this history and arose in response to the need to develop a theoretical understanding of this relatively new legal and economic entity. Although legal scholars have offered various theories of the corporation based on the interests that should prevail in corporate decision making, these theories can be grouped into private interest theories and public interest theories. The private interest theories would place the shareholder at the center of the corporation and limit the corporation’s goals to maximizing shareholder wealth. The public interest theories would allow corporate decision makers to consider the interests of stakeholders, such as employees, suppliers, customers, creditors, and local communities where the corporation is located, equally with the interests of shareholders, thus creating obligations to a larger set of groups “who have a stake in the actions of the corporation.”1 Since they define the ends and means of the corporation, these dueling corporate theories become especially important when ownership and control of the corporation are divided, as in a publicly traded corporation. The idea of the faithful business as a publicly traded corporation challenges the assumptions underlying these secular corporate theories. By shifting the focus from shareholders or stakeholders to fulfilling the creation mandate and advancing the kingdom of God for the glory of God, the theory of such a firm pushes against the outer limits of traditional thinking about the corporation.
In one sense, a faithful business is another way of describing what others have called a business as mission,2 a Great Commission company3 or a Kingdom business.4 What makes the corporation “faithful” is not that it is operated by Christians or that it applies Christian principles selectively to some aspects of its business, but that it seeks to integrate Christian theological and social principles holistically into all aspects of its business operations. Just as Steve Rundle and Tom Steffen specifically distinguish a Great Commission company from a Christian company,5 the word“faithful” distinguishes the faithful corporation from corporations that have a Christian identity but fail to consider or implement the countercultural demands of the Gospel more fully.
What distinguishes a faithful business from a Great Commission company or a Kingdom business is primarily that the latter, by definition, are focused on “the least-evangelized and least-developed parts of the world”6 or on “the missions field of the developing world”7 while the faithful business is a model of God’s purpose for business in both the developed and the developing world. If the concept of a faithful business operating its business as a Christian mission is to have relevance beyond becoming a new paradigm for missions in the developing world through small businesses, then incorporating a faithful business is an activity that can and should occur within the United States as well as abroad. Limiting business as mission to small businesses or defining business as mission by geographical and political boundaries centered on the developing world risks making the concept of business as mission irrelevant for business in the United States. If becoming missional means being sent into the world to carry on work of Jesus Christ8 and if the traditional, geographic definitions of Christendom are breaking down,9 then the original designation of the mission field as Jerusalem, Judea and Samaria in addition to the ends of the earth becomes even more important (Acts 1:8).10 Thus, in examining how a faithful business rejects the assumptions underlying secular corporate theory, this article will assume that the faithful business is a publicly traded corporation located in the United States and refer to such a business as the faithful corporation.
Prior articles have explored whether a faithful business can compete successfully with its secular counterparts and grow into a large-scale enterprise11 and whether a faithful business can even become a publicly traded corporation.12 This article supplements that earlier work by examining the theoretical underpinnings of the faithful business as a publicly traded corporation. First, this article will describe the elements that comprise a corporation and the historical context that combined those elements and gave rise to the corporation. Next, the article will describe several secular theories of the corporation based on whether they are focused on the private interest of shareholders or take into account broader, public interests to provide a contrast for the subsequent discussion on a theory of the faithful corporation. The article will then describe the theological roots of the faithful corporation to show why the assumptions underlying secular corporate theory are insufficient to justify the existence of the faithful corporation. Finally, the article will describe the theory underlying the faithful corporation and show how it sends and means differ from its secular counterparts in order to provide a starting place for further scholarship on a Christian theory of the corporation.
Prior to the 19th century, corporations were uncommon in the United States, and through the mid-19th century, incorporation for primarily business objectives was unusual.13 Instead, business entities were either sole proprietorships, in which the business entity and the individual businessperson were indistinguishable, or unincorporated business associations co-owned by two or more individuals called partnerships. The formation of a corporation required the granting of a charter bya special, individual act of the state legislature, and the charter defined the rights and responsibilities of the corporation, including its duration, scope and liability.14 A typical chartered corporation had a limited duration between five and thirty years and was only authorized to pursue a single and often quasi-public function, such as building and operating a turnpike or canal, in exchange for concessions from the state, such as the grant of a monopoly and tax exemptions.15 Although some charters imposed personal liability on the shareholders for the corporation’s debts and other charters granted limited liability to shareholders, many charters did not address the issue of shareholder liability at all.16
For entrepreneurs in the United States and Great Britain in the 18th and early 19th centuries, the business solution to the problem of chartering a corporation was to form a joint stock company, which was a partnership that provided its owners with the benefits of freely transferable shares.17 Unlike a general partnership, which had to be dissolved and reformed if one of the partners wanted to leave the partnership, the interest represented by shares in a joint stock company could be transferred to a new owner without affecting the company’s existence. However, the joint stock company did not provide its owners with the benefits of limited liability without further legal machinations, such as the use of insurance contracts and trusts.18 Another handicap was that joint stock companies, unlike chartered companies, were not recognized by the law as separate legal entities since they had no state charter or exclusive trading rights.19
By the mid-19th century in the United States, the populism and suspicion of special privileges associated with Jacksonian democracy combined with the growth of the economy during the Industrial Revolution made chartering corporations via special legislative acts unpopular and unwieldy.20 State legislatures began enacting general incorporation statutes which met the needs of entrepreneurs for an institution that allowed capital to be amassed for projects based on private initiative and contract and then passed to successive generations or sold to third parties via freely transferable shares without necessarily risking personal or other business assets. These general incorporation statutes provided for incorporation as a matter of right if certain statutory filing requirements were met rather than as a matter of privilege and politics, perpetual duration, multiple (and ultimately) unlimited business purposes, and limited liability for shareholders.
Thus, the elements that define a corporation were not combined into a single legal and economic institution until the middle of the 19th century. According to these elements, a corporation (i) is created by law; (ii) is a legal entity separate from its shareholders and managers; (iii) has a perpetual existence; (iv) provides limited liability to its shareholders; (v) has shareholders who can transfer their shares freely and (vi) has a hierarchical management structure.21 While each element is important for understanding the corporation, ultimately it was the combination of these attributes that created the legal foundation for the development of the modern corporation.
The Corporation as a Creature of Law
Unlike a general partnership, which is a business association that is recognized by the law but that can be formed between individuals without filing any documents with the state, the corporation is created by law and is ultimately a creature of the state. This idea of a state-created entity dates back to the societas publicanorum 22 and collegia23 of ancient Roman law, and the concept continued in the medieval guilds and universities, the Renaissance royal charter companies, and the early American chartered corporations, which all required official permission to form via a charter from the state.24 As described by Chief Justice John Marshall in 1819,
A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being a mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence.25
Obtaining a state charter as a matter of privilege involved either granting concessions to the monarch or seeking a special act of the legislature, which could be expensive and time consuming. The original rationale for a government charter was based on the Roman and medieval belief that any association among subjects was a potential conspiracy against the state so the existence of an association had to be conceded by the sovereign to control this threat.26 By the 19th century, the use of a charter as a source of control had been succeeded by the use of a charter as a source of patronage and revenue.
The 19th-century legal revolution that loosened the state’s hold on the corporation was legislation that transformed the act of incorporating from a matter of privilege to a matter of right. Allowing incorporation as a matter of right if certain requirements were met freed incorporation from partisan politics and political control. In Great Britain, this revolution was embodied in the Joint Stock Companies Act of 1856 and the 1862 Companies Act, which allowed a company to be formed if seven people signed a memorandum of association, the company registered its office and the company name included the word “limited.”27 In the United States, this revolution was marked by liberalized state general incorporation laws beginning with Connecticut in 1837 and continuing with a “race to the bottom” in the late 19th and early 20th centuries to attract incorporations and tax dollars.28 In that race, Delaware beat New Jersey narrowly, and, as a result, many corporations in the United States are incorporated in Delaware even though their headquarters are located physically in another state. These state general incorporation statutes usually just require an incorporator to file articles of incorporation which list the corporate name, the number of shares the corporation is authorized to issue, the name of the corporation’s initial registered agent for service of process, the address of the corporation’s initial registered office and the name and address of each incorporator.29 Once formed, the structure of the corporation and the rights and obligations of its shareholders, directors and officers are controlled by the corporation’s own governance documents, such the articles of incorporation and by-laws, and by state law.30 Although each of the fifty states has its own corporation statute, these state laws are similar since a majority of states have adopted the Revised Model Business Corporation Act in whole or in part.31
The Corporation as a Separate Legal Entity
Closely associated with the concept of the corporation as a creature of the state is the concept of the corporation as an artificial person with an existence and citizenship separate from the natural persons who comprise its shareholders, directors and officers. Once created, the corporation has its own rights and liabilities, such as the ability to incur debt, the right to contract and create obligations, the right to own and transfer property, and the right to sue and be sued, even when all the shares of stock are held by a single person.32 Bound up inextricably in the corporations’ separate legal existence is an attribute called “entity shielding,” which comes in two forms:33
“Weak” entity shielding is what one finds in the traditional partnership: firm creditors enjoy first claim, over the owners’ personal creditors, to firm assets. This has the virtue of reducing monitoring costs for firm creditors by giving them, in effect, a security interest in firm assets. “Strong” entity shielding, in turn, is what one finds in the business corporation. It adds to weak entity shielding a rule of liquidation protection, under which neither an owner nor his personal creditors may demand unilaterally a payout of the owner’s share of firm assets. In effect, with strong entity shielding an owner and his personal creditors lose the withdrawal right that characterizes the traditional partnership at will. Strong entity shielding has the advantage of protecting a firm’s going-concern value (or, as economists would put it, the value of firm-specific investments).34
Thus, unlike a general partnership, which dissolves with the death, bankruptcy or withdrawal of a partner or the chartered companies with limited duration charters from the state, a corporation’s separate existence is assumed to have an indefinite existence unless its articles of incorporation provide otherwise.35 Chief Justice John Marshall noted that among the most important attributes of a corporation was
Immortality, and, if the expression may be allowed, individuality; properties by which a perpetual succession of many persons are considered as the same, so that they may act as a single individual. A corporation manages its own affairs, and holds property without hazardous and endless necessity of perpetual conveyances for the purpose of transmitting it from hand to hand. It is chiefly for the purpose of clothing the bodies of men, in succession, with these qualities and capacities, that corporations were invented, and are in use.36
This perpetual existence and the ability to outlive any single generation of share-holders, directors and officers enabled corporations to amass knowledge and capital, protect them from shareholders’ creditors and transfer them efficiently from one generation to the next.
The Corporation and Limited Liability
Another principal attribute of a corporation is the limited liability of its shareholders. The shareholders of a corporation are not personally responsible for the debts and obligations of the corporation since the liability of the shareholders is limited to the amount of their investment. The limited liability of shareholders can be seen as a logical corollary to allowing a corporation, as an artificial, legal person, to have unlimited liability for its own debts and obligations. In a sense, limited liability is the reverse of entity shielding: while entity shielding protects the assets of the corporation from the claims of the shareholders’ creditors, limited liability shields the assets of shareholders from the claims of the corporation’s creditors.37
With older forms of doing business, such as the general partnership, each partner was individually liable for all the debts and obligations of the partnership. In an era when punishment for bankruptcy meant imprisonment and servitude, absolute trust was vital and tended to limit most companies to smaller, family-based enterprises.38 Thus, without limited liability, the size of a company and its ability to raise capital were limited. The debate in Great Britain and the United States in the mid to late 19th century over limited liability pitted the demands created by the Industrial Revolution for more capital intensive, larger scale enterprises against the concern that limited liability would lower the commitment of the company’s owners or shift the risk of doing business onto suppliers, customers and lenders.39 Ultimately, the advocates of limited liability won the debate although one of the compromises from that era that continues to the present is the requirement that a corporation’s name include the word “corporation,” “incorporated,” “company,” or “limited,” or their abbreviations to warn the general public of the shareholders’ limited liability.40
The Corporation and Freely Transferable Shares
An innovation popularized by the British and Dutch joint stock companies int he late 16th and early 17th centuries that led to the corporation was the concept of freely transferable shares.41 In return for contributing equity capital to the corporation, a shareholder receives shares of stock. Unlike a general partnership, which must be dissolved and reformed if one of the partners wants to leave the partnership, the interest represented by shares of stock can be transferred to a new owner without affecting the corporation’s separate and indefinite existence.
