Can Corporations Be Held to the Public Interest, or Even to the Law?


This article addresses our failing ability to hold business corporations to the public interest, or even to bare legality. It defends, in brief compass, the reasonableness of the expectation that corporations provide public benefits as consideration for their public privileges. But as succeeding sections recount, the traditional instrument for holding corporations to the public interest has gradually been undermined; and our standard, punitive tools for holding them even to bare legality, suffer from inherent limitations and fail adequately to deter corporate misconduct. A more adequate approach would be to supplement the current punitive regime with reform of corporate governance in directions that would decrease the temptation of managers to engage in misconduct in the first place. Several possibilities are considered, with the most promise found in allowing corporations to be owned by Danish-style “industrial foundations.” Among its advantages, the reform is realizable and would reduce incentives to corporate misconduct without compromising on performance. Industrial foundations also customarily direct a portion of corporate profits to charity, in effect reinstating the norm that for-profit corporations provide public benefits.

This is a preview of subscription content, access via your institution.


  1. 1.

    On the economic advantages of this latter triumvirate, see Hansmann et al. (2006) and Ciepley (2013).

  2. 2.

    Maitland (2003) and DuBois (1938), p 216; see also references in Harris (2000), p 138.

  3. 3.

    It may be countered that the government regularly provides “privileges” to persons, such as old age pensions (Social Security), without expecting a reciprocal public benefit from them. However, in this example, keeping the elderly off of the streets is itself the public benefit achieved, and furthermore, old age pensions are universal in their application, whereas incorporation, although in principle available to all qualified applicants, in practice applies only to those operating under this specific business form (as opposed to other business forms, or not operating a business at all).

  4. 4.

    Anonymous Case (No. 935), 88 Eng. Rep. 1518, 1518 (K.B. 1701); State v. Great Works Milling & Manufacturing Corp., 20 Me. 41, 44 (1841).

  5. 5.

    First Nat’l Bank of Carlisle v. Graham, 100 U.S. 699, 702 (1879).

  6. 6.

    See New York Central Hudson River Railroad v. United States (1909). For discussion, Hager (19881989), pp 585–611, Laufer (2006), pp 3–43 and Alshuler (2009), pp 1363–1364.

  7. 7.

    Coffee also points out that high authorized penalties encourage meritless, extortionary lawsuits against corporations (Coffee 1981, pp 402–405). For example, it would be rational for a corporation slapped with a $20 million lawsuit, albeit with only a 5% chance of success, to settle for up to $1 million; and it may need to settle simply to maintain its access to the credit markets, which shy away from companies with big lawsuits hanging over their heads.

  8. 8.

    Coffee cites studies documenting that top executives are seldom penalized by their boards for illegal conduct (Coffee 1981, pp 408–409). The relative dearth of managerial dismissals for the financial scandals of the Great Recession suggests this remains true. Derivative suits by stockholders also face significant obstacles. This means that, as things stand, there is little internal sanction to constrain executive misconduct when external sanctions fail.

  9. 9.

    An order may also be issued that leads to an unintentional tort. It is obviously difficult to deter something that was unintentional. I therefore focus on the case of intentional torts and crimes.

  10. 10.

    Other, more creative punishment proposals exist, from “equity fines” to corporate community service, that might further increase deterrence; but all have their limitations and their critics (Schlegel 1990, pp 30–38).

  11. 11.

    It will be noted that this is a wholly instrumental, and not a substantive, conception of rationality.

  12. 12.

    For critique of the myth that the board is authorized by its stockholders, see Ciepley (2013).

  13. 13.

    It could perhaps be described as a hybrid: a charter-constrained, degenerate, state-and-group agent. But such a conceptual monster is best shot, and buried in a footnote.

  14. 14.

    How the penalties are to be distributed is a difficult detail the authors leave to one side, although it would be important to the issue of deterrence.

  15. 15.

    List and Pettit expressly set to the side the practical question of the best sanctions to impose upon group agents so as to regulate their conduct. But they argue that imposing sanctions can be justified and effective (p 157, pp 165–169).

  16. 16.

    One oddity of this approach is that it would appear to make the autonomy of the group agent depend upon the perspicuity of the analyst.

  17. 17.

    At best, the members could embark on a long and unhappy period of more or less blind trial and error, hoping to strike upon a patterning of inputs that leads to better outcomes. This is an aspiration to rationality, but it is not reasoning, and any improvement in performance would not be from reasoned self-correction.

