Corporation as Commons

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"a shared resource whose sustainability depends on the participation of multiple constituencies in its governance (not just shareholders, but employees, core suppliers and customers). The idea of the commons better describes the legal structure of the business enterprise than does the shareholder primacy model: the firm’s various stakeholders have overlapping property claims in relation to its assets, including rights of access, withdrawal, management, exclusion and alienation. Furthermore, as in a commons, the right of alienation is not the most salient right in a corporation. Applying to the corporation the property rights and institutional design associated with the commons would help sustain the corporate enterprise and deliver benefits for all of its stakeholders and for society as a whole." (

Typology of Property Rights in Common-Pool Resources

Simon Deakin:

"Access: A right to enter a defined physical property

Withdrawal: A right to harvest the products of a resource such as timber, water or food for pastoral animals

Management: A right to regulate the use patterns of other harvesters and to transform a resource system by making improvements

Exclusion: A right to determine who will have the right of access to a resource and whether that right can be transferred

Alienation: A right to sell or lease any of the above rights "



Is the Model of the Commons a Good Descriptive Fit for the Modern Business Enterprise?

Simon Deakin:

"The answer to this should be a qualified yes. Naturally occurring resource systems have physical manifestations, while the resources tied up in the organizational structures and routines of a business firm often (indeed, increasingly) take a non-physical form. Analytically, however, there is a high degree of continuity between the business firm and the commons. As we have seen, it is descriptively false to analyze the business enterprise in terms of shareholders’ ownership of the firm or its assets. At the same time, the business firm is not “ownerless”: the firm is a resource which is subject to multiple, overlapping and sometimes conflicting claims on its use.95 Different stakeholder groups have claims or rights of various kinds to use the resources produced in and by the firm, in return for the inputs they make into the creation and maintenance of those resources. These claims are defined in a residual or default sense by the different components of the legal framework of the firm (corporate law, insolvency law, employment law and fiscal law, among others), and in a more complete sense by the sum total of explicit and implicit contracts and social norms present within a given enterprise. Many of the social norms governing the position of the different stakeholders with regard to the resources of the firm will be tacit and implicit, and so may operate in tension with the more explicit rules set out in articles of association, loan covenants, collective bargaining agreements and so on. These rules and norms together serve to define the rights of access, withdrawal, management, exclusion and alienation identified by Ostrom and her colleagues.

The literature on the commons stresses the sense in which rights of alienation are often the least salient, in practice, of the property rights present in a common resource pool. This idea is highly relevant to the analysis of the business enterprise. Historically, corporate law has placed at least as much stress on the idea of shareholder lock-in, or limited alienation rights, as it has on shareholders’ rights to sell their claims to third parties. The joint stock company form, in which shareholders’ alienation rights are most clearly expressed, is only one variant of the basic corporate structure. It may be contrasted with other forms, such as closed or privately-held companies, in which alienation rights are constrained as a matter of law, contract or practice. Even in the case of the joint stock company, the shareholders’ right of alienation consists of a right to sell their continuing voice and income claims to a third party, and does not take the form of a right to the return of the capital originally invested.

If we consider the case of employees, it is clear again that rights of alienation are highly restricted. Only very rarely do employees have job rights that can be treated as the basis of an alienable claim. In a free labour market they can remove their labour power or capacity from the firm, but when they do so, they generally cannot take with them complementary physical assets or intellectual property belonging to the employer, which remain in the firm’s asset pool. Yet employees, like shareholders, have a range of access and withdrawal rights, and in many national systems they have voice rights which can be analogized to property-like claims to participate in the management of the firm.

Restrictions on alienation of assets in the context of a common-pool resource are a widely employed means of preserving interdependencies between the assets in the pool, and thereby sustaining the resource over time. In this respect, natural resources such as irrigation or forest systems are no different from the resources tied up within the organizational structures of business firms. In a natural commons, the lifting of restraints on alienation for one or more of the user groups can lead to the depletion of the resource, both directly when assets are removed from the common pool, and more generally through a loss of legitimacy for rules aimed at ensuring the participation of all users in the maintenance of the resource. In the context of company law and corporate governance, the power of certain actors (shareholders and the board) to remove and redeploy the assets of the firm against the wishes of others (employees), through the mechanisms of takeover bids and corporate merger and acquisition activities, poses a set of fundamental questions for courts and policy makers. Different systems currently provide a wide range of answers to those questions." (

What Are the Normative Implications of Viewing the Corporation as a Commons?