The transferability of shares allows the long-term risks associated with a corporation’s perpetual existence to be transformed into a short-term risk by raising a large amount of capital in small amounts from individual investors via transferable shares.42 With marketable shares, the shareholder is not tied to the completion of any individual business project and can determine when to realize gains or losses.43 Spreading this risk requires a market for the shares, and shares of large, publicly traded corporations are more freely transferable in practice than the shares of a small, closely held corporation.
The Corporation’s Hierarchical Management Structure
The management structure of a corporation created by corporate law is deceptively simple. The shareholders of the corporation elect directors to oversee the business and affairs of the corporation.44 In turn, the directors, acting as a board, appoint officers who hire employees and manage the day-to-day operations of the corporation.45 This legal structure only provides the broad outlines of the corporation’s final principal attribute – its centralized, hierarchical management structure.
The corporation’s centralized management structure has its historic roots in the increasing size and complexity of business organizations created by the Industrial Revolution. The organizational forms used by Venetian merchants in the 15th century, such as the compania, a partnership form, and the commenda, a limited partnership form first used for shipping ventures, were not significantly different from the organizational forms used by American merchants in the late 18th and early 19th centuries.46 These organizational forms and their accompanying management structures and practices met the needs of business in the United States until the 1840s when the appearance and growing importance of railroads and the associated forward integration by manufacturers into distribution led to modern organizational forms such as the multidivisional corporation, the conglomerate, the multinational corporation and the global corporation.47
The corporation’s centralized management structure has its economic roots in the problem of transaction costs. The organizational structure of a corporation is essentially feudal with rewards, in the form of compensation and promotion, flowing down the hierarchical chain of command and fealty, in the form of loyalty and the dedication of time and talents, flowing up the chain of command. While a decentralized management structure may have fewer links in the chain of command, the feudal, hierarchical nature of the organizational structure is the same. The existence of a feudal-like structure within a market economy reflects the increasing number and complexity of transactions that occurred as the industrial economy developed in the 19th and 20th centuries and companies grew by volume, geographic scope, vertical integration and horizontal diversification. Growth along each of these dimensions was only possible if the cost of managing an additional transaction within the company was less than the cost of the same transaction through an exchange on the open market.48 A centralized, feudal-like management structure reduced transaction costs by providing gains from control and coordination.
Secular Corporate Theory
As the different elements that define a corporation were coming together in the 19th century, the debate over the nature of the corporation began.49 At its core, the debate was and continues to be a debate over whether the corporation was “essentially a private association, subject to the laws of the state but with no greater obligation than making money, or a public one which is supposed to act in the public interest.”50 While 19th-century entrepreneurs quickly adapted the new corporate form to the business of making money, the fact that the corporation was a creature of the state with privileges granted by the state such as incorporation as a matter of right and limited liability laid the foundation for the idea that the corporation owed society broader responsibilities beyond the maximization of profits. This debate continues into the 21st century among legal scholars and economists who either advocate a theory of the corporation that emphasizes the primacy of shareholder interests or a theory of the corporation that encompasses the interests of a much broader group of stakeholders. The debate reveals a core dichotomy about corporate theory and corporate law. The shareholder primacy theory emphasizes the role of corporate law in protecting the private relationships among shareholders while the stakeholder theory would use corporate law in a way that is responsive to public interests.51
Private Interest Theories of the Corporation
In American legal history, the earliest private interest theory of the corporation is the natural entity theory, which dates from the late 19th and early 20th centuries. The natural entity theory is associated closely with the replacement of legislative chartering for corporations with general incorporation statutes, which facilitated incorporation by allowing corporations to be formed with just a few procedural formalities.52 Thus, instead of the viewing the corporation as an unwieldy creature of the state, the natural entity theory views the corporation as a creature born of the marriage between private, entrepreneurial initiative and the natural, economic forces of the marketplace.53 In contra point to Chief Justice John Marshall’s description of the corporation in 1819 in the Dartmouth College case is Justice Stephen Field’s description of the corporation in 1882 in The Railroad Tax Cases:
To deprive the corporation of its property, or to burden it, is, in fact, to deprive the corporators of their property or to lessen its value . . . [T]he courts will look through the ideal entity and name of the corporation to the persons who compose it, and protect them, though the process be in its name.54
According to the natural entity theory, since the corporation is an aggregation of private individuals as investors, the focus of corporate law should be on protecting the property rights of the owner/investors and governing their private, internal relationships.55 The property rights of the owners of the corporation are represented by shares of stock, and the shareholders’ purpose in investing in the corporation is to enjoy a return on that investment either via an increase in the price of the stock or from dividends paid out of the corporation’s profits or both. Thus the natural entity theory becomes a shareholder primacy theory in which the purpose of the corporation is to increase shareholder wealth. In the 1930s, Columbia Law School professor Adolf A. Berle explained the shareholder primacy model by noting that
All powers granted to a corporation or to the management of a corporation, or to any group within the corporation, whether derived from statute or charter or both, are necessarily and at all times exercisable only for the ratable benefit of all the shareholders as their interest appears.56
The case for shareholder primacy is summarized more bluntly in Milton Friedman’s famous observation that in a free society
There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.57
Thus, what is in “the best interests of the corporation” is measured by what maximizes profits or shareholder returns. Anything less represents theft from the shareholders as the owners of the corporation and is thus immoral.
Early on, an agency problem was identified as the major threat to maximizing shareholder wealth. The shareholders own the stock of the corporation but make few decisions for the corporation while the board of directors and the officers as the managers of the corporation own a small percentage of the stock of the corporation but make the primary decisions for the corporation. In a closely held corporation where the shareholders are the managers or where the shareholders are venture capitalists who can leverage the corporation’s present and future need for money into preferred shares and investor-favorable shareholder agreements, there is either no split between ownership and control or the preferred shareholders are satisfied with their level of control. However, in a publicly traded corporation, this split between ownership and control creates an agency problem in which the shareholders, as principals and owners, are interested in profits and a return on their investment while the managers, as agents, have the opportunity to reduce corporate profits via rent seeking (or, greed) and shirking (or, sloth). As Adam Smith noted in The Wealth of Nations in 1776,
The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master ’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company.58
The agency problem that Adam Smith described in eighteenth-century joint stock companies was identified also in modern corporations by Adolf A. Berle and Gardner C. Means in 1932 when they pointed out that
In the election of the board the stockholder ordinarily has three alternatives. He can refrain from voting, he can attend the annual meeting and personally vote his stock, or he can sign a proxy transferring his voting power to certain individuals selected by the management of the corporation, the proxy committee. As his personal vote will count for little or nothing at the meeting unless he has a large block of stock, the stockholder is practically reduced to the alternative of not voting at all or else of handing over his vote to individuals over whom he has no control and in whose selection he did not participate.59
While Berle and Means believed the interests of the managers and the shareholders could be in alignment, such as when the managers seek “the prestige of ‘success’ and profits for the controlled enterprise [are] the current measure of success,” they concluded that if the managers primary motivation was the “desire for personal profit,” the separation of ownership and control would be complete.60 For traditional natural entity theorists such as Berle and Friedman, the role of the board of directors is to act as agents and trustees solely for the benefit of shareholders, as principals and owners. The fiduciary duties of due care and loyalty represent external standards imposed on directors to ensure that they are acting solely for the benefit of shareholders.
According to the natural entity theory of the corporation, even allowing corporate managers to pursue laudable social goals other than profit maximization for the benefit of shareholders aggravates the already dangerous agency problem. Replacing a single group of shareholders with multiple stakeholders and replacing a clear metric of profit maximization with multiple, competing goals decreases the accountability of corporate managers by increasing their discretion. Anything other than a shareholder wealth maximization norm “could leave managers with so much discretion that managers could easily pursue their own agenda, one that might maximize neither shareholder, employee, consumer, nor national wealth, but only their own.”61 Thus, Jesus’ proverb that a man cannot serve two masters (Matt. 6:24; Luke 16:13)62 becomes the legal warning that a fiduciary cannot serve two conflicting beneficiaries and the practical warning that a manager responsible to everyone is responsible to no one.63 In addition, the natural entity theory posits that the corporation is strictly an economic institution. “Allowing corporate managers to deviate from profit maximization would distort market mechanisms for distributing goods and services, and might, if pursued with enough force, produce long-run market failure.”64 Pursuing social goals other than shareholder wealth maximization risks converting an economic institution into a political institution and subjecting the corporation to greater public control because it does not have the checks and balances present in a republican form of government.65
A more recent private interest theory of the corporation would dispense with the idea of the corporation as an entity altogether. Instead of viewing the corporation as a legal entity owned by the shareholders and managed by the board of directors through the officers for the benefit of shareholders, this contractarian model views the corporation as a nexus of explicit and implicit contracts among shareholders and third parties, such as employees, suppliers, customers and creditors.66 Under the contractarian theory, the corporation becomes a legal fiction that is just a convenient moniker for describing the nexus of contracts.67 Since the corporation is not a thing that can be owned, the shareholders do not own the corporation but are simply one of a number of factors of production in the web of implicit and explicit contracts.68 While the contracts with third parties tend to be explicit contracts, such as labor and employment agreements, purchase and sales contracts and promissory notes and other debt instruments, the contracts with shareholders tend to be implicit contracts.69
The function of corporate law in the contractarian theory is to reduce the transaction costs that arise from contracting, primarily for the benefit of shareholders. Corporate law provides a standard form contract that approximates the contracts shareholders would have entered into but for transaction costs such as information costs and bargaining costs.70 In this sense, corporate law functions as a series of default rules or gap-filler provisions for the shareholders’ implicit contracts.71For contractarians, all the inputs needed to create and sustain a large, publicly traded corporation, represented by the thousands of shareholders, employees, creditors, suppliers and customers with differing interests and asymmetrical information, create a high transaction cost environment, and high transaction costs require default rules, such as corporate law, that are adopted automatically or can be bargained away.72
The function of the corporate managers in the contractarian theory is to oversee the voluntary negotiations and agreements among the different members of the nexus who are essentially engaged in ordinary free market contracting.73 Corporate managers have no social or moral obligations generally since the corporation is a legal fiction and is thus incapable of being a moral actor. “Only people have moral obligations; corporations can no more be said to have moral obligations than does a building, an organization chart, or a contract.”74 Instead, just as the role of corporate law is to reduce transaction costs, the role of corporate managers is to reduce transaction costs. Shareholders as the residual claimants of the nexus are in a unique position because they bear the risks of the nexus’ failure to minimize transaction costs.75 Ultimately the shareholders pay for this failure because their implicit contract as fashioned by corporate law is satisfied only after all the explicit contracts have first been satisfied.76 To protect shareholders, the implicit contract represented by corporate law gives shareholders a more privileged status and requires corporate managers to act as agents for shareholders and to manage the nexus in a way that maximizes shareholder value.77 Thus, the corporation under a contractarian theory is a matter of private interests and not public interests.
Public Interest Theories of the Corporation
In American legal history, the earliest public interest theory of the corporation is the artificial entity theory, which dates from the early 19th century and thus predates the natural entity theory. The artificial entity theory of the corporation arose originally from the role of the state in allowing a corporation to exist as a legal person separate from its shareholders.78 This theory about the nature of the corporation is “artificial” not because it is ersatz and inferior, but because it focuses on the corporation as a work of the human mind through positive law. As a creature of the state with an existence separate from its shareholders, this theory posits that the corporation has responsibilities to the state and a role in the state’s goal of promoting the general welfare. Initially, these responsibilities were made explicit through the public functions the corporation was chartered to do when it was granted the privilege of incorporation. However, ultimately, with the advent of general incorporation statutes and incorporation as a matter of right, the corporation’s public responsibilities became tied to the corporation as a citizen and the need for the corporation to be a good citizen.