  18. 18.

    Keating (2016), citing a study by Aswath Damodaran, Stern School of Business.

  19. 19.

    But other pressures, unreasonably applied, can have the same result. In the case of VW, a new CEO wanted to increase sales (a more pro-worker objective than maximizing profits) to become the Number One auto manufacturer in the world, and to this end pushed engineers to meet U.S. emissions standards (McElrath 2015).


  1. Adams, H. C. (1897). Economics and jurisprudence. Economic Studies, 2(1), 7–35.

    Google Scholar 

  2. Alschler, A. (2009). Two ways to think about the punishment of corporations. American Criminal Law Review, 46, 1359–1392.

    Google Scholar 

  3. Angell, J. & Ames, S. (1832). A treatise on the law of private corporations aggregate. Boston: Little & Brown.

    Google Scholar 

  4. Baer, M. (2009). Governing corporate compliance. Boston College Law Review, 50, 949–1019.

    Google Scholar 

  5. Becker, G. (1968). Crime and punishment: An economic approach. Journal of Political Economy, 76, 169.

    Article  Google Scholar 

  6. Blackstone, W. (1893) [1753]. Commentaries on the laws of England in four books. Philadelphia: J.B. Lippincott. Co. Retrieved from vol. I, and vol. II,

  7. Ciepley, D. (forthcoming). The Neoliberal Corporation. In T. Clarke, J. O'Brien, & C. R. T. O'Kelley (Eds.), Oxford Handbook of the Corporation. Oxford University Press. 

  8. Ciepley, D. (2013). Beyond public and private: Toward a political theory of the corporation. American Political Science Review, 107(1), 139–158. SSRN:

  9. Clements, J., & Coats, J. (2017). Corporations like Exxon are using spurious free speech claims to fend off regulation. Vox.

  10. Coffee, J. C. Jr. (1979–1980). Corporate Crime and Punishment: A non-chicago view of the economics of criminal sanctions. American Criminal Law Review, 17, 419–478

  11. Coffee, J. C. Jr. (1981). ‘No soul to damn: No body to kick’: An unscandalized inquiry into the problem of corporate punishment. Michigan Law Review, 79(3), 386–459.

    Article  Google Scholar 

  12. DuBois, A. B. (1938). The English business company after the bubble act, 1720–1800. New York: Commonwealth Fund.

    Google Scholar 

  13. Easterbrook, F., & Fischel, D. (1989). The corporate contract. Columbia Law Review, 89, 1416–1448.

    Article  Google Scholar 

  14. Gourevitch, P. A., & Shinn, J. J. (2005). Political power and corporate control: The new global politics of corporate governance. Princeton, NJ: Princeton University Press.

    Google Scholar 

  15. Hager, M. (1988–1989). Bodies politic: The progressive history of organizational ‘real entity’ theory. University of Pittsburgh Law Review, 50, 575–654.

  16. Hansmann, H. & Thomsen, S. (2013). Managerial distance and virtual ownership: The governance of industrial foundations. ECGI—Finance Working Paper No. 372; Yale Law & Economics Research Paper No. 467. SSRN or

  17. Hansmann, H., Kraakman, R., & Squire, R. (2006). Law and the rise of the firm. Harvard Law Review, 119(5), 1333–1403.

    Google Scholar 

  18. Harris, R. (2000). Industrializing English Law. Cambridge: Cambridge University Press.

    Google Scholar 

  19. Hopkins, M., & Lazonick, W. (2016). The mismeasure of mammon: Uses and abuses of executive pay data. Institute for New Economic Thinking Working Paper No. 49.

  20. Horwitz, M. (1992). Santa clara revisited: the development of corporate theory. In M. Horwitz (Ed.) The transformation of American Law, 1870–1960: The crisis of legal orthodoxy (pp. 65–108). Oxford: Oxford University Press.

    Google Scholar 

  21. Jackson, G. (2016). “Co-determination between political ideal and economic reality: The case of Germany”, Power Point presentation at the workshop “Between ethics and efficiency? The political theory of corporate governance, Munich Technical University, December 9.

  22. Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360. Retrieved May 12, 2012, from

  23. Keating, T. (2016). Dividends for the wrong reason. Retrieved February 7, 2017, from

  24. Larkin, P. J. J. (2013). Funding favored sons and daughters: Nonprosecution agreements and ‘extraordinary restitution’ in environmental criminal cases. Loyola L.A. Law Review, 47(1), 1–51.

