Osler lecturer advocates radical shift to a ‘commons’ corporate concept

2008 financial crisis showed weakness of corporations’ shareholder primacy

Photo by Joy Wells

Distinguished lecturer Professor Simon Deakin of the University of Cambridge takes a question from the audience during his presentation on “The Corporation as Commons.”

To kick off the first installment of the 2011-12 Osler, Hoskin & Harcourt LLP Distinguished Lectures in Business Law, University of Cambridge Professor Simon Deakin proposed a conceptual rethinking of the role of the corporation as a legal form of business enterprise. He delivered his paper, “The Corporation as Commons,” to Queen’s Law students and faculty on September 12.

Advocating a fundamental shift in the way society thinks about corporate ownership and governance, Deakin asserted that the corporation should be viewed as a commonly owned resource rather than one primarily owned and governed by its shareholders.

In the alternative he proposes, “Shareholders will (still) have claims for dividends, employees have claims for wages, and the composite sum of all the explicit and implicit contracts around the firm are the source of the property rights inside the resource of the corporation.” Then not just shareholders, he said, “but all stakeholders who contribute to the firm should have a voice, at least, in its governance.”

The need to depart from the model of shareholder primacy, Deakin argued, is in part due to its influence in the global economic crisis of 2008. The financial institutions that were the quickest to fail were those exposed to shareholder primacy pressures, and this is clear from a large body of empirical research.

Drawing from the work of US political economist Elinor Ostrom, Deakin’s application of the theory of the commons to the corporation produces a model that is not only more realistic, in terms of recognizing the roles played by of all the corporation’s stakeholders, but is also one that is more sustainable.

“The goal of each of these groups would be to govern itself in a way that maintains the corporate assets over time, because each group draws from the asset pool and has an interest in its sustainability.“

Deakin identified two principles that should guide a system of governance that relies on multi-stakeholder participation. The first would be proportionality between the stakeholders and collective decision-making. The second would be devolution of authority, in which as much deference as possible is paid to local-level rule-making.

Although Deakin stated he is merely sketching out an idea for the potential of the corporation to ensure wider natural and social sustainability, he suggested there is room for more substantial research aimed at generating hypotheses for empirical testing and policy recommendations.

“The lecture fascinated me,” said Joy Wakefield, a business grad in Law '12, who enjoyed the chance to speak with Deakin about the practical implications of his analogy following the question-and-answer session of the lecture. “He applied a model of corporate social responsibility to law using old concepts of the ‘commons’ in a novel setting. The simplicity of the analogy impressed me.”

In the distinguished business law lecture series generously sponsored by Osler, Hoskin & Harcourt LLP and directed by Professor Paul B. Miller, five internationally renowned academics will deliver topical and scholarly papers in 2011-12. For more information on upcoming lecturers and to see a video and photo gallery of Professor Deakin’s presentation, visit http://law.queensu.ca/events/oslerDistinguishedLecturesInBusinessLaw.html