The ideal of good corporate citizenship is a recurrent theme among corporate executives. In 1929, Owen D. Young, the Chairman of the Board of the General Electric Co., argued that the corporation should recognize “its public obligations and perform its public duties – in a word, vast as it is, that it should be a good corporate citizen.”79 More recently, A. G. Lafley, Chief Executive Officer of Proctor& Gamble Co., has talked about his company being a global citizen and his role as a global corporate ambassador.80. The theoretical underpinnings for the public interest role of the corporation as a good citizen can be found in the scholarship of Harvard Law School professor E. Merrick Dodd in the 1930s.
Writing during the Great Depression, Dodd noted that the prevalent corporate theory was the natural entity theory, which assumed that the corporate entity is a fiction and that “a corporation is an association of stockholders formed for their private gain and to be managed by its board of directors solely with that end in view.”81 While Dodd recognized the divorce between ownership and control in large, publicly traded corporations, and he lauded Berle’s efforts “to establish a legal control which will more effectually prevent corporate managers from diverting profit into their own pockets from shareholders,” Dodd thought it was undesirable to emphasize that the corporation was “a mere aggregate of stockholders” that existed for sole purpose of maximizing profits.82
At the same time, Dodd was critical of the artificial entity theory of the corporation. Although Dodd recognized that the traditional view of the corporation was as a distinct legal entity, he declared it unfortunate that “its entity character has been thought of as something conferred upon it by the state which, by a mysterious rite called incorporation, magically produces ‘e pluribus unum.’”83 Instead of focusing on the corporation as an artificial entity, Dodd saw the corporation as an economic and social institution separate from its shareholders as a “factual unit, ‘a body which from no fiction of law but from the very nature of things differs from individuals of whom it is constituted.’”84 This fait accompli was the result of the business corporation’s power over the lives of its employees and consumers and “public opinion, which ultimately makes law,” about the need for corporations to have social responsibilities in addition to profit-making responsibilities.85 For Dodd, this living institution was a person separate from the individuals who composed it, and, as a person, it had to meet “certain ethical standards, which appear to be developing in the direction of increased social responsibility.”86 While Berle and Means, Dodd’s contemporaries, saw the separation of ownership and control as a problem to overcome in order to protect shareholders, Dodd saw the separation as an opportunity for managers to act as trustees for the corporation rather than as agents or fiduciaries of the shareholders and implement this new corporate social responsibility.87 Due to the problems identified by Berle and Means, the shareholders were not in a position to do so, which left the professional managers of the corporation to fill the void.88 Dodd’s arguments have been echoed by others.
Peter Drucker, a university professor and management consultant writing about corporate theory in the 1950s, also viewed the corporation as a social institution serving shareholders, employees, customers and local communities in his seminal work, The Concept of the Corporation.89 Like Dodd, Drucker argued that the corporation’s power over employees and consumers gave it a social and political dimension in addition to an economic dimension, thus making it a “representative. . . institution” of modern society.90 Drucker proposed giving shareholders only a claim on the corporation’s profits and not an ownership interest in the corporation so that the corporation’s managers could be freed from their legal subservience to the shareholders and directors and fulfill their social and political roles of balancing the interests of the corporation’s various stakeholders.91 For Drucker, the board of directors would be transformed from a governing body representing the interests of shareholders to a “maker of policy” with representatives from management, labor and local communities as well as investors.92 Enlightened managers would still be motivated by profits, but they would seek to fulfill the corporation’s larger social responsibilities as well.93
More recently, Lynn Sharp Paine, a Harvard Business School professor, has followed in Dodd’s footsteps by looking to the reactions of consumers, employees and the public in general to corporate scandals (“blaming, shunning”) and corporate largesse (“gratitude, trust”) and the role of the corporation as “society’s dominant institution” to view the corporation as an independent moral actor.94 And, like Dodd, Paine believes that the corporation’s moral personality “can only be expressed and ‘embodied’ through those who act on the corporation’s behalf – its directors, executives, employees, and other representatives.”95 In coming to this conclusion, Paine asserts that the law, which is usually a lagging social indicator, is finally catching up to the pragmatic reality that corporations are moral actors rather than inherently amoral, soulless entities.96 Among the laws cited by Paine are state corporate constituency statutes which allow boards of directors to consider the interests of all stakeholders, not just shareholders, in making decisions, especially in the takeover context.97 In Paine’s theory of the corporation, maximizing shareholder value becomes the “last vestige of the corporate a morality doctrine” and should be replaced by “center-driven” decision-making that combines NPV (net present value) and financial considerations with MPV (moral point of view) and social considerations.98 As part of this value shift, Paine sees the artificial entity theory of the corporation, with its focus on the state and its ability to create corporations, and the natural entity theory of the corporation, with its focus on the investor as the owner of private property in the corporation in the form of shares, giving way to a focus on the entrepreneur ’s ability to marshal and coordinate the people and resources needed to create and sustain a company.99
Law school professors Margaret Blair and Lynn A. Stout have created a public interest theory of the corporation that supports this shift in focus away from the state and the owners of capital to a broader coalition of interested parties based on the economic theory of team production. Team production occurs when the coordinated efforts of two or more people are required to produce a good.100 Transaction costs arise when team production requires individuals to make investments that are difficult to specify in advance (called firm-specific investments) and that are difficult to recover once committed to the team production, and when the economic surplus (also called rents) from the team production is difficult to apportion among the team because no particular portion of the surplus can be attributed to any individual’s contribution (it is non separable).101 Any attempt to address the problem of how to divide the economic surplus via a contract in advance results in a free rider problem – “each team member will have the incentive to shirk, since he will get the same share of the total whether or not he works hard.”102 Ex ante con-tracting assumes that a contract can be negotiated and drafted, but “explicit contracts can be impossibly difficult, especially when the team production process is complex, continuous, or uncertain.”103 However, entering into team production with a mere agreement to agree to an ex post allocation risks opportunistic rent-seeking behavior and wasteful haggling in an effort to obtain a larger share of the economic surplus.104 Since these transaction costs will destroy the economic surplus either in whole or in part, the team members have a collective incentive to minimize them.105 The solution is for the team members to relinquish control over the team’s assets and production to a third party, who does not make a firm-specific investment but who receives a nominal share of the economic surplus in exchange for providing a mediating function.106 Based on the severity of the transaction costs, this mediating hierarch can be given the power to allocate the economic surplus as well as fire team members.107 The mediating hierarch’s “primary function is to exercise that control in a fashion that maximizes the joint welfare of the team as a whole“ so the team members can make their firm-specific investments.108
Blair and Stout view the corporation as an example of team production and the corporation itself as a separate legal entity, through a series of internal hierarchs culminating in the board of directors as a mediating hierarch.109 The team members are the various stakeholders in the corporation, such as the shareholders, employees (whether management or labor), customers, creditors, and local communities, and the emphasis of the team production model is on the horizontal relationships between these stakeholders rather than on the vertical relationships between shareholders, as principals and owners, and the corporate managers, as agents, found in the natural entity theory of the corporation.110 As a matter of law, the property rights to the team’s outputs and inputs, whether physical assets, financial capital or firm-specific human capital, are held by the corporation and are controlled by the board of directors, whose authority over the assets and whose independence from the other team members are required by corporate law.111 The role of the board of directors is to allocate the corporation’s assets, control their use, mediate disputes between team members, and even eject team members to both encourage and protect firm-specific investments.112
In this team production theory of the corporation,113 the board of directors asa mediating hierarch is not an agent solely representing the interests of the share-holders, but a trustee of the corporation and all of its stakeholders or team members.114 Despite the greater role given to the board of directors in the team production theory of the corporation over the contractarian theory of the corporation, Blair and Stout believe that their “mediating hierarch approach . . . is consistent with ‘nexus of contracts’ approach to understanding corporate law,” subject to two crucial distinctions.115 First, where the contractarian theory would address the problems of explicit contracting by granting property rights to provide residual control rights to one of the participants in the corporation, the team production theory would rely on boards of directors as mediating hierarchs and corporate law to fill the gaps in contracting.116 Second, instead of defining the corporation as a nexus of contracts, Blair and Stout would view the corporation as a nexus of firm-specific investments in which several groups, who “contribute unique and essential resources to the corporate enterprise, [but] who find it difficult to protect their contribution through explicit contracts,” nonetheless understand and want to capture the economic gains from team production.117 Thus, the board of directors’ role as a mediating hierarch is not based on notions of morality or social justice, but on economic efficiency. In doing so, “Blair and Stout bring E. Merrick Dodd’s 1932 proposal, that directors be freed from fiduciary duties to shareholders, into the twenty-first century.”118
The Faithful Corporation
The concept of a faithful business using the corporate form to practice its business as a mission moves beyond secular corporate theories dichotomized by a focus on either private or public interests to an even more radical view of the corporation as a vehicle for fulfilling the creation mandates and advancing the kingdom of God for the glory of God. For a faithful corporation, making a profit for shareholders and satisfying stakeholders are not ends in themselves or even a means to broader goals such as maximizing societal wealth through efficiency gains or greater corporate social responsibility, but instead are a means to greater ends.
The Historical Roots of the Faithful Corporation
The idea of a faithful business can be found in the writings of the Protestant Reformers, such as Luther, Calvin, and the Puritans. By rejecting the medieval division of work into the sacred and the secular and focusing on the creation mandates (Gen. 1:26; 2:15)119 and the doctrine of vocation or calling, the Protestant Reformers dignified ordinary work as a means of glorifying God and fully enjoying Him forever.120 For example, “Richard Steele considered it a ‘sin and folly’ when people aim ‘only at their wealth, ease, and honour; and not at the glory of God and the public good, as well as their own subsistence.’”121
The business as mission movement is the latest heir to the Reformation’s views on business. The phrase “business as mission” was developed in 1999 at the Oxford Centre for Mission Studies to identify “a relatively new approach to missions, one that taps the power and redemptive potential of large, often global, businesses.”122 The idea and terminology of business as mission was adopted by the Christian mission community and became more widespread spread through The Lausanne Committee on World Evangelism and Youth With A Mission (YWAM). The Forum of the Lausanne Committee for World Evangelism held in Pattaya, Thailand in September and October 2004 included a Business as Mission Issue Group as one of thirty–one issue groups, and this group of over seventy participants from all continents issued The Business as Mission Manifesto and Lausanne Occasional Paper No. 59 on Business as Mission.123 Although the idea of a faithful business can be found in the 16th- and 17th-century writings of the Protestant Reformers and the catch–phrase “business as mission” is of even more recent vintage, the faithful corporation ultimately has ancient roots in work and the creation.
The Creational Roots of the Faithful Corporation
A Christian theory of the corporation engaged in business as mission cannotbe divorced from a Christian understanding of work for two reasons. First, despite Lord Chancellor and First Baron Edward Thurlow observation, the corporation is not soulless since the soul of the corporation is found in the people who comprise it.124 Under principals of agency law, the employees of the corporation are its agents and have the power to act on behalf of and bind the corporation.125 Since a corporation, as an artificial legal entity, can only act through its employees, agency law becomes essential to the existence and operation of the corporation.126 Thus, a theological understanding of work is important for understanding the moral obligations of the Christian managers of a faithful corporation and, by extension, the corporation itself. Second, business is the child of work. Business as commerce requires an exchange and the exchange itself is work and the object of that exchange is often the result of work. Since business is an outgrowth of work and the corporation is a means of doing business, a theological understanding of the corporation begins with a theological understanding of work.