    Google Scholar 

  25. Laufer, W. S. (2006). Corporate bodies and guilty minds: The failure of corporate criminal liability. Chicago: University of Chicago Press.

    Google Scholar 

  26. Lazonick, W. (2014). Profits without prosperity. Boston: Harvard Business Review.

    Google Scholar 

  27. List, C., & Pettit, P. (2011). Group agency: The possibility, design, and status of corporate agents. Oxford: Oxford University Press.

    Google Scholar 

  28. MacKessey, J. (2010). The knowledge of good and evil: A brief history of compliance. The Finance ProfessionalsPost. Retrieved August 24, 2017, from

  29. Maitland, F. W. (1900). Introduction. In O. F. von Gierke (Ed.), Political theories of the middle age. Cambridge: Cambridge University Press, pp vii–xlvi.

    Google Scholar 

  30. Maitland, F. W. (2003). In D. Runciman & M. Ryan (Eds.), State, trust and corporation. Cambridge: Cambridge University Press.

    Google Scholar 

  31. Mayer, C. (2015). Reinventing the corporation. The Sir John Cass’s Foundation Lecture delivered at the British Academy in London.

  32. McElrath, K. J. (2015, October 5). Two top engineers at VW implicated in ‘defeat device’ pollution emissions scandal. Retrieved August 23, 2017, from

  33. McKeown, J. F. (1968). Corporate indemnification of directors and officers: The expanding scope of the statutes. Catholic University Law Review, 2(18), 195–218.

    Google Scholar 

  34. Murphy, J. (2000). Examining the legal and business risks of compliance programs. Retrieved August 24, 2017 from

  35. Nader, R. (2013). How to tame the corporation. The Huffington Post. April 27. Retrieved February 22, 2017, from

  36. Nader, R., Green, M., & Seligman, J. (1976). Taming the giant corporation. New York: W.W. Norton.

    Google Scholar 

  37. O’Toole, J. (forthcoming). The Enlightened Capitalists. HarperCollins.

  38. O’Toole, J. (1985). Vanguard management. New York: Doubleday.

    Google Scholar 

  39. Posner, R. (1977). Economic analysis of law. Boston: Little, Brown and Company.

    Google Scholar 

  40. Pound, R. (1936). Visitatorial jurisdiction over corporations in equity. Harvard Law Review, 49(3), 369–395.

    Article  Google Scholar 

  41. Roy, W. (1997). Socializing capital: The rise of the large industrial corporation in America. Princeton: Princeton University Press.

    Google Scholar 

  42. Schaeftler, M. (1984). The purpose clause in the certificate of incorporation: A clause in search of a purpose. St. John’s Law Review, 58(3), 2.

    Google Scholar 

  43. Schlegel, K. (1990). Just deserts for corporate criminals. Lebanon: Northeastern University Press.

    Google Scholar 

  44. Seavoy, R. (1982). The Origins of the American Business Corporation, 1784–1855: Broadening the concept of public service during industrialization. Westport: Greenwood Press.

    Google Scholar 

  45. Simons, H. (1934). A positive program for Laissez-Faire: Some proposals or a liberal economic policy. Chicago: The University of Chicago Press.

    Google Scholar 

  46. Smith, A. (1976) [1776]. An inquiry into the nature and causes of the wealth of nations. Oxford: Oxford University Press.

  47. Stout, L. (2012). The shareholder value myth: How putting shareholders first harms investors, corporations, and the public. San Francisco: Berrett-Koehler.

    Google Scholar 

  48. Strine, L. E. Jr. (2015). The dangers of denial: The need for a clear-eyed understanding of the power and accountability structure established by the delaware general corporation law. Wake Forest Law Review, 50, 761

    Google Scholar 

  49. Szeto, A. M., & David Washburn, J. (2004). Indemnification of directors and officers: A different side to the problem of corporate corruption. Wall Street Lawyer. Retrieved August 22, 2017, from

Download references

Author information



Corresponding author

Correspondence to David Ciepley.

Ethics declarations

Conflict of interest

The author declares that he has no conflict of interest.

Research Involving Human and Animal Participants

There were no human participants in this study, nor were animals involved. For this type of study, formal consent is not required.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Ciepley, D. Can Corporations Be Held to the Public Interest, or Even to the Law?. J Bus Ethics 154, 1003–1018 (2019).

Download citation


  • Corporation
  • Punishment
  • Governance