Liberation psychology or liberation social psychology
is an approach to psychology that aims to actively understand the
psychology of oppressed and impoverished communities by conceptually and
practically addressing the oppressive sociopolitical structure in which
they exist.
The central concepts of liberation psychology include:
conscientization; realismo-crítico; de-ideologized reality; a coherently
social orientation; the preferential option for the oppressed
majorities, and methodological eclecticism.Through
transgressive and reconciliatory approaches, liberation psychology
strives to mend the fractures in relationships, experience, and society
caused by oppression. Liberation psychology aims to include what or who
has become marginalized, both psychologically and socially. Philosophy
of liberation psychology stresses the interconnectedness and co-creation
of culture, psyche, self, and community. They should be viewed as
interconnected and evolving multiplicities of perspectives,
performances, and voices in various degrees of dialogue. Liberation
psychology was first conceived by the Spanish/Salvadoran Psychologist Ignacio Martín-Baró
and developed extensively in Latin America. Liberation psychology is an
interdisciplinary approach that draws on liberation philosophy,
Marxist, feminist, and decolonial thought,
liberation theology, critical theory, critical and popular pedagogy, as
well as critical psychology subareas, particularly critical social
psychology.
Postulates of the social psychology of liberation
Ontological commitment: What for?
Focus on the real problems of the people rather than on academia and
theoretical knowledge. For Martín-Baró, misery, and oppression as the
two main objectives, and, connected with them, the liberation of peoples
in a broad political, economic, social and cultural sense.
Commitment to reality.
Not to confuse scientific impartiality with ethical impartiality -
the duty to take a position in the face of injustice and oppression.
To have a critical praxis.
Epistemological commitment: How?
It questions the methodology and especially:
The abuse of positivism as the only way of accessing knowledge.
Placing the individual at the center.
Promoting a social framework that prioritizes individual hedonism over solidarity and the collective good.
Working from an ahistorical perspective, which ignores the structural root of the problems.
Ethical commitment. From where?
It questions the person's own position and especially considers necessary:
Coherence, in a general sense, between what is done and the personal attitude in the way of doing it.
To live coherently with the ideals of transformation that are being searched for.
Psychosocial and community work must also be a process of personal transformation and liberation from one's own oppression.|
Permission of the author: Pérez-Sales, Pau.
History
Emergence
Core ideas of liberation psychology emerged in Latin America in the 1970s in response to criticisms of traditional psychology, social psychology specifically. Psychology was criticized for its 1) value neutrality; 2) assertion of universality; 3) societal irrelevance.
View of science as neutral – The idea that science was devoid of moral elements was considered a flawed framework.
Assertion of universality – Psychological theories were being
produced based on research conducted primarily with white, middle class,
undergraduate males. Liberationists questioned the notion that such
principles were universal and therefore applicable to all individuals
without regard to the consideration of contextual factors.
Societal irrelevance – Psychology was viewed as failing to generate knowledge that could address social inequalities.
In response to these criticisms, psychologists sought to create a
psychological science that addressed social inequalities both in theory
and practical application. It is important to note that liberation
psychology is not an area of psychology akin to clinical, developmental,
or social psychology. It is more of a framework that aims to
reconstruct psychology taking into account the perspective of the
oppressed (Martín-Baró's "new interlocutor") so the discipline ceases
its (often unwitting) complicity with the structures that perpetuate
domination, oppression and inequality. Generally, people using this
framework would not call themselves "liberation psychologists", although
this term is sometimes used to refer to them.
Origins of the term "liberation psychology" (or psicología de la liberación) may have first appeared in print in 1976. It was later brought into widespread use by Ignacio Martín-Baró.
A number of other Latin American social psychologists have also
developed and promoted the approach, including Martiza Montero
(Venezuela), Ignacio Dobles (Costa Rica), Bernardo Jiménez Dominguez
(Colombia/Mexico), Jorge Mario Flores (Mexico), Edgar Barrero (Colombia)
and Raquel Guzzo (Brazil) among others.
A number of similar approaches developed independently in other regions
of the World, including South Africa and the Philippines.
Founder
The genesis of liberation psychology began amongst a body of psychologists in Latin America in the 1970s. Ignacio Martín-Baró is credited as the founder of liberation psychology, and it was further developed by others.
Drawing of Martin-Baro
Martín-Baró was a Spanish-born Jesuit priest and social psychologist
who dedicated his work to addressing the needs of oppressed groups in
Latin America, and ultimately was assassinated as a result of his work.