Christian theologians and scholars have created numerous definitions of work ranging from the simple and circular (“And work means any activity by man, whether manual or intellectual, whatever its nature and circumstances; it means any human activity that can and must be recognized as work, in the midst of all the many activities of which man is capable and to which he is predisposed by his very natures, by virtue of humanity itself”)127 to the more explicit (“Work…includes all that we are obligated to do to meet our physical and social needs”)128 to the more complicated (“Work is honest, purposeful, and methodologically specified social activity whose primary goal is the creation of products or states of affairs that can satisfy the needs of working individuals or their co–creatures, or [if primarily an end in itself] activity that is necessary in order for acting individuals to satisfy their needs apart from the need for the activity itself.”)129 All these definitions are valuable because they describe both the inherent nature of work in humanity and the utilitarian nature of work for humanity. However, these multiple descriptions of work also reveal the inherent difficulty in trying to define work. “Work is one of those things in our daily life ‘whose meaning is hidden in the mystery of their familiarity.’”130 In addition to work being too familiar, a Christian definition of work is elusive because “[a]t the beginning of man’s work is the mystery of creation.”131
A theological understanding of the faithful corporation must begin with the creation account in Genesis 1 and 2 because a Christian understanding of work is rooted in the creation. The relationship between God and man in the context of the creation sets the stage for understanding the problem of evil through sin and the fall and God’s plan for salvation through the incarnation, crucifixion, and resurrection of Jesus Christ.132 It also provides an understanding of work. However, this use of the creation account in Genesis 1 and 2 must be done humbly since “[w]hen it is said in the context of [a] primeval event that ‘God created man…’, then something is being said about the beginning of humanity that is not accessible to our understanding.”133 Genesis 1 and 2 do not provide precise formulas about work, but rather they provide multiple insights and themes that support a Judeo–Christian understanding of work.
The first insight related to work from Genesis 1 and 2 is that God is a worker. God’s work was initially the creation itself since all things were made by God (Gen. 1:1).134 “As we move through the kaleidoscope of actions that God performed [in the work of creation], we read that he separated, made, called, set, formed, and planted.”135 When Genesis 2:2–3 describes God resting on the seventh day from his work, the word “work” that is used three times to describe the creation activities of God is the Hebrew word for ordinary work as used in Gen. 39:11 to describe Joseph’s household work as the attendant for Potiphar.136 The God–creation relationship thus sanctifies ordinary work from the outset, especially since God declared his workmanship “very good” (Gen. 1:31).137 This sanctification destroys any understanding that work is divided between the secular and the sacred, whether based on the medieval Catholic worldview that exalted the vita contemplativa over the vita activa138 or the modern evangelical Protestant idea that surrendering oneself to ministry is limited to working full–time as a pastor or missionary as opposed to working in a secular profession or occupation.139 Instead, creation becomes “a model for human work” and “opens the way to regard work not simply as the arena within which one serves God but through which one serves him.”140 The New Testament affirms this view of work when Paul counsels converts that their new life in Christ does not require abandoning their current occupations to which God had called them (1 Cor. 7:17).141
A second insight about work from the creation narrative is that God made human beings for work and to work. The creation narrative of Genesis 1 states that God gave men and women dominion over animals (Gen. 1:26–27)142 and commanded them to subdue the earth (Gen. 1:28).143 Dominion and subjugation are the results of work, and they are tempered by the stewardship imperatives inherent in the work of creation care. The account of creation in Genesis 2 indicates that human beings were needed “to work the ground” (Gen. 2:5)144 and states that the very reason man was placed in the Garden of Eden was “to work it and take care of it” (Gen. 2:15).145 The shift in work from physical labor associated with an agricultural economy to the mental activity associated with an information–based economy indicates that working on and caring for creation was not just a command to work the ground, but a mandate to perform all the tasks of culture and civilization in the context of stewardship.146 The creation mandate thus places work at the center of the type of human existence intended by God. In this mandate, God provides all that is needed for work, while human beings are to work as stewards for the glory of God in God’s creation. Paul’s exhortation that in all tasks Christians are to “work at it with all your heart, as working for the Lord, not for men, since you will receive an inheritance from the Lord as a reward” (Col. 3:23–24)147 serves as a New Testament affirmation of the creation mandate and the importance of work in serving and glorifying God.
Intertwined with God’s creative activity, the creation mandate, and human work is the description of men and women as beings made in the image of God. At the culmination of his creation activity, “God said, ‘Let us make man in our image, in our likeness . . . ” (Gen. 1:26a).148 The imago Dei is not bestowed on any other element of the created order and is thus unique to human beings. However, the meaning of the imago Dei is not found in focusing on the nature of humanity or in asking the question “How is humanity described?”149 “Since the text is speaking about the action of God” the proper question becomes, ’What is the purpose of the creator God when he decides to create a person in his image?’”150 In the context of both creation and humanity’s uniqueness, the answer to the proper question is that God created human beings to be in a relationship with him and to be part of “a happening between God and human beings.”151 “What God decides to create must be something that has a relationship to him” and the very “uniqueness of human beings consists in their being God’s counterparts. The relationship to God is not something which is added to human existence; humans are created in such a way that their very existence is intended to be in their relationship with God.”152
While the “happening” between God and humanity is described in the meta–narrative of the Old and New Testaments, culminating in the new creation and the new Jerusalem (Rev. 21:1–4),153 several elements of the creation narrative in Genesis 1 and 2 indicate that part of the relationship between God and human beings is tied to work. First, since humanity is created in the image of God and God worked to make all of creation (and then rested), one of the ways in which people express the imago Dei is by working (and resting).154 Second, God’s statement in Genesis 1:26 that human beings are created in the image of God so that they may rule over the animals reveals that God created human beings in his image to fulfill the creation mandate, which is centered on work.155 Third, the relationship intended by God in the imago Dei and the creation mandate is that of creator and sub–creators.156 Genesis 2 states that creation lacked plants because God “had not sent rain on the earth and there was no man to work the ground” (Gen. 2:5)157 and then reveals that God “took the man and put him in the Garden of Eden to work it and take care of it” (Gen. 2:15).158 Thus, the initial work of creation required the efforts of both God and human beings. Since the creation mandate is a continuing one, men and women share in the creative activity of God and the unfolding work of God’s creation through work.159 In this process of co–creation “God is sovereign, so no concept of human equality with God is envisioned…[b]ut people can become junior partners with God, carrying on his delegated work in dependence on him.”160 Since “[the Son] is the image of the invisible God” (Col. 1:15),161 the imago Dei and its relationship to work are also linked to Jesus Christ and the kingdom of God established through Christ’s incarnation, ministry, crucifixion, resurrection, and promised return.
Although the fall corrupts work by making work toilsome and burdensome (Gen. 3:17–19),162 “God’s fundamental and original intention with regard to man, whom he created in his own image and after his own likeness was not withdrawn or canceled out even when man, having broken the original covenant with God, heard the words: ‘In the sweat of your face you shall eat bread.’”163 Work itself continues to be good because “through work man not only transforms nature, adapting it to his own needs, but he also achieves fulfillment as a human being and indeed in a sense becomes ‘more a human being’” by both reflecting the image of God and by fulfilling the ongoing creation mandate.164
The imago Dei and the activity of God in the creation also reveal that the model of work given by God is ultimately one of work in the context of relationships. The God of creation expresses himself as a relational being through the Trinity of Father, Son, and Holy Spirit. Genesis 1 recounts how the work of God in the beginning when the earth was formless and empty was done in conjunction with the Spirit of God (Genesis 1: 1–2).165 The creation of human beings in Genesis 1 refers to God in the plural – “Then God said, ‘Let us make man in our image, in our likeness . . . ’ (Gen. 1:26)166 – which was interpreted by the early church as an expression of the Trinity.167 The New Testament affirms the presence and central role of Jesus Christ as the first born over all creation by revealing how all things were created by the Son and for the Son (Col. 1: 15–17).168 The terms “Father,” “Son,” and “Holy Spirit” are a means of describing the mystery of an internal relationship within God so that “we cannot as true believers assert that God is One, if we mean that He is alone . . . that though He is One He is not solitary.”169 “If God is not solitary and exists always in relation, there can be no talk of God that does not involve love. Love unites Father, Son, and Holy Spirit, love brings God into relation with the world, and by love human beings cleave to God.”170 Thus,God did not work alone in creation, but worked in fellowship with himself in love.
Since God is a relational being, human beings, made in the image of God, are made to be relational beings, as illustrated by Genesis 1 and 2. The creation narrative in Genesis 1 repeats God’s view of each element of creation as “good” and the totality of creation as “very good.”171 However, the creation narrative in Genesis 2 identifies one element of creation – man – that is not good in and of itself. After God put the man in the Garden of Eden, God decided that “[i]t is not good for man to be alone” and created a woman as a “helper,” implying, in part, a relationship of mutual support based on work between men and women (Gen. 2: 18–22).172 The creation of man and women shows that the relational aspects of humanity, including work, and humanity’s role as the image–bearers of God will be found in community, as demonstrated by various human institutions.173
Business becomes an institution in which the various creational aspects of work find their expression. Business, by providing products and services that meet human needs, creates jobs that allow people to work in obedience to the creation mandate and as an expression of the imago Dei. Business also provides a context forwork in a community. “It is characteristic of work that it first and foremost unites people. In this consists its social power: the power to build a community.”174 In addition, business, through communities formalized as economic institutions and organizations, such as the corporation, becomes the major means of obeying the creation mandate of keeping and caring for the earth and all of its natural resources.175 However, these abilities are inherent in virtually all corporations, whether or not they are consciously seeking to serve and glorify God through the work they provide and organize. Thus, a theological understanding of the faithful corporation, while necessarily rooted in the creation narratives, requires something more than a creational understanding of work and business. Since a faithful corporation is Christian at its core, that “something more” is Jesus Christ and the kingdom of God he proclaimed.
The Faithful Corporation in the Kingdom of God
Christians are not simply called to fulfill the creation mandate, but to bear witness to the kingdom of God.176 Both “our origin – made in the image of God –and our destiny – the kingdom of God – shape our work.”177 In recognizing the lordship of Jesus Christ over all of creation, Christian managers of the faithful corporation can move from a worldview based on humanity’s relationship with God and with each other as sons of Adam and daughters of Eve to a worldview based on a relationship as brothers and sisters in and through Christ. With Christ at the center, the business as mission movement becomes testimony to the belief that Christ can reform and transform business and its container, the corporation.
If Christ is at the center of the faithful corporation, then so is the good news about the kingdom of God, for Jesus said that he was sent to preach the good news of the Kingdom of God (Luke 4:42–44).178 The kingdom of God “encapsulates a (perhaps ‘the’) central focus of [Jesus’] teaching about his own mission and about the life of discipleship.”179 The importance of the kingdom of God is evidenced by its prominence at both the beginning and the end of Jesus’ earthly ministry. Jesus’ first statements about the nature of his ministry to the members of his synagogue in Nazareth came from Isaiah’s vision about the Messiah with its images of preaching to the poor, binding up the broken hearted, proclaiming freedom and release to captives and those in darkness, and comforting those who mourn (Isa. 61:1–2).180 This description of the kingdom of God unites the Old Testament prophetic voice with Jesus’ earthly ministry and the eschatological kingdom promised in Revelation. Ina ddition, the first message that Jesus proclaimed in his wider preaching was that the kingdom of God is near (Mark 1:14–15).181 Finally, Jesus’ last days before the ascension were spent talking with his disciples about the kingdom of God, both its nature and timing (Acts 1:3, 6–8).182 The kingdom of God was clearly a matter of first andlast principles in Jesus’ teachings – to be believed and remembered.183
While important, the kingdom of God is not clearly defined. The phrase itself makes a statement that God is king and sovereign over all of creation, while the context of the phrase in the Gospels describes the breaking in, through Jesus Christ, of this rule of God over a fallen creation.184 Rather than providing a detailed, code–like description of the rule of God, Jesus used indirect, though powerful, references to illustrate by analogy the nature of God’s reign. Many parables were explicitly given by Jesus to show what the kingdom of God “is like,” whether as a mustard seed, yeast, buried treasure, a pearl, or a wedding banquet, and to reveal “the knowledge of the secrets of the kingdom of heaven” (Matt. 13:11).185 The miracles of Jesus also become “signs and foretastes” of the kingdom of God by declaring how hunger, disease, and death would no longer be factors when God’s “will is done on earth as it is in heaven” (Matt. 6:10).186
However, Jesus’ statements about the Kingdom of God combined with the parables and miracles reveal a tension about the “already” and “not yet” aspects of the God’s restored rule over creation. Jesus’ initial proclamation that “[t]he kingdom of God is near” can either mean that the kingdom of God “has arrived” or“has almost arrived.”187 The parable of the seed illustrates this tension:
This is what the kingdom of God is like. A man scatters seed on the ground. Night and day, whether he sleeps or gets up, the seed sprouts and grows, though he does not know how. All by itself the soil produces grain – first the stalk, then the head, then the full kernel in the head. As soon as the grain is ripe, he puts the sickle to it, because the harvest has come (Mark4:26–29).188
This parable reveals both the hidden, mysterious nature of the God’s work in the world and the simultaneous present reality and future promise of this work, indicating that “the kingdom cannot be limited to a single temporality.”189 While Jesus demonstrated the power of God over hunger, disease, and death in his miracles, people continue to starve, fall ill, and die even after the crucifixion and resurrection. Although the miracles are signs that the kingdom of God is “already established” their limited scope and impact are also signs that this kingdom must still “work itself out to its full potential,” as revealed in the New Jerusalem (Rev. 21:1–2 and 22:1–5).190
This tension between the “already” and “not yet” leads to a second tension in the kingdom of God between grace and human activity. “[T]he theological theme of the Bible is that the kingdom is something that is conferred by God’s grace through the agency of human faith…,”191 and the parable of the seed indicates that “the arrival of the harvest is not the result of human activity.”192 Yet, Jesus’ teaching demands a human response to social injustice as demonstrated by the “ethical slant” of the “actual imagery surrounding entry into the Kingdom” found in the Beatitudes, the Sermon on the Mount, and elsewhere in Jesus’ teachings.193 While Christians are to be waiting for Jesus Christ’s return in glory and power, that waiting should not be confused with inactivity194 The parable of the seed and the parable of the ten virgins (Matt: 25: 1–13)195 when combined with the parables about absent masters (Matt. 24:45–51; 25:14–30)196 illustrate that a Christian’s attitude should be one of expectant readiness for the future along with obedience and responsibility in the present.197 Although tension does exist between human activity and God’s activity, that tension can be eased by viewing human work in the kingdom of God as a continuation of the type of partnership established by God in the creation mandate. Thus, for Christian managers of a faithful corporation, this tension should not lead to paralysis, but to a desire for change since “[p]eople who feel this tension are not satisfied with the status quo” because they have been given a glimpse of the world as God intended it to be from before the beginning of time.198
Toward a Theory of the Faithful Corporation
The faithful corporation ultimately seeks to glorify God by holistically integrating Christian theological and social principles throughout its internal and external operations to conduct its business as a Christian mission.199 Although the corporation as a human construct is imperfect due to sin and humanity’s rebellion against God, the corporate form can be transformed by using it as a vehicle for fulfilling the creation mandate and advancing the kingdom of God through ways of being and doing that honor and implement the Great Commandment (Matt.
