In this issue’s column of key law review articles, we provide summaries of three articles by distinguished legal scholars, Kellye Testy, Kent Greenfield, and Devon Carbado, who will speak at our New Strategies for Justice: Linking Corporate Law with Progressive Social Movements conference.  For a complete list of conference speakers, please visit: http://conf2005.equaljusticesociety.net/.

Kellye Testy, Linking Progressive Corporate Law With Progressive Social Movements, 76 Tulane L. Rev. 1227 (2002).    Professor Testy examines the “‘new’ corporate social responsibility movement” unfolding within the legal academy.  Using various approaches, legal scholars have begun to highlight “problems related to corporations’ lack of attention to interests other than short-term maximization of shareholder profits.”  Professor Testy analyzes and critiques four “major counter-hegemonic discourses” in corporate law:  team production theory, corporate social accountability, stakeholder theory, and corporate social responsibility (or progressive corporate law), focusing especially on the “progressive corporate law project.”

In Testy’s view, the progressive corporate law project has the greatest potential for supplanting or transforming the shareholder primacy model because it can create the kind of change necessary to assure that corporations serve social justice rather than hinder it.   She warns, however, that this new corporate responsibility movement runs the risk of accepting “the values and goals of the structures they seek to alter” and thereby failing “to mount a significant challenge to the status quo.”

She urges the corporate social responsibility movement to pay more attention to its normative and strategic goals and visions for society, “which can and should open the door to increased influence through strategic linkages with other progressive social movements.”  For example, Testy argues that “[i]t is not enough to seek to counter shareholder primacy, without being clear about exactly what it is about shareholder primacy that is troubling and what its reform will accomplish.” 

Professor Testy suggests that a progressive corporate law agenda should: (1) “seek an increased dispersion of wealth in society, rather than an increased concentration of wealth”; (2) “seek measures that reduce all forms of subordination and discrimination, including that based upon race, gender (including both gender identity and sexual orientation), age, physical disability, and religious identity”; (3) “be consistent with environmental justice movements”; and (4) “seek to enhance social democracy, not subvert it.” 

To move “more fully in the progressive direction,” she urges the movement to make strategic linkages with other progressive social movements, inside and outside of the law. Because many social movements seek to engage issues and goals that are similar to those of progressive corporate law scholars, a dialogue between the various groups is necessary. 

According to Testy, “Such interdisciplinary connections can create solidarity, and in solidarity there is power stemming from both a widened perspective as well as sheer numbers.  Perhaps just the power the project needs for the ‘piecemeal, but cumulative change’ that will be required to assure that corporations work in the service of social justice rather than against it.”

Devon Carbado & Mitu Gulati, The Law and Economics Of Critical Race Theory, 112 Yale L.J. 1757 (2003).  Professors Carbado and Gulati observe that “[l]egal academics often perceive law and economics (L&E) and critical race theory (CRT) as oppositional discourses” and, as a result, “L&E and CRT scholars rarely pool their insights to work collaboratively.”  Both schools of thought contribute to this disconnect.  Because L&E proponents mainly treat race as preexisting and fixed, they fail “to conceptualize racial discrimination in the workplace as a dialectical process within which race both shapes, and is shaped by, workplace culture.” L&E tends to focus more on the market, which often masks the fact that much discrimination occurs in the workplace.  According to the authors, understanding the relationship between racial identity and workplace culture “is critical to grappling with the complexities of contemporary workplace discrimination.”

While CRT is committed to the notion that race is socially constructed (that race is deeply affected by historical, social, political, and economic forces) the scholarship has focused very little on “the workplace as a site of racial construction.”  The authors contend that “the diversification of the professional workplace renders these workplaces important ‘social contexts’” for analyzing the social construction of race.

Second, CRT “articulates its conception of race as a social construction at the macro level, focusing primarily on legal and sociopolitical processes [and] has not paid attention to the interpersonal ways in which race is produced.”  In other words, “CRT often ignores the racial productivity of the ‘choices’ people of color make about how to present themselves as racialized persons.”  Thus, “CRT’s race-as-a-social-construction thesis does not include an analysis of the race-producing practices reflected in the daily negotiations people of color perform in an attempt to shape how (especially white) people interpret their nonwhite identities.” 