Simon Deakin:

"For legal scholars, as well as for judges, regulators and policymakers, models of the business enterprise have never been seen simply as aids to understanding social phenomena; they have also been deployed to justify and critique legal and policy developments. The claims that directors are the shareholders’ agents and that the sole purpose of the corporation is the maximization of shareholder wealth (claims which have done much to shape the recent evolution of corporate law and corporate governance not just in the Anglo-American world but on a global basis), owe much to the intellectual revolution in law and economics, specifically the institutional economics which began in the 1970s and came to fruition in succeeding decades. In this context, the normative implications of seeing the corporation as a commons may well be as far-reaching as the methodological implications.

Commons research stresses, as we have seen, the complexity and heterogeneity of property rights regimes and the relatively subordinate role played by alienation rights, particularly in comparison to access and management rights. From this perspective, the emphasis on the importance of shareholders’ alienation rights in current corporate governance theory and practice looks misplaced. Shareholders’ alienation rights are at the core of the operation of the market for corporate control and the functioning of a liquid capital market in which claims on the corporation’s assets are transparently priced and corporate performance is efficiently evaluated. The exclusion of other stakeholder groups, especially employees, from participation in managing the firm is frequently justified by reference to agency cost considerations, or more simply, by appeals to the importance of shareholders’ property rights.101 We saw above that normative claims for shareholder primacy are based on a misdescription of the legal structure of the firm; the theory of the commons helps us to see that their application in practice may be destructive of long-term value in the corporate economy. Viewing one user group as having priority over the others in the use it can make of common resources and in its power to hold the managers of the resource to account is not compatible with the maintenance of the resource over time.

In short, the design principles emerging from commons research imply a model of corporate law based on these considerations: multi-stakeholder governance in preference to shareholder primacy; autonomy for rule-making processes at the level of internal enterprise relations in the face of external capital market pressures; and respect for local and national democratic choices on how to regulate the business firm in the face of pressures to condone or encourage transnational regulatory arbitrage and avoidance. This is, self-evidently, a program of reform of the law of the business enterprise that is radically at odds with the shareholder-oriented, market-focused and globallydriven model of corporate law that was the norm from the early 1980s to the onset of the global financial crisis. The shortcomings of that model are now being laid bare by the growing evidence of a correlation between shareholder-oriented corporate governance laws and practices and the destruction of corporate value during the crisis.

Whether the model of the corporation as commons can provide a normative basis for reversing this trend will be a major focus for corporate governance research as the crisis unravels in the coming years. The argument presented here will no doubt raise many objections from law and economics scholars who will see it as incentive-incompatible, and likely to produce distortions and inefficiencies of various kinds. For the reasons set out above, answers to these objections are likely to be found in the re-theorization of corporate law that is needed to bring our working models into line with what we know of the empirical reality of the business firm. Developing this theory more fully and applying its insights to further empirical work will hardly be a trivial task. However, the start has been made." (


* Article: The Corporation as Commons: Rethinking Property Rights, Governance and Sustainability in the Business Enterprise. By Simon Deakin.


"revised version of a paper originally presented as an Osler Lecture at the Faculty of Law, Queen’s University, in September 2011"


"Shareholder primacy, or the idea that corporate managers are agents of shareholders and should act exclusively in their financial interests, holds growing sway over the law and practice of corporate governance. The shareholder primacy model has its roots in economic theories which argue that it is efficient for shareholders to be constituted as the residual owners or claimants of the firm. The model is conceptually elegant and is effective in generating hypotheses for empirical testing, but it fails to describe certain core features of the legal structure of the business corporation—in particular, the autonomy granted to managers (via the board) to organize the business of the company free from immediate control by any one of the corporate constituencies or stakeholders (including shareholders) whose inputs are needed for the firm to thrive.

The increasing alignment of managerial interests with those of shareholders, through corporate governance innovations such as share options and independent boards, created incentives for excessive risk-taking, and thereby helped to precipitate the global financial crisis that began in 2007. Partly as a result of growing evidence linking shareholder influence before the crisis with a higher failure rate of financial sector companies during the crisis, attention is now turning to alternative models of the firm.

One such model, the author suggests, is that of the corporation as commons: a shared resource whose sustainability depends on the participation of multiple constituencies in its governance (not just shareholders, but employees, core suppliers and customers). The idea of the commons better describes the legal structure of the business enterprise than does the shareholder primacy model: the firm’s various stakeholders have overlapping property claims in relation to its assets, including rights of access, withdrawal, management, exclusion and alienation. Furthermore, as in a commons, the right of alienation is not the most salient right in a corporation.

Applying to the corporation the property rights and institutional design associated with the commons would help sustain the corporate enterprise and deliver benefits for all of its stakeholders and for society as a whole."