22:36–40)200 and the Great Commission (Matt. 28:18–20).201 Thus, while “the business of business is business,” the business of a faithful corporation “is business with a kingdom of God purpose and perspective.”202
Unfortunately, not all corporations can both fully and successfully pursue this purpose and perspective. The Christian entrepreneur must first be called to business and then develop a business model that allows that the business to grow and flourish. The most likely business models that will allow a faithful corporation to meet both the marketplace challenges of competition and the biblical demands of Christianity are ones based on differentiation and transactional advantages.203However, if this high hurdle can be cleared, then corporate law supports the idea of a faithful corporation becoming a publicly traded corporation and continuing its Christian mission in that form primarily through the protections provided by the business judgment rule and corporate constituency statutes.204
As a publicly traded corporation, the faithful corporation will find itself in the middle of the secular debate about the ends and means of the corporation. Neither the private nor the public theories of the corporation will be sufficient to justify the existence of the faithful corporation. Although the faithful corporation will need to earn a profit to fund its business as mission, it will not be pursuing the goal of maximizing profits for the benefit of shareholders as advocated by private interest theories of the corporation. While the faithful corporation will often appear to have adopted a public interest theory of the corporation with its concern for stakeholders, the source of that concern in the faithful corporation will not arise solely from modern and post–modern secular formulations about human nature and society, but from the creation mandate, the kingdom of God, and other biblical principles.Just as Christian and secular human rights advocates would agree on the importance of human dignity but would disagree on why that concept is important,205 a theory of the faithful corporation will resemble but ultimately be different from a public interest theory of the corporation.
Placing God at the center means that the ends of the faithful corporation are supernatural rather than temporal, and spiritual rather than secular. Its focus is primarily missional. This focus has a number of implications for a theory of the faithful corporation, such as moving from dualism to integrity, moving from good corporate citizenship to a dual citizenship, and moving from a single financial bottom line to a multiple bottom line. In addition, the identification of the faithful corporation with the creation and the kingdom of God creates unique challenges for corporate governance.
Moving from Dualism to Integrity
In its most common usage, the word “integrity” means honesty and a person of integrity is a person of good character and moral strength.206 These latter attributes hint at the original and deeper meaning of the word “integrity” – one rooted in the idea of wholeness or completeness.207 Thus, an integer is a whole number and to integrate is “to make whole or complete by adding or bringing together parts.”208 Integration in the faithful corporation occurs when God’s demands, such as those described in the creation mandate and the kingdom of God, are intentionally and holistically integrated into all the aspects of the business. Using the value chain activities, these aspects include primary activities, such as inbound logistics, operations, outbound logistics, marketing and sales, and service, and support activities, such as procurement, technology development, human resource management, or firm infrastructure, including ownership structures, and the relationships with customers, internal and external suppliers, competitors, strategic alliance partners, government, and local communities represented by these activities.209
In this process, the faithful corporation will need to strike a balance between over investing and under investing in its Christian mission.210 The faithful corporation will not over invest in the business under the mistaken assumption that its operations can create a heaven on earth. Since “the world is presently under the power of sin and is transitory . . . . human work cannot create God’s new world, no matter how noble human motives might be…The New Jerusalem is the city (which stands for ‘the people’) of God and comes ‘down out of heaven’ (Rev. 21:2; cf. 1 Pet.1:4; Matt. 25:34).”211 However, this recognition of God’s sovereignty does not result in passively waiting for the New Jerusalem. “In the New Testament the injunction to wait eagerly for the kingdom is not opposed to the exhortation to work diligently for the kingdom….Placed in the context of kingdom–participation, mundane human work for worldly betterment becomes a contribution – a limited and imperfect one in need of divine purification – to the eschatological kingdom, which will come through God’s action alone.”212 Thus, the faithful corporation will notjust be encouraging its employees and other stakeholders to pray, study the Bible, and exhibit personal virtues such as honesty. Instead, the faithful corporation will be a vehicle for distributing justice, both within and outside the firm as an out-growth of its ultimate goal of glorifying God.213
In the contractarian model, the distinction between moral behavior and business behavior is a sharp one that, taken to its logical conclusion, would allow corporate managers to violate the law if it is profitable to do so.214 The faithful corporation would reject the “separation thesis” that morality and ethics “can be neatly and sharply separated” from business and instead adopt an approach that more closely resembles normative stakeholder theory.215 In the normative analysis, like the team production theory, “economic value is created by people who voluntarily come together and cooperate to improve everyone’s circumstance.”216 Thus, managers “must pay attention to the consequences of their actions on others,” regardless of the purpose of the firm.217 If the arrangements among stakeholders are not fair under one of many different conceptions of fairness, then the normative analysis predicts that stakeholders will either exit from the collaborative enterprise represented by the corporation or use the political process to capture value or regulate the value captured by others.218 In the faithful corporation, the purpose of the corporation to glorify God through obedience to the concepts of fairness created by the second half of the Great Commandment will drive the same result. In this manner, a faithful corporation will strive to eliminate the dualism that can compartmentalize faith and business.
Moving from a Good Corporate Citizen to Dual Citizenship
A logical corollary of the corporation’s separate legal existence is the treatment of the corporation as a person under various constitutional and statutory provisions that apply to “persons” and the status of a corporation as a citizen of the state in which it is incorporated.219 These ideas permeate public interest theories of the corporation, especially those that focus on molding the corporation into a good corporate citizen. However, given its purpose of glorifying God, being a good corporate citizen is a necessary element for the faithful corporation but not a sufficient one. Conceptualizing the corporation as a good citizen is too limiting for the faithful corporation since the obligations of a corporate citizen arise from positive law and natural law, while the kingdom of God, as interpreted by Jesus in the Great Commandment and the Great Commission, requires the faithful corporation to move beyond both positive and natural law to biblical mandates that explicitly draw attention to God the Father, the Son, and the Holy Spirit.
Despite its separate legal existence, the faithful corporation does not have a soul separate from the people who compose it because of the unique gift of the soul given by God to human beings in the imago Dei. As a result, the faithful corporation will never achieve the salvation represented by citizenship in the city of God described by Augustine in De Civitate Dei.220 Yet the same criteria that determine an individual’s citizenship in the either the city of God or the city of man can be used to move the faithful corporation from the limitations of good corporate citizenship to a wider dual citizenship. For Augustine, citizenship in the city of God or the city of man “is determined not by the accident of one’s birth, parental lineage, or place of residence, but by the object of one’s love or the end to which all of one’s actions are subordinated: in one case, ‘the love of God to the contempt of oneself;’ in the other case, ‘the love of oneself to the contempt of God’ (14.28).”221 Citizenship in the city of God is not simply a matter of doing good works, but of having the right intentions. Such a citizenship reflects an ordering of thoughts and actions so that their supreme end is directed towards God rather than directed toward obtaining an existence separate from God through self–sufficiency.222
Thus, the motivations of the faithful corporation move beyond the private interest versus public interest dichotomy of secular corporate theory. “A theory of the firm explains it reason for being,”223 and the reason a faithful corporation exists is to glorify God. The faithful corporation will concern itself with stakeholders other than shareholders and, to that degree, appear to adopt public interest theories of the corporation. However, the reason for doing so is not because “ethics pays”224 or “to present a moral face to the world”225, or because “it is better for society as a whole . . . [and] if they do not, they are storing up a whirlwind for themselves in the future”226, or because they are “moral–cultural agencies” in addition to being economic agencies,227 but because they have been commanded by God to love their neighbors as themselves and to be “a letter from Christ, the result of our ministry, written not with ink but with the Spirit of the living God, not on tablets of stone but on tablets of the human heart” (2 Cor. 3:3).228
With this mindset, the faithful corporation will become a vehicle for introducing the people associated with it to the kingdom of God through both word and deed.230 Jesus’ teachings and parables, such as the Beatitudes (Matt. 5:3–11)231, the parable of the good Samaritan (Luke 10:29–37)232 the parable of the sheep and the goats (Matt. 25:31–46),233 and the parable of the talents (Matt. 25:14–30),234 and the lessons of Jesus’ actions, such as humbling himself, feeding the hungry, and concerning himself with society’s outcasts, become integrated into the faithful corporation’s goals and mission, with the marketplace providing the access, the proximity to people’s needs, and the context for relationships.235 How this happens will vary from company tocompany, but several themes can be identified.
First, the faithful corporation will embody a culture in which its managers take on the role of servant stewards. Since “[t]he earth is the Lord’s, and everything in it” (1 Cor. 10:26; Ps. 24:1),236 the board of directors and officers of the faithful corporation especially will view themselves as stewards rather than owners and the faithful corporation and everything in it as something entrusted to them by God. As stewards, they are responsible for using, increasing, and caring for what has been given as illustrated in the parable of the talents (Matt. 25:14–31).237 As servants, they are called to free themselves from their own self interests to focus on the needs of others (Matt. 20:25–28).238 When tied to the imago Dei and the creation mandates, the culture of servant stewardship leads the faithful corporation to focus on at least three areas: first, “providing goods and services necessary to support the healthy flourishing of the human population;” second, “providing work that allows men and women to express their God–given capacity for productivity and creativity;”239 and third, responsibly using the earth’s resources to meet current needs without compromising the ability of future generations to meet their needs.240
In addition, the faithful corporation will affirm the dignity of each person that comes within its ambit, both because each person is made in the image of God and because Jesus honored the dignity of people through his words and deeds. As a starting point, people will not be treated as means for achieving economic ends.241The dignity of employees means that the faithful corporation will strive to provide just compensation, humane and safe working conditions, systems for addressing workplace issues that reduce conflict and enhance peacemaking, and work designed to enhance human potential and development.242 Outside the faithful corporation, human dignity and the dignity of work means that it is actively seeking to implement God’s clearly stated concern for the poor and outcasts, whether by making special efforts to hire them or by providing goods or services that address their needs and in ways that make them accessible.243 In both cases, the faithful corporation will try to avoid the pitfall that arises in stakeholder theory when the various stakeholders are viewed generically as abstractions. Instead, the faithful corporation will adopt the “names–and–faces” approach that views stakeholders as individuals.244 While for normative stakeholder theory such an approach “has a better chance of putting business and ethics together,”245 for the faithful corporation such an approach emulates the example of Jesus, who treated the people he healed or taught as individuals, whether the Samaritan woman at the well,Nicodemus, or blind Bartimaeus.