The authors contend that “CRT's notion of race as a social construction can help L&E scholars move to a dynamic conception of race, and L&E’s focus on the incentive effects of legal and institutional (norm-based) constraints can help CRT scholars analyze the ways in which the pressures and constraints of the workplace shape both employer and employee behavior.  In short, a CRT/L&E joint venture could advance our thinking about how, in the shadow of law, workplace structures and norms affect racial identity—and vice versa.”

Specifically, L&E and CRT can collaborate to analyze how modern employers and employees are likely to “manage” workplace racial diversity.  The concepts of “assimilation,” a central CRT theme, and “efficiency” a central L&E theme, can “combine to tell a story about workplace discrimination that derives from what [the authors] call ‘the homogeneity incentive.’  In order to increase efficiency, employers have incentives to screen prospective employees for homogeneity, and, in order to counter racial stereotypes, nonwhite employees have incentives to demonstrate a willingness and capacity to assimilate.”

This approach suggests that race-based employment decisions may be motivated by “an employer's interest in realizing the efficiency gains of homogeneity” rather than racial animus.  “To the extent that this is the case, employers will racially integrate their workplaces only to the extent that doing so does not significantly undermine their ability to realize those efficiency gains.   Employers respond to the homogeneity incentive by using a variety of selection mechanisms to pick the most racially homogenized outsiders—that is, outsiders whose performance of their racial identity suggests that they will fit comfortably within a workplace that is homogenized by the overwhelming presence of insiders.” 

The authors describe the racial costs of these mechanisms, question whether antidiscrimination law can identify and ameliorate these costs, and explore the legal and non-legal implications of these mechanisms. 

Kent Greenfield, Ultra Vires Lives! A Stakeholder Analysis of Corporate Illegality (With Notes On How Corporate Law Could Reinforce International Law Norms), 87 Va. L. Rev. 1279 (2001).   Professor Greenfield seeks “to establish a new way to analyze the issue of corporate illegality.”  He argues that the ultra vires doctrine (which historically limited corporations to certain purposes and powers), has not in fact disappeared, but provides the basis to limit “the authority of corporations and their managers to commit illegal acts.”  He argues specifically that a “‘contractual’ obligation of corporate executives to obey the law and to ensure that corporations obey the law springs from the doctrine of ultra vires.”

The historical purpose of the ultra vires doctrine was to limit the power and size of corporations and to protect shareholders from managerial overreaching.  When it became clear that the doctrine no longer benefited any significant stakeholders, the doctrine began to fall away.  Once the norm of shareholder supremacy (or the profit maximization rule) became firmly established, for example, “shareholders did not need the ultra vires doctrine to protect them from managerial overreaching.”

Greenfield contends, however, that a remaining vestige of the ultra vires doctrine survives “because no important corporate stakeholder has an interest in authorizing the corporation and its managers to commit illegal acts.”

For Greenfield, this limitation to lawful purposes has vital implications for corporate law doctrine for several reasons.  First, “[b]ecause unlawful acts are ultra vires—‘beyond the power’ of the corporation—such activities become subject to the enforcement powers of corporate law, in addition to the enforcement powers of whatever governmental or private entity is charged with enforcing the underlying, substantive legal requirement.”  Corporate law would also “provide shareholders the right to sue to enjoin corporations' continuing unlawful activities.”

Second, this limitation impacts “what some see as the unyielding duty of corporations and their managers to maximize profits.  Indeed, if corporations must obey the law, then they must do so even at times when such obedience is not profitable.”  Professor Greenfield argues that this “obligation to obey the law is at the core of the ‘corporate contract’ among the various stakeholders of the firm.”

Finally, because the obligation to obey the law is part of the foundation of the corporate contract,  “corporate law cannot be thought of as concerned only with the internal governance of the firm.”  Instead, “because the remaining vestige of the ultra vires doctrine imports into corporate law a concern about general law compliance, corporate law . . . will need to pay attention to a wider range of issues and situations.  Most significant, perhaps, the ‘lawfulness’ to which a corporation is held extends beyond the laws of the incorporating jurisdiction.”   In other words, a multinational corporation would have a duty to obey the law in foreign jurisdictions.

In this fashion, the ultra vires doctrine would reinforce international law because “corporations have the duty, as a matter of domestic corporate law, to act lawfully even in foreign nations.  Considering illegal activities to be ultra vires thus allows domestic corporate law to extend beyond jurisdictional boundaries.”  Therefore, if a corporation or its responsible officers break the laws of a foreign country, “a shareholder can bring an injunctive action in the corporation’s chartering state to bring an end to the unlawful behavior.”