The corporation as a nexus of gradational jural relations: A theoretical predicate for the shareholder primacy norm

This thesis is a contribution to the theoretical literature on corporate governance and corporate relationships. It proposes that the corporation is a “nexus of gradational jural relations,” and that the jural relational components in each subset of intra-corporate relationships are key foundations to the powers, rights and responsibilities that the corporation, shareholders, directors, management and other primary stakeholders claim or may claim. Specifically, it conceptualizes the act as incorporation as a jural act conferring distinct claims, powers and duties on the corporation, the shareholders and board of directors. With the jural relational framework, I argue in this thesis that the respective relationships between a corporation and its (1) shareholders and (2) board of directors and that between the board and management, represent different but related gradations of jural relations, all of which require harmonization. This framework also provides some juridical insights into the nature of the claims of other corporate constituents such as creditors and employees. Against the backdrop of a general clamour for the involvement of other corporate constituents in corporate governance, the jural relations theory helps to explain how the jural relations of the other constituents could shape their roles in governance. The theory also provides further insights into why directorial paternalism cannot be an effective device for protecting the interests of other corporate constituents. I argued, using the jural relations theory, that the interests of other corporate constituents would be best protected if the constituents were allowed to participate in designing governance mechanisms adapted to their respective interests. In employing the jural relations theory of the corporation as a possible basis for the shareholder primacy norm, the thesis focuses on two key aspects of the shareholders' jural relational rights, i.e., the right of voice and of exit. This theory also offers juridical explanations for the rights of exit and voice against the backdrop of existing related theories of corporation and corporate governance, and explores how the two rights could function as governance mechanisms. As a normative theory, the “jural relations” theory explains how lawmakers and judges should relate to the shareholders' rights of voice and of exit. As a positive theory, it provides explanations for, as it challenges, some of the provisions in the corporation codes in some Anglo-American jurisdictions relating to shareholders' relational powers and rights. In particular, this thesis uses the “jural relations” theory of the corporation to analyze the effect of existing laws on take-over bids on the shareholders' rights of exit.