With this focus on the kingdom of God, the faithful corporation will no longer just be a good corporate citizen in the city of man but will take on a dual citizenship. Ultimately, the faithful corporation is an imperfect vessel and cannot renounce its citizenship in the city of man because it is a human creation and tainted by sin and humanity’s rebellion against God. However, in its imperfection, the faithful corporation is consciously striving to be a citizen of the city God by fulfilling God purpose for business as reflected in the creation mandate and kingdom of God. As it does so, the faithful corporation “move[s] away from mutually self–serving exchanges towards relationships that establish real communions”246 which exhibit virtues such as stewardship, justice, shalom, dignity, and community.247
Moving from Profits to a Multiple Bottom Line and Beyond
Even though a faithful corporation is holistically integrating Christian principles derived from the creation narrative and the kingdom of God into all aspects of its operations, a faithful corporation must also be a real business that creates value for its customers and provides a return to its shareholders. By earning a profit, the faithful corporation raises the cash needed to fund its day–to–day business operations in the present and provides the evidence of potential future earnings needed to raise debt and equity financing for larger projects. If the faithful corporation cannot sustain itself by generating cash flow, then it is no longer a business but either a debtor–in–possession in a bankruptcy proceeding or a charitable institution, neither of which are vehicles for transforming business. Profitability becomes an absolute requirement for the faithful corporation because it is foundational to the greater good of fulfilling the creation mandates and advancing the kingdom of God.248 Thus, a faithful corporation must have a financial bottom line.
However, the nature of its financial bottom line reveals that the faithful corporation does not conform to the shareholder primacy model of the corporation, since profits represent the means rather than the ends of the faithful corporation.249 While the shareholder primacy model focuses on maximizing profits, the faithful corporation will be satisfied with a reasonable profit since the costs of dual citizenship are high. The difference between a maximized profit and a reasonable profit provides the funding the faithful corporation needs to do its creational and kingdom work. By making profits foundational to greater goods, the faithful corporation isable to use profits to the glory of God.
An example of how the costs of dual citizenship affect profits can be found in the area of employee compensation. Decisions about employee compensation are both basic ones and important ones since the direct and indirect labor costs created by salaries, wages, and other human resource benefits are key cost drivers. Under a shareholder primacy model, compensation simply becomes a factor in maximizing profits and a matter of efficiency. The tension in employee compensation under the shareholder primacy model is to find the equilibrium point which minimizes the costs of compensation but maximizes employee productivity. However, when the creational concept of the imago Dei and the kingdom value of human dignity are combined with biblical injunctions about wages, employee compensation also becomes a matter of justice. Both the Old Testament and the New Testament condemn those who cheat workers of their wages, and the Bible further commands employers to go beyond paying the bare minimum to avoid exploiting vulnerable workers (Jer. 22:13; James 5:4; Deut. 24:14–15).250 Thus, when Christian social principles are applied to employee compensation, wages, salaries, and benefits become a matter of justice and profit rather than just profit alone.251
Helen Alford and Michael Naughton assert that compensation cannot only beviewed economically as a means of achieving the firm’s strategic goals since pay is part of a work relationship between employer and employee that has moral and spiritual dimensions.252 While Alford and Naughton believe that pay has legitimate objective dimensions based on how pay affects profits, productivity, and quality, they also believe that pay has subjective dimensions since people “leave an unrepeatable imprint on the world, through their product and services, and through virtue of who they become – that is, a unique, unrepeatable image of the creative activity of God in them.”253 The approach to pay they advocate is a just wage based on a combination of a living wage that meets the employee’s needs, an equitable wage that reflects the employee’s contribution, and a sustainable wage that takes into account an employer ’s ability to continue its business operations.254
Due to these greater goods, profitability is not the only indicator of the performance of a faithful corporation. As a vehicle for working diligently in the context of the “already, but not yet” nature of the kingdom of God, a faithful corporation will also have spiritual and social bottom lines.255 Although a faithful corporation has a multiple bottom line per the stakeholder model, the existence of a spiritual bottom line that seeks to manifest Christ and His kingdom throughout the business in order to make Him known reveals the enormous gap between the faithful corporation and the stakeholder model and its concern for corporate social responsibility in the context of good corporate citizenship. As a faithful corporation, it is not primarily serving stakeholders and temporal goods as a good corporate citizen, but instead it is serving God and supernatural goods as a faithful one.
A faithful corporation as a publicly–traded corporation will be subject to the federal securities laws with their goal of creating financial transparency through the mandatory disclosure of information to investors. The faithful corporation will want to disclose how it is embodying the creational mandates and advancing the kingdom of God for several reasons. First, the faithful corporation will want to let its light shine before others so that they can see its good deeds and also glorify God (Matthew 5:14–16).256 Second, the faithful corporation will want to avoid misleading shareholders about its true nature both to avoid lying and to avoid lawsuits initiated by disgruntled shareholders. Finally, the faithful corporation will comply with the federal securities laws as an act of submission to earthly authority (Romans 13:1–5).257 In complying with the federal securities laws, the faithful corporation will not be substantially different than its secular counterpart, unless the concern about deception from a spiritual perspective causes the faithful corporation to over disclose.
However, unlike its secular counterpart, the faithful corporation will bear the burden of two agency problems in operating its business as a mission. The first agency problem reflects the problem that is at the core of the shareholder primacy model of the corporation – the managers of the faithful corporation will undermine its profitability through greed and sloth. Even though the faithful corporation is not seeking to maximize profits and is satisfied with reasonable profits, the traditional principal–agent problem in a corporation continues to be an issue because profits are hard to make and precious to the greater good of the faithful corporation. Any dollar that is lost to greed or sloth is a dollar that cannot be spent on the business as mission. However, another agency problem also threatens the faithful corporation – the temptation by its managers to sacrifice its greater goals for even greater profits or wealth. The financial bottom line is a very tangible one that is easy to measure and reward while the social and spiritual bottom lines are not. If greed is not tempered, then the managers of the faithful corporation risk focusing exclusively on financial goals and not on the greater goal of glorifying God by running a business that reflects the creation narrative and the kingdom of God.258
This temptation heightens the need for the faithful corporation to have a truly independent board of directors that will exercise its traditional role under corporate law as the ultimate decision maker.259 The faithful corporation needs to return to the original design of corporate law in which officers are supposed to be subservient to a board of directors rather than the world’s frequent corruption of corporate law that places boards of directors under the control of officers. The board of directors of a faithful corporation must be committed to the concept of a business as mission and understand the unique manner in which that mission will be realized within a firm to avoid a culture of greed.260 The board of directors needs to bean active one that regularly sets goals and reviews performance for each of the faithful corporation’s bottom lines to avoid a culture of sloth.261 In this role, the board of directors will be acting as stewards who view themselves as accountable to both God and the shareholders.262 As a bulwark in preserving the faithful corporation’s mission, the board of directors would ideally reflect the classical virtues of prudence, temperance, justice, and courage and the Christian virtues of faith, hope, and love. While both the agency risk and the problem of a faithful corporation becoming even more corrupted and merely acting as a Christian façade for fraud and other scams can never be eliminated, a strong, godly, independent board of directors is a critical check and balance.
A faithful corporation is faithful because it actively embodies God’s creational call to work and community and because all of its business operations become a means to advance the kingdom of God announced by Jesus Christ and to glorify God through the Great Commission and the Great Commandment. Although the faithful corporation is using a worldly form that is a human construct, it is not conforming to worldly patterns. Instead of using the corporation for the worldly, though admirable goals, of maximizing shareholder value or fairly balancing and advancing the interests of a broad group of stakeholders, the faithful corporation is pursuing greater goals by actively praying and incarnating the [Lord’s Prayer]:“‘Your kingdom come, your will be done’ . . . in the marketplace” (Matthew 6:10).263
In many ways the private, closely–held corporation is the best vehicle for a faithful business. Its accountability is limited to God and a small group of shareholders who presumably share in its Christian mission rather than to the Securities and Exchange Commission, the financial community linked to the public equity markets, or broader group of shareholders who may not value its mission as much as their return on their investment. However, the Christian business as mission movement envisions using larger businesses to be salt and light in the market-place, and these larger businesses may require access to the public equity markets to fund their growth and extend their mission from the local to the global.
As a publicly–traded corporation, the faithful business finds itself in the middle of a debate about corporate law that has been going on for over a century and “which is currently experiencing significant intellectual ferment.”264 According to Kent Greenfield, disagreements among corporate legal scholars “go to the heart of the discipline: what corporations are; who owns them; whether they are public or private institutions; whether managers should be charged solely with maximizing profits or with looking after other social goals as well. These disagreements are as central today as they have been since the great Berle–Dodd debates of the 1930s.”265
By rejecting both the private and public theories of the corporation, the faithful corporation points to the possibility of understanding corporate theory not in terms of shareholders or stakeholders, but in terms of a larger mission. For the faithful corporation, that larger mission is glorifying God by holistically integrating Christian theological and social principles throughout its internal and external operations. In secular corporate law scholarship, one of the larger missions in which the role of business and corporations is being examined is sustainable peace.266 By moving the debate about the ends of the corporation from a constituency orientation to a mission orientation, the idea of a faithful corporation challenges the current assumptions underlying corporate theory by revealing a third way to view corporations. Thus, a theory of the faithful corporation both blazes a trail for further thinking on more secular, mission–oriented corporations and on a Christian theory of the firm that encompasses secular corporations. In so doing, the faithfu lcorporation demonstrates that the corporation as a human institution can be redeemed and Paul’s challenge to Roman Christians two thousand years ago to “not be conformed to this world, but be transformed by the renewal of your mind, that you may prove what is the will of God, what is good and acceptable and perfect”(Romans 12:2)267 can be fulfilled in the modern corporation.
Cite this article
- R. Edward Freeman, “Stockholders and Stakeholders: A New Perspective on CorporateGovernance,” California Management Review, 25.3 (1983): 89 (emphasis in original).
- Mats Tunehag, Wayne McGee and Josie Plummer, eds., Business as Mission: Lausanne Occa-sional Paper No. 59 (South Hamilton, MA: Lausanne Committee for World Evangelism, 2005).
- Steve Rundle and Tom Steffen, Great Commission Companies: The Emerging Role of Business inMissions (Downers Grove, IL: InterVarsity Press, 2003).
- Ken Eldred, God is at Work (Ventura, CA: Regal Books, 2005).
- Rundle and Steffen, Great Commission Companies, 39-41.
- 6Ibid., 42.
- Eldred, God is at Work, 60.
- Darrell Gruder, ed., Missional Church: A Vision for the Sending of the Church in North America(Grand Rapids, MI: William B. Eerdmans, 1998).
- Philip Jenkins, The Next Christendom: The Coming of Global Christianity (New York: OxfordUniversity Press, 2002).
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- Stephen N. Bretsen, “The Faithful Business as a Publicly Traded Corporation: Testing theOuter Limits of Corporate Law,” The Journal of Biblical Integration in Business (2006): 42-80.
- Stephen N. Bretsen, “In Competition with Godless Hoards: Are Some Strategic ApproachesMore Appropriate for a Faithful Business?,” The Journal of Biblical Integration in Business (forth-coming).
- Lawrence M. Friedman, A History of American Law, 2nd ed. (New York: Touchstone, 1985),188; and David Millon, “Frontiers of Legal Thought I: Theories of the Corporation,” DukeLaw Journal (1990): 207.
Franklin A. Gevurtz, Corporation Law (St. Paul, MN: West Group, 2000), 20.