His project of constructing a psychology relevant to the oppressed
majorities of the American continent was therefore terminated
prematurely. The collection of some of his articles in the collection Writings for a Liberation Psychology is a seminal text in the field that discusses the role of psychology as socially transformative. Most of his work still remains untranslated into English. His two major textbooks, Social Psychology from Central America, and his other books
are published by a small University publisher, UCA editores in El
Salvador with the consequence that the breadth and depth of his work is
not well known even in Latin America.Martin-Baró conducted research
projects with the intention of raising awareness and providing
empowerment to oppressed people of El Salvador undergoing social,
political, and war-related trauma.
Key concepts
The central concepts of liberation psychology include: concientización; realismo-crítico; de-ideologization; a social orientation; the preferential option for the oppressed majorities, and methodological eclecticism.
Concientización
The
intrinsic connectedness of the person's experience and the
sociopolitical structure is a fundamental tenet of liberation psychology
and is referred to as concientización, a term introduced by the Brazilian educator Paulo Freire, roughly translatable as the raising of politico-social consciousness. Freire was advocating for developing education and critical awareness among poor citizens. The idea is that in the process of concientización,
people become more conscious of themselves and their lives as
structured by the social reality of oppression, and learn to think for
themselves. This gives them the agency to become social actors. They
change as they begin to act on their social circumstances.
Understanding this interconnectedness is of particular importance
to understanding the experiences and psychology of oppressed peoples,
the power structure to which they are subjugated, and the ways in which
this subjugation manifests in their behavior and psychopathology.
A social orientation
Liberation
psychology criticises traditional psychology for explaining human
behavior independently of the sociopolitical, historical, and cultural
context.
Martín-Baró argued that a failure of mainstream psychology is the
attribution to the individual of characteristics that are found in the
societal relations of the group.
He argued that individual characteristics are a result of social
relations, and to view such individualistically de-emphasizes the role
of social structures, incorrectly attributing sociopolitical problems to
the individual.
Liberation psychology addresses this by reorienting the focus from an
individualistic to a social orientation. Using this framework, the
behaviour of oppressed people is conceptualized not through intrapsychic
processes, but as a result of the alienating environment.
The social orientation has a particular emphasis on understanding
the role of history in shaping current conditions, and the ways in
which this history resulted in the oppression of particular communities.
Within this orientation, critical examination of social power and its
structures is crucial. This is necessary in order to understand
political and social power as not being interpersonal, but part of a
society's institutional organization.
Preferential option for the oppressed majorities
The
development of a psychology that is "from" oppressed people rather than
"for" oppressed people is the aim of liberation psychologists.
Traditional psychology is understood as Eurocentric and is critiqued for
ignoring the unique experiences of oppressed individuals. Martín-Baró
made a similar argument, critiquing Latin American psychologists for
adopting Eurocentric psychological models that were not informed by the
social, political, and cultural environment of the impoverished and
oppressed, which was the majority of people in 1980s El Salvador.
Liberation psychology further criticizes traditional psychology
for its ivory tower approach to understanding phenomena, following
Martín-Baró's call for psychology to turn its attention from its own
social and scientific status to the needs and struggles of the popular
majority.
Unlike traditional approaches, liberation psychology seeks to
re-situate the psychologist as part of the emancipatory process for and
with oppressed communities.
Realismo-crítico
Martín-Baró
contended that theories should not define the problems to be explored,
but that the problems generate their own theories. This idea is termed realismo-crítico. This is contrasted to the traditional approach of addressing problems based on preconceived theorization, idealismo-metodológico (methodological idealism). In realismo-crítico, theorization plays a supportive, but not fundamental, role. Martín-Baró's idea of realism-crítico should not be equated with the work of Roy Bhaskar on critical realism.
Although the two ideas are conceptually similar in some ways, they have
distinct meanings (hence the use of the term here in Spanish, rather
than attempting a direct translation).
De-ideologized reality
Martín-Baró
emphasized the role of ideology in obscuring the social forces and
relations that create and maintain oppression: a key task of
psychologists then is to de-ideologize reality, helping people to
understand for themselves the nature of social reality transparently
rather than obscured by dominant ideology.
Ideology, understood as the ideas that perpetuate the interests of
hegemonic groups, maintains the unjust sociopolitical environment.
Alternatively, a de-ideologized reality encourages members of
marginalized populations to endorse ideologies that promote their own
interests and not those of the hegemony.
Martín-Baró's analysis of supposed Latin American fatalism and the myth
of the lazy Latino exemplified his approach as did his use of public
opinion surveys to counter the distortion that the then-government and
military were presenting of the Salvadorian public's views on the war.
