In whose interests should managers of business corporations act?

Authors

  • Georgii V. Tsepov

Abstract

The article deals with the problem of correlation between private and public interests within business corporations. Development of a human society has led to the specialization of labor and pooling of production resources. The funds of the majority are under the control of the elite. Using their position, controlling persons of commercial corporations may derive economic benefits at the expense of other shareholders, employees, counterparties and society as a whole. Through taking excessive economic risks, large corporations generate systemic economic crises harming persons not directly involved in the business activity. These problems have given rise to the questions about social corporate responsibility or, in other words, in whose interests the managers of business corporations should act. Having examined the main theories of a legal person, as developed in the Soviet Union and the Western countries, the author bases his study on the contractual theory of a corporation and on the transaction cost theory. Since the future results of a corporation’s activity are unknown, the contracts between a corporation and its members cannot be determined to the fullest extent. Unlike contractual creditors, shareholders investing funds in the authorized capital of the corporation are not in the position to bargain for the ‘price’ of resources given to the corporation. Therefore, until the specified legal facts occur, the members have no property claims to the corporation, but rather only a ‘hope’ protected by law. This feature separates internal corporate relationships from proprietary relations and matters of obligation. The specific nature of corporate relationships determines the fact that managers of a business corporation shall not act contrary to the lawful common interests of members of the corporation. The managers’ right, much less the obligation to act in favor of public interests contrary to the members’ interests contradicts the nature of the corporation.

Keywords:

corporation, managers, interest, social responsibility, contractual theory of the corporation, transaction costs

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Author Biography

Georgii V. Tsepov

candidate of legal sciences, lawyer

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Published

01.12.2016

How to Cite

Tsepov, G. V. . (2016). In whose interests should managers of business corporations act?. Pravovedenie, 60(6), 74–93. Retrieved from https://pravovedenie.spbu.ru/article/view/7029

Issue

Section

Private law