- Friedman, A History of American Law, 189-90.
- Gevurtz, Corporation Law, 26.
- Ibid., 26.
- After the collapse in 1720 of the South Sea Company, a British joint stock company, and thebursting of the South Sea bubble (a forerunner to the twenty-first-century’s dot.com bubble),the British Parliament passed the South Sea Bubble Act, which declared joint stock compa-nies public nuisances and required that they obtain a charter from Parliament. However, theAct was repealed in 1825 due to the continuing popularity of this type of organization. SeeJohn Micklethwait and Adrian Wooldridge, The Company: A Short History of a RevolutionaryIdea (New York: The Modern Library, 2003), 31–33, 40.
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- The societates publicanorum resembled a limited partnership and consisted of investors, knownas publicani, who bid on public contracts. While the lead investor was required to pledgeproperty as security for the project, the other investors could either act general partners andexert control at the cost of full liability for the societates publicanorum’s debts or limit theircontrol and liability as limited partners. See Henry Hansmann, Reiner Kraakman and Rich-ard Squire, “Law and the Rise of the Firm,” Harvard Law Review 119 (2006): 1360–61.
- The collegium was a Roman entity that could be formed by three or more persons withofficial permission, and the term applied to a variety of associations, such as guilds, socialclubs and funerary societies. The collegium had an identity separate from its members. SeeMicklethwait and Wooldridge, The Company, 4; Hansmann, Kraakman and Squire, “Law andthe Rise of the Firm,” 1363.
- Micklethwait and Wooldridge, The Company, 4-5, 12-13, 17.
- Dartmouth College v. Woodward, 17 U.S (4 Wheat.), 518, 636 (1819).
- Hessen, In Defense of the Corporation, 10.
- Ibid., 51-52.
- Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private Property (NewYork: The Macmillian Company, 1933), 136-37. Looking back on that race in the 1920s, “Jus-tice Brandeis observed that, in competition for corporations to incorporate in their state,state legislatures engaged in a race ‘not of diligence but of laxity.’” See Douglas M. Branson,“Corporate Governance ‘Reform’ and the New Corporate Social Responsibility,” Universityof Pittsburgh Law Review 62 (2001): 616–17.
- Revised Model Business Corporation Act §§ 2.01, 2.02.
- Nicholas Wolfson, The Modern Corporation: Free Markets versus Regulation, (New York: TheFree Press, 1984), 5.
- Mann and Roberts, Business Law, 616.
- Ibid., 617.
- Although often limited liability is viewed by scholars as the most important attribute in thehistorical development of the corporation, other legal scholars argue persuasively that thedevelopment of entity shielding was even more profound. See Micklethwait and Wooldridge,The Company, 49-50; Hansmann, Kraakman and Squire, “Law and the Rise of the Firm,”1336.
- Henry Hansmann, Reiner Kraakman and Richard Squire, “The New Business Entities inEvolutionary Perspective,” University of Illinois Law Review (2005): 11.
- Revised Model Business Corporation Act §3.02.
- Dartmouth College v. Woodward, 17 U.S (4 Wheat.), 518, 636 (1819).
- Hansmann, Kraakman and Squire, “The New Business Entities in Evolutionary Perspec-tive,” 11.
- The origin for the word “company” implies this degree of trust or family relationship. “The[Italian] word compagnia is a compound of two Latin words (cum and panis) meaning ‘break-ing bread together.’” See Micklethwait and Wooldridge, The Company, 8.
- Ibid., 50.
- Revised Model Business Corporation Act §4.01(a)(1).
The idea of offering transferable shares in enterprises dates back at least to thirteenth-century Europe. However, the expansion of joint stock companies in conjunction with the mer-cantile system of the 16th and 17th centuries created markets for these shares. (See Micklethwaitand Wooldridge, The Company, 18–20). The transferable shares pioneered by the joint stockcompanies paved the way for the rise of the large, publicly traded industrial corporations inthe late 19th and early 20th centuries.
- Nathan Rosenberg and L. E. Birdzell, How The West Grew Rich: The Economic TransformationOf The Industrial World (New York: Basic Books, 1985), 229.
- Revised Model Business Corporation Act §8.01(b).
- Revised Model Business Corporation Act §8.41.
- Hansmann, Kraakman and Squire, “Law and the Rise of the Firm”; Oliver E. Williamson,Economic Organization: Firms, Markets and Policy Control, (New York: New York UniversityPress, 1986), 147.
- Williamson, Economic Organization, 147, 151.
- R. H. Coase, “The Nature of the Firm,” Economica 4 (1937): 368-405.
- Even before the creation of the modern corporation, the philosophical implications of cre-ating an artificial “person” led Lord Chancellor and First Baron Edward Thurlow (1731–1806) to observe that “[c]orporations have neither bodies to be punished, nor souls to becondemned, they therefore do as they like.” Cited in Micklethwait and Wooldridge, The Com-pany, 33.
- Millon, “Theories of the Corporation,” 201.
- Ibid., 211.
- Ibid., 213.
- The Railroad Tax Cases, 13 F. 722, 747–48 (C.C.D. Cal. 1882), appeal dismissed as moot subnom. San Mateo County v. Southern Pac. R.R. Co., 116 U.S. 138 (1885). Cited in Millon, “Theo-ries of the Corporation,” 214.
- Ibid., 201, 213.
- Adolf A. Berle, “Corporate Powers as Powers in Trust,” Harvard Law Review 44.7 (1931):1049.
- Milton Friedman, “The Social Responsibility of Business is to Increase its Profits,” The NewYork Times Magazine (September 13, 1970): 8, http://lst–kieser.bwl.uni–mannheim.de/Down-loads/SS05/Text_Friedman.pdf (accessed May 26, 2006).
- Adam Smith, An Inquiry Into The Nature And Causes of the Wealth of Nations (1776), V.1.107,http://www.econlib.org/library/Smith/smWN20.html (accessed May 24, 2006).
- Berle and Means, The Modern Corporation and Private Property, 86-87 (emphasis in original).
- Ibid., 122, 124 (emphasis in original).
- Lynn A. Stout, “Bad And Not–So–Bad Arguments for Shareholder Primacy,” Southern Cali-fornia Law Review 75 (2002): 1200.
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- Frank H. Easterbrook and Daniel R. Fischel, “Antitrust Suits by Targets of Tender Offers,”Michigan Law Review 80 (1982): 1177.
- Wells, “The Cycles of Corporate Social Responsibility,” 130. Not all proponents of thecontractarian model would take it to its logical conclusion and consider the corporation alegal fiction. Some contractarians recognize that the corporation is in fact an entity that holdsthe contracts since the various members of the nexus do not contract with each other, butwith the corporation. See Stephen M. Bainbridge, “Director Primacy: The Means and Ends ofCorporate Governance,” Northwestern University Law Review 97 (2003): 552–53.
Millon, “Theories of the Corporation,” 229.
- Stout, “Bad And Not–So–Bad Arguments for Shareholder Primacy,” 1192-93.
- Douglas M. Branson, “Corporate Governance ’Reform’ and the New Corporate SocialResponsibility,” 620-21.
- Bainbridge, “Director Primacy,” 577-78.
- Millon, “Theories of the Corporation,” 230.
- Easterbrook and Fischel, “Antitrust Suits by Targets of Tender Offers,” 1177.
- Millon, “Theories of the Corporation,” 230.
- Ibid., 206.
- E. Merrick Dodd, “For Whom Are Corporate Managers Trustees?” Harvard Law Review,45.7 (1932): 1154.
- Alan Murray, “The CEO as Corporate Ambassador,” The Wall Street Journal (March 29,2006), A2.
- Dodd, “For Whom Are Corporate Managers Trustees?” 1146-47..
- Ibid., 1148, 1160
- 3Ibid, 1160.
- Ibid, citing A. V. Dicey, Law and Public Opinion in England, 3rd ed., 1920
- Ibid., 1148, 1162.
- Ibid., 1161
- Ibid., 1160.
- Ibid, 1147, 1153, 1161.
- Peter F. Drucker, Concept of the Corporation (New York: New American Library, 1983).
- Wells, “The Cycles of Corporate Social Responsibility,” 104
- Ibid., 105-06.
- Ibid., 106.
- Lynn Sharp Paine, Value Shift: Why Companies Must Merge Social and Financial Imperatives toAchieve Superior Performance (New York: McGraw–Hill, 2003), 88, 95, 104.
- Ibid., 97.
- Ibid., 104.
- Ibid., 103.
- Ibid., 155, 223.
- Ibid., 159
- Margaret Blair and Lynn A. Stout, “A Team Production Theory of Corporate Law,” Vir-ginia Law Review 85 (1999): 249.
- Ibid., 249, 272.
- Ibid., 267.
- Ibid., 250.
- Ibid., 267.
- Ibid., 271.
- Ibid., 271, 274.
- 7Ibid., 274.
- Ibid., 271, 274
- Ibid., 250-51.
- Ibid., 262-64
- Ibid., 250-51.
- Ibid., 277-78.
- Blair and Stout’s team production theory of the corporation is a theory about the publiccorporation due to the probability and severity of the transaction costs and the inability toovercome those transaction costs via contracting that is not present in other forms of busi-ness associations, such as proprietorships, partnerships and closely held corporations.
- 4Blair and Stout, “A Team Production Theory of Corporate Law,” 280-81.
- Ibid., 254.
- Ibid., 254, 320.
- Ibid., 275, 285.
- Wells, “The Cycles of Corporate Social Responsibility,” 137-38.
- Bible, New International Version.
- Leland Ryken, Redeeming the Time: A Christian Approach to Work & Leisure (Grand Rapids,MI: Baker Books, 1995), 76; and Westminster Shorter Catechism, http://www.reformed.org/documents/WSC.html (accessed August 6, 2007).
- Ryken, Redeeming the Time, 97.
- 2Neal Johnson and Steve Rundle, “Distinctives and Challenges of Business as Mission,” in Business as Mission: From Impoverished to Empowered, Evangelical Missiological Society SeriesNo. 14, eds. Tom Steffen and Mike Barnett (Pasadena, CA: William Carey Library, 2006), 24(emphasis in the original).
- Tunehag, McGee, and Plummer, Business as Mission, 2, 55.
- C. Willliam Pollard, The Soul of the Firm (Grand Rapids, MI: ZondervanPublishingHouse,1996), 23.
- J. Dennis Hynes, Agency, Partnership, and the LLC in a Nutshell (St. Paul, MN: West Group,2001)
- 6Mann and Roberts, Business Law, 306.
- John Paul II, Laborem Exercens (On Human Work), 1981, http://www.christianity9to5.org/articles.cfm#care (accessed April 29, 2006), 1. Although Pope John Paul II’s encyclical is anofficial Roman Catholic document, it has received praise from Protestant theologians andscholars. Miraslav Volf states that Laborem Exercens “is one of the most remarkable ecclesias-tical documents on the question of work ever written” and acknowledges its widespreadacceptance. See Miroslav Volf, Work in the Spirit: Toward a Theology of Work (Eugene, OR: Wipfand Stock Publishers, 2001 [original work published 1991]), 5. Ryken notes that “Protestantswould do well to take the encyclical seriously” because it is “the most systematic articulationof the tenets of the original Protestant view of work I have ever seen…” See Ryken, Redeem-ing the Time, 110, 112).
- Ryken, Redeeming the Time, 16.
- Volf, Work in the Spirit, 10-11.
- ibid., 8, citing Y. R. Simon, Work, Society and Culture, 1971.131.
- John Paul II, Laborem Exercens, § 54
- Timothy R. Phillips and Dennis L. Okholm, A Family of Faith: An Introduction to EvangelicalChristianity, 2nd. ed. (Grand Rapids, MI: Baker Books, 2001), 67.133
- Claus Westermann, Genesis 1–11: A Commentary (Minneapolis, MN: Augsburg PublishingHouse, 1984), 156.
- Bible, New International Version.
- Ryken, Redeeming the Time, 160 (emphasis in original).
- Westermann, Genesis 1–11: A Commentary, 170.
- Bible, New International Version.
- Volf, Work in the Spirit, 70.