Methodological eclecticism
Research
with a liberation psychology framework incorporates methodologies from
diverse domains. Traditional methodologies, such as surveys and
quantitative analyses, are combined with more novel techniques for
psychology, such as qualitative analyses, photography, drama, and
textual analysis.
Ignacio Martín-Baró had opposed the introduction of community psychology to El Salvador, on the basis of the ameliorative (asistencialista')
approach and limited social perspective of then dominant North American
models. Nevertheless, community psychology, and especially the Latin
American variants (typically termed community social psychology) is one of the areas most influenced by the concepts of liberation psychology. Moreover, community social psychology in Latin America, which predates liberation psychology, also shares roots in the wider movement of Latin American critical and liberatory praxis (especially dependency theory, philosophy of liberation, liberation theology, critical or popular pedagogy).
Liberation psychology departs from traditional psychological
prioritization of the individual and the attribution of an individual's
distress to pathology within the individual. Liberation psychology seeks
to understand the person within their sociopolitical, cultural, and
historical context. Therefore, distress is understood not solely in
intrapsychic terms but in the context of an oppressive environment that
psychologises and individualises distress.
In a psychotherapeutic context, this removes the onus of psychological
distress solely from the individual and their immediate circumstances,
and reframes the origin of distress as the environment and social
structure to which persons are subjugated. Furthermore, this helps
people to understand their relationship to the power structure, and the
ways in which they participate in it.
In liberatory approaches to mental distress the therapy is only a step
towards the 're-insertion' of a person into their social milieu, social
action and their existential life-project.
Moving liberation psychology forward
Since
the late 1990s, international congresses on liberation psychology have
been held, primarily at Latin American universities. These congresses
have been attended by hundreds of professionals and students, and have
been crucial in perpetuating the social justice message of liberation
psychology.
Specific congress themes include human rights, social justice,
democratization, and creating models for liberation psychology in
psychological practice and pedagogy.
In recent years, these meetings have become increasingly focused on
addressing issues related to poverty and economic inequality.
International congresses on liberation psychology include:
Liberation psychology is not limited to Latin America. The term was used by Philippine psychologist Virgilio Enríquez, apparently independently of Martín-Baró. Elsewhere there have been explicit attempts to apply the approach to practice in other regions. In 2011 an English language liberation psychology network was established by the British psychologist Mark Burton.
It has an international membership which reflects interest in
liberation psychology from psychologists who do not read Spanish or
Portuguese. Moreover, not all liberatory praxis in psychology goes under the name "liberation psychology".
Some scholars argue that the liberation psychology framework is central to black psychology.
The interconnectedness of the personal and political, a fundamental
tenet of liberation psychology, is central to black psychology. Furthermore, black psychology is thought of as inherently liberationist
as it argues that addressing the psychology of black persons
necessitates understanding, and addressing, the history and
sociopolitical power structure that has resulted in the global
oppression of individuals of African descent.
Proponents of black psychology operate within the social
orientation of liberation psychology, contending that Eurocentric
ideologies of traditional psychology lack relevance when dealing with
black communities. Therefore, an Afrocentric conceptualization that
recognizes the unique history of individuals of African-descent is
necessary when dealing with such communities.
Using a liberation psychology framework, black psychology argues that
simply recognizing the distinctiveness of the black experience is
inadequate if the psychological theorization used does not come from the
communities to which they are applied.
Such a position is consistent with Martín-Baró's assertion that the use
of Eurocentric psychological methods is incongruent with the lived
experiences of oppressed communities.
Recent work in North America has sought to understand the applied use of liberation psychology in psychotherapy with LGBT
individuals. Unlike traditional psychotherapeutic interventions, this
approach reframes LGBT individuals' psychological issues as resulting
from an understandable incorporation of the homonegative attitudes characteristic of the social structures within which gay and transgender people live.
Traditional psychotherapy typically recognises the effect of
homophobia and its impact on LGBT people, but often fails to clear the
person of the blame for embracing such views. However, a liberationist
psychological approach aims to facilitate the freeing the individual of
the blame for adopting the homonegative views of the society. Instead,
the onus is on the social environment, understanding that persons are
themselves constituted as persons in their social context. Such an
approach understands 'psychological' issues as inextricably linked to
the societal context.
This may free the LGBT person from feeling flawed for harboring
homonegative ideas. They are then able to examine how they are a
participant in the social environment and the ways in which they can
take responsibility for future actions. Additionally, using the concept
of concientización, people can examine how changing themselves can challenge the oppressive nature of the larger sociopolitical system,
although in most liberation psychology there is a more dialectical
relationship between personal and social change where personal change
does not have to precede social liberation.
Ethnopolitical Psychology
Moreover,
the framework of radical healing is closely aligned with ethnopolitical
psychology, a form of liberation psychology.The aim of ethnic political
psychology is to encourage healing and transformation through the
development of critical consciousness and political activism, especially
in regards to decolonizing people of color, reformulating their ethnic
identity, and promoting racial reconciliation, personal growth, and
societal change.
Cultural imperialism, racism, oppression, and colonization can all
result in trauma, which is believed by liberation psychologists to be
able to be healed by ethno-political psychology, though no comprehensive
studies exist. This process integrates diverse identities, gives people
a sense of mastery, and reconnects them to their roots. By combining
Eastern and Western healing traditions with Indigenous healing, this
model provides a culturally appropriate framework. POCI must be
accompanied by practitioners who bear witness to their suffering and are
committed to helping them recognize systemic racial oppression and
colonialism, while embracing resistance instead of maintaining the
status quo.
Corporate law (also known as business law, company law or enterprise law) is the body of law governing the rights, relations, and conduct of persons, companies, organizations and businesses. The term refers to the legal practice of law relating to corporations, or to the theory of corporations. Corporate law often describes the law relating to matters which derive directly from the life-cycle of a corporation. It thus encompasses the formation, funding, governance, and death of a corporation.
While the minute nature of corporate governance as personified by share ownership, capital market, and business culture rules differ, similar legal characteristics and legal problems exist across many jurisdictions. Corporate law regulates how corporations, investors, shareholders, directors, employees, creditors, and other stakeholders such as consumers, the community, and the environment interact with one another. Whilst the term company or business law is colloquially used interchangeably with corporate law, the term business law mostly refers to wider concepts of commercial law,
that is the law relating to commercial and business related purposes
and activities. In some cases, this may include matters relating to corporate governance or financial law. When used as a substitute for corporate law, business law means the law relating to the business corporation (or business enterprises), including such activity as raising capital, company formation, and registration with the government.
Overview
Academics identify four legal characteristics universal to business enterprises. These are:
Widely available and user-friendly corporate law enables business
participants to possess these four legal characteristics and thus
transact as businesses. Thus, corporate law is a response to three
endemic opportunism: conflicts between managers and shareholders,
between controlling and non-controlling shareholders; and between
shareholders and other contractual counterparts (including creditors and
employees).
A corporation
may accurately be called a company; however, a company should not
necessarily be called a corporation, which has distinct characteristics.
In the United States, a company may or may not be a separate legal
entity, and is often used synonymous with "firm" or "business."
According to Black's Law Dictionary,
in America a company means "a corporation — or, less commonly, an
association, partnership or union — that carries on industrial
enterprise." Other types of business associations can include partnerships (in the UK governed by the Partnership Act 1890), or trusts
(Such as a pension fund), or companies limited by guarantee (like some
community organizations or charities). Corporate law deals with
companies that are incorporated or registered under the corporate or
company law of a sovereign state or their sub-national states.
The defining feature of a corporation is its legal independence
from the shareholders that own it. Under corporate law, corporations of
all sizes have separate legal personality, with limited or unlimited liability for its shareholders. Shareholders control the company through a board of directors which, in turn, typically delegates control of the corporation's day-to-day operations to a full-time executive.
Shareholders' losses, in the event of liquidation, are limited to their
stake in the corporation, and they are not liable for any remaining
debts owed to the corporation's creditors. This rule is called limited liability, and it is why the names of corporations end with "Ltd." or some variant such as "Inc." or "plc."
Under almost all legal systems
corporations have much the same legal rights and obligations as
individuals. In some jurisdictions, this extends to allow corporations
to exercise human rights against real individuals and the state, and they may be responsible for human rights violations. Just as they are "born" into existence through its members obtaining a certificate of incorporation, they can "die" when they lose money into insolvency. Corporations can even be convicted of criminal offences, such as corporate fraud and corporate manslaughter.
Although some forms of companies are thought to have existed during Ancient Rome and Ancient Greece,
the closest recognizable ancestors of the modern company did not appear
until the 16th century. With increasing international trade, Royal charters were granted in Europe (notably in England and Holland)
to merchant adventurers. The Royal charters usually conferred special
privileges on the trading company (including, usually, some form of monopoly).
Originally, traders in these entities traded stock on their own
account, but later the members came to operate on joint account and with
joint stock, and the new Joint stock company was born.
Early companies were purely economic ventures; it was only a
belatedly established benefit of holding joint stock that the company's
stock could not be seized for the debts of any individual member. The development of company law in Europe was hampered by two notorious "bubbles" (the South Sea Bubble in England and the Tulip Bulb Bubble in the Dutch Republic)
in the 17th century, which set the development of companies in the two
leading jurisdictions back by over a century in popular estimation.