The Implications of Reconceptualizing Corporate Property as a Commons

Simon Deakin:

"The analysis of the legal structure of the firm that has just been offered has implications for the prevailing economic theorization of corporate law, and more generally of corporate governance. The core juridical features of the firm—beginning with the idea of the corporation and its ancillary conceptual devices, including the paradigmatic indeterminate-duration form of the employment relationship and notions of enterprise liability under both private law and statute—are simply impossible to square with the predominant economic models, namely agency theory and property rights theory. The legal system does not recognize managers as the agents of the shareholders. Nor does it view the shareholders as the firm’s owners. Ownership of a share does not give a shareholder a pro-rata claim to the firm’s assets.

Those assets are held by a legal form, the corporation, which cannot itself be the direct subject of ownership. Does this imply that the business firm is “ownerless”? Such a conclusion seems at odds with the widely held view that the specification of property rights in productive assets lies at the foundation of a market economy.82 Less abstractly, it is contradicted by the vocal claims made by contemporary shareholder activists, among others, to be acting as “owners” when they engage with the boards of listed companies.

It is not necessary to go so far as to say that the firm is “ownerless”. The firm as such cannot be owned, but in the context of the modern business enterprise, there are multiple, overlapping and often conflicting property rights or property type claims which the legal system is meant to adjust and reconcile. As we have seen, corporate law is largely concerned with one set of such rights, those of shareholders, but this by no means exhausts the set of claims on the firm’s assets. Employment law, insolvency law and fiscal law also identify claims of this kind. Each of these areas of law has a dual function: specifying the conditions under which various contributors of inputs (or as they are sometimes called, corporate “constituencies” or “stakeholders”) can draw on the resources of the firm while at the same time, preserving and sustaining the firm’s asset pool as a source of productive value. This is the sense in which the business enterprise is a “commons”. It is the role of the legal system to maintain this commons where doing so generates a surplus for the parties immediately involved in the productive process and for society at large. The “corporation” and ancillary juridical concepts describing in legal terms the various features of the business firm together have the function of achieving this task.

The economic theory of the commons is in essence a theory about the conditions under which collective action to preserve and sustain resources of value to society becomes possible. The theory has had its main application to natural resources in the form of “common-pool resources” such as collectively managed irrigation, fishery and forest systems. The core insight gained from over two decades of intensive empirical work on the operation of these systems is that over-exploitation of shared resources—the “tragedy of the commons”—can be overcome through forms of collective resource use and management. The conditions needed for the emergence of successful resource management regimes are complex, diverse and often highly localized. Despite this heterogeneity of observed practices, a number of general features of successful common resource pool systems have been identified by scholars in this field, principally in work conducted by Elinor Ostrom and her co-researchers." (


Simon Deakin:

"This paper has argued for a conceptual and methodological repositioning of corporate governance research, and more specifically of research in the economics of corporate law. A repositioning of this kind is needed if corporate governance scholarship is to respond to the challenge of understanding the functions and consequences of the modern business enterprise, particularly in the light of the global financial crisis. The starting point of the analysis was a claim that models matter, not only for the analysis and understanding of social phenomena but also for normative purposes. Corporate law scholarship for the past thirty years has been dominated by a model of shareholder primacy which fits well with certain developments in economic theory, and in the theory and practice of financial markets, but is at odds with what we know of the legal structure of the business enterprise. Using a model which is based on a misdescription of empirical phenomena has the potential not just to warp our understanding of the social world but to tilt policy in a direction that is at odds with society’s needs. The role of the shareholder primacy model in creating the intellectual conditions for the global financial crisis is a case in point.

Models should be judged not just by how well they generate hypotheses for empirical testing but also by how well they represent the salient features of the phenomena they describe. On this basis, the shareholder primacy model falls short at the outset, as it fails to describe core aspects of the legal model of the business enterprise, in particular the underpinning provided by law for managerial autonomy, the organizational continuity of the firm and the multi-stakeholder nature of firm-level governance. At the core of the legal model of the firm is the apparent paradox of the ownerless corporation: the firm’s productive assets are held through a legal form—the corporation—which cannot be the subject of an ownership claim. The paradox, however, is, more apparent than real. The firm is best seen as a collectively managed resource or “commons” which is subject to a number of multiple, overlapping and potentially conflicting property-type claims on the part of the different constituencies or stakeholders that provide value to the firm. Drawing on the theory of the commons, this paper has argued that the sustainability of the corporation depends on ensuring proportionality of benefits and costs with respect to the inputs made to corporate resources, and on the participation of the different stakeholder groups in the formulation of the rules governing the management and use of those resources. Viewing the corporation as a commons in this sense is the first step toward a better understanding of the role that the corporate form can play in ensuring wider economic and social sustainability." (