- Michael P. Schutt, Redeeming Law: Christian Calling and the Legal Profession (Downers Grove,IL: InterVarsity Press, 2007), 60-61.
- Ryken, Redeeming the Time, 161, 201 (emphasis in original).
- Bible, New International Version.
- Ibid.; and Westermann, Genesis 1–11: A Commentary, 219. Genesis 2:15 “is the decisive versefor the whole understanding of Gen 2–3.” See Westermann, Genesis 1–11: A Commentary, 220.
- Westermann, Genesis 1–11: A Commentary, 221-22; and Ryken, Redeeming the Time, 174.
- Bible, New International Version.
- Westermann, Genesis 1–11: A Commentary, 155.
- Ibid., 157.
- Ibid., 157, 158.
- Bible, New International Version.
- John Paul II, Laborem Exercens, § 114; Ryken, Redeeming the Time, 162; and Dorothy L. Say-ers, “Why Work?” Creed or Chaos? (New York: Harcourt, Brace and Co., 1949), 46, 53.
- Volf, Work in the Spirit, 127; and John G. Stackhouse, “A Bigger – and Smaller – View ofMission,” Books & Culture: A Christian Review 13, no.4 (May/June 2007), 26–7.
- John Paul II, Laborem Exercens, §§ 13, 113. John Paul II uses the imagery of humanity as co–creators with God. The concept of co–creators at a minimum has the linguistic consequenceof placing human beings on an equal footing with God. To retain a proper sense of hierarchybetween creator and creature, the word “sub–creators” has been substituted.
- Bible, New International Version
- bid.; and Volf, Work in the Spirit, 127.
- John Paul II, Laborem Exercens, § 115.
- Ryken, Redeeming the Time, 163.
- Bible, New International Version.
Bible, New International Version.
- John Paul II, Laborem Exercens, § 39
- Ibid., § 40.
- Bible, New International Version.
- Westermann, Genesis 1–11: A Commentary, 144.
- Bible, New International Version.
- Robert L. Wilken, Remembering the Christian Past (Grand Rapids, MI: William B. Eerdmans,1995), 78, 90, citing Hilary of Poitiers from De Trinitae 7.3.
- Ibid., 93.
- 1Bible, New International Version.
- Phillips and Okholm, A Family of Faith, 74; and Westermann, Genesis 1–11: A Commentary,160.
- John Paul II, Laborem Exercens, § 96.
- Jean–Yves Calvez and Michael J. Naughton, “Catholic Social Teaching and the Purpose ofthe Business Organization: A Developing Tradition,” in Rethinking the Purpose of Business:Interdisciplinary Essays from the Catholic Social Tradition, eds. S.A. Cortright and Michael J.Naughton (Notre Dame, IN: University of Notre Dame Press, 2002), 10.
- Phillips and Okholm, A Family of Faith, 102.
- Helen J. Alford and Michael J. Naughton, Managing as if Faith Mattered: Christian SocialPrinciples in the Modern Organization (Notre Dame, IN: University of Notre Dame Press, 2001),209.
- Bible, New International Version.
- R. T. France, “Kingdom of God,” in Dictionary for Theological Interpretation of the Bible, ed.Kevin J. Vanhoozer (Grand Rapids, MI: Baker Academic, 2005), 420.
- Bible, New International Version; and Phillips and Okholm, A Family of Faith, 99.
- Bible, New International Version.
- 3In speaking about the kingdom of God first and last, Jesus was following principles of trial advocacy known well to attorneys. Under the rule of primacy, what is told first is believed bya jury, and, under the principle of recency, what is told last is remembered.
France, “Kingdom of God,” 420; and The New Interpreter’s Bible: General articles & introduc-tion, commentary, & reflections for each book of the Bible, including the apocryphal/deuterocanonicalbooks, vol. 8 (Nashville, TN: Abingdon Press, 1994), 167.
- Bible, New International Version.
- Ibid.; and Phillips and Okholm, A Family of Faith, 100.
- Ronald J .Kernaghan, Mark (Downers Grove, IL: InterVarsity Press, 2007), 42.
- Bible, New International Version.
- Bruce D. Chilton, “Kingdom of God,” in The Oxford Companion to the Bible, eds. Bruce M.Metzger and Michael D. Coogan (New York: Oxford University Press, 1993), 409.
- Bible, New International Version.; and France, “Kingdom of God,” 421.
- 1Leland Ryken, James C. Wilhoit, and Tremper Longman, eds., Dictionary of Biblical Imagery(Downers Grove, IL: InterVarsity Press, 1998), 480.
- Kernaghan, Mark, 98.
- Ryken, Wilhoit, and Longman, Dictionary of Biblical Imagery, 480.
- Volf, Work in the Spirit, 100.
Bible, New International Version.
Chilton, “Kingdom of God,” 409.
- Phillips and Okholm, A Family of Faith, 118.
- 9While under the Christian stewardship model of business “employees and customers be-come the actual ends of the business” and “the business is to be run for their welfare,” underthe corporate theory embodied in the faithful corporation, the business is run for the glory ofGod and caring for the welfare of various stakeholders becomes one of the means for doingso. See Jeff Van Duzer, Randal S. Franz, Gary L. Karns, Kenman L. Wong and Denise Daniels,“It’s Not Your Business: A Christian Reflection on Stewardship and Business,” Journal ofManagement, Spirituality & Religion, 4:1 (2007): 108.
- Bible, New International Version.
- Tunehag, McGee, and Plummer, Business as Mission, 7.
- Bretsen, “In Competition with Godless Hoards.”
- Bretsen, “The Faithful Business as a Publicly Traded Corporation.”
- John Witte, God’s Joust, God’s Justice: Law and Religion in the Western Tradition (Grand Rap-ids, MI: William B. Eerdmans, 2006), 41-48, 60.
- Roget’s International Thesaurus (New York: Thomas Y. Crowell, 1962).
- Schutt, Redeeming Law, 91.
- Ibid., citing the Merriam–Webster online dictionary.
- Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (NewYork, NY: The Free Press, 1985), 33-61
- Alford and Naughton, Managing as if Faith Mattered, 217.
- Volf, Work in the Spirit, 99 (emphasis in original).212
- Ibid., 100 (emphasis in original).
- Alford and Naughton, Managing as if Faith Mattered, 218-19.
- Easterbrook and Fischel, “Antitrust Suits by Targets of Tender Offers,” 1177-78.
- R. Edward Freeman, Andrew C. Wicks, and Bidhan Parmar, “Stakeholder Theory and‘The Corporate Objective Revisited,’” Organization Science 15, no.3 (2004): 364.
- R. Edward Freeman and Robert A. Phillips, “Stakeholder Theory: A Libertarian Defense,”Business Ethics Quarterly 12, no. 3 (July 2002): 340.
- Freeman, Wicks, and Parmar, “Stakeholder Theory,” 365.
- Mann and Roberts, Business Law, 617-18.
- Augustine, De Civitate De, Christian Classics Ethereal Library, http://www.ccel.org/ccel/schaff/npnf102.toc.html (accessed April 14, 2008).
- Ernst L. Fortin, “De Civitate Dei,” in Augustine through the Ages, ed. Allan D. Fitzgerald(Grand Rapids, MI: William B. Eerdmans, 1999), 197, citing Augustine, De Civitate Dei.
- Ibid., 199.
Helen Alford and Michael J. Naughton, “Beyond the Shareholder Model of the Firm: Work-ing toward the Common Good of Business,” in Rethinking the Purpose of Business: Interdisci-plinary Essays from the Catholic Social Tradition, eds., S.A. Cortright and Michael J. Naughton(Notre Dame, IN: University of Notre Dame Press, 2002), 29.
- Paine, Value Shift, 51.
- Ibid., 140.
- Alford and Naughton, “Beyond the Shareholder Model of the Firm,” 28.
- 7Michael Novak, Toward a Theology of the Corporation (Washington, D.C.: American Enter-prise Institute for Public Policy Research, 1981), 36.
- Bible, New International Version.
- 9Eldred, God is at Work, 60./efn_note] In so doing, it will seek to combine a creational understanding of work with an “already, but not yet” understanding of the kingdom of God and holistically integrate them into all aspects of its business as mission. This integration is essential because Jesus’ ministry was not a limited one, but a comprehensive one of proclamation and reconciliation that addressed people’s physical and social needs as well their spiritual need to be reconciled with God through grace.229Ibid., 67.
- Bible, New International Version.
- R. Paul Stevens, Doing God’s Business: Meaning and Motivation for the Marketplace (GrandRapids, MI: William B. Eerdmans, 1996), 89-90.
Bible, New International Version.
- Van Duzer et al., “It’s Not Your Business,” 106.
- Norman Ewert, “God’s Kingdom Purpose for Business: Business as Integral Mission,” inBusiness As Mission: From Impoverished to Empowered, Evangelical Missiological Society SeriesNo. 14, eds. Tom Steffen and Mike Barnett (Pasadena, CA: William Carey Library, 2006), 68.
- Alford and Naughton, Managing as if Faith Mattered, 79.
- Jesus’ concern for the poor has also been expressed by secular business leaders. In the 2008World Economic Forum in Davos, Switzerland, Bill Gates proposed his idea of creative capi-talism in which corporations would use their best people to create businesses that focus onthe poor. According to Bill Gates, “If we can spend the early decades of the 21st centuryfinding approaches that meet the needs of the poor in ways that generate profits for busi-ness, we will have found a sustainable way to reduce poverty in the world” See Robert A.Guth, “Wealth of Ideas: Bill Gates Issues Call for a Benevolent Capitalism,” The Wall StreetJournal, January 24, 2008,.http://online.wsj.com/article/SB120120041750814009.html (ac-cessed March 22, 2008).
- 4John F. McVea and R. Edward Freeman, “A Names–and–Faces Approach to StakeholderManagement: How Focusing on Stakeholders as Individuals Can Bring Ethics and Entrepre-neurial Strategy Together,” Journal of Management Inquiry 14, no. 1 (2005): 58.
- Alford and Naughton, Managing as if Faith Mattered, 58.
- Ewert, “God’s Kingdom Purpose for Business,” 66.
- Alford and Naughton, Managing as if Faith Mattered, 45.
- Van Duzer et al., “It’s Not Your Business,” 108.
- Bible, New International Version.
- Alford and Naughton, Managing as if Faith Mattered, 131.
- Ibid., 126-28.
- Ibid., 128.
- Ibid., 131-32.
A faithful corporation’s commitment to a multiple bottom line means that its financialbottom line may not be as attractive as the financial bottom line of an equivalent secularfirm. However, this apparent financial disadvantage does not mean that a faithful corpora-tion cannot effectively compete and ultimately attract sufficient equity capital and become apublicly traded corporation. Developing competitive advantages, such as a differentiationadvantage or a transaction advantage, increases the margin of difference between the firm’scosts and its customer ’s willingness to pay, thus providing greater profit margins to fund themultiple bottom line. See Bretsen, “In Competition with Godless Hoards.”
- Bible, New International Version.
- Alford and Naughton, Managing as if Faith Mattered, 169.
- Per corporate law, all corporate powers shall be exercised by or under the authority of, and thebusiness and affairs of the corporation managed by or under the direction of, its board of directors,subject to any limitation set forth in its articles of incorporation or in [a shareholder agreement]. SeeRevised Model Business Corporation Act, § 8.01(b); and Del. Code Ann. tit. 8, §141(a) (2006)).
- Eldred, God is at Work, 246; and Rundle and Steffen, Great Commission Companies, 100.
- Rundle and Steffen, Great Commission Companies, 101-04.
- Alford and Naughton, Managing as if Faith Mattered, 161.
- Bible, New International Version; and Tunehag, McGee, and Plummer, Business as Mission, 7.
- Kent Greenfield and D. Gordon Smith, “Debate: Saving the World with Corporate Law?Proposition: Saving the World with Corporate Law,” Emory Law Journal 57 (2008): 949.
- Ibid., 949-50.
- Timothy L. Fort and Cindy A. Schipani, “An Action Plan for the Role of Business in Foster-ing Peace,” American Business Law Journal 44, no.2 (Summer 2007).
- Bible, Revised Standard Version