"Jack and the Giant Joint-Stock", a cartoon in Town Talk (1858) satirizing the 'monster' joint-stock economy that came into being after the Joint Stock Companies Act 1844
Companies returned to the forefront of commerce, although in England to circumvent the Bubble Act 1720 investors had reverted to trading the stock of unincorporated associations, until it was repealed in 1825.
However, the process of obtaining Royal charters was insufficient to
keep up with demand. In England there was a lively trade in the
charters of defunct companies. It was not until the Joint Stock Companies Act 1844 that the first equivalent of modern companies, formed by registration, appeared. Soon after came the Limited Liability Act 1855,
which in the event of a company's bankruptcy limited the liability of
all shareholders to the amount of capital they had invested.
The beginning of modern company law came when the two pieces of legislation were codified under the Joint Stock Companies Act 1856 at the behest of the then Vice President of the Board of Trade, Mr Robert Lowe.
That legislation shortly gave way to the railway boom, and from there
the numbers of companies formed soared. In the later nineteenth century
depression took hold, and just as company numbers had boomed, many began
to implode and fall into insolvency. Much strong academic, legislative
and judicial opinion was opposed to the notion that businessmen could
escape accountability for their role in the failing businesses. The last
significant development in the history of companies was the decision of
the House of Lords in Salomon v. Salomon & Co.
where the House of Lords confirmed the separate legal personality of
the company, and that the liabilities of the company were separate and
distinct from those of its owners.
The law of business organizations originally derived from the common law of England, and has evolved significantly in the 20th century. In common law countries today, the most commonly addressed forms are:
The proprietary limited company is a statutory business form in several countries, including Australia.
Many countries have forms of business entity unique to that country,
although there are equivalents elsewhere. Examples are the limited liability company (LLC) and the limited liability limited partnership (LLLP) in the United States. Other types of business organizations, such as cooperatives, credit unions and publicly owned enterprises, can be established with purposes that parallel, supersede, or even replace the profit maximization mandate of business corporations.
There are various types of company that can be formed in different jurisdictions, but the most common forms of company are:
a company limited by guarantee.
Commonly used where companies are formed for non-commercial purposes,
such as clubs or charities. The members guarantee the payment of certain
(usually nominal) amounts if the company goes into insolvent liquidation, but otherwise they have no economic rights in relation to the company .
a company limited by guarantee with a share capital. A hybrid
entity, usually used where the company is formed for non-commercial
purposes, but the activities of the company are partly funded by
investors who expect a return.
an unlimited company
either with or without a share capital. This is a hybrid company, a
company similar to its limited company (Ltd.) counterpart but where the
members or shareholders do not benefit from limited liability should the
company ever go into formal liquidation.
There are, however, many specific categories of corporations and
other business organizations which may be formed in various countries
and jurisdictions throughout the world.
One of the key legal features of corporations are their separate
legal personality, also known as "personhood" or being "artificial
persons". However, the separate legal personality was not confirmed
under English law until 1895 by the House of Lords in Salomon v. Salomon & Co. Separate legal personality often has unintended consequences, particularly in relation to smaller, family companies. In B v. B [1978] Fam 181 it was held that a discovery order
obtained by a wife against her husband was not effective against the
husband's company as it was not named in the order and was separate and
distinct from him. And in Macaura v. Northern Assurance Co Ltd
a claim under an insurance policy failed where the insured had
transferred timber from his name into the name of a company wholly owned
by him, and it was subsequently destroyed in a fire; as the property
now belonged to the company and not to him, he no longer had an
"insurable interest" in it and his claim failed.
Separate legal personality allows corporate groups flexibility in
relation to tax planning, and management of overseas liability. For
instance in Adams v. Cape Industries plc
it was held that victims of asbestos poisoning at the hands of an
American subsidiary could not sue the English parent in tort. Whilst
academic discussion highlights certain specific situations where courts
are generally prepared to "pierce the corporate veil",
to look directly at, and impose liability directly on the individuals
behind the company; the actual practice of piercing the corporate veil
is, at English law, non-existent.
However, the court will look beyond the corporate form where the
corporation is a sham or perpetuating a fraud. The most commonly cited
examples are:
where the company is a mere façade
where the company is effectively just the agent of its members or controllers
where a representative of the company has taken some personal responsibility for a statement or action
where the company is engaged in fraud or other criminal wrongdoing
where the natural interpretation of a contract or statute is as a
reference to the corporate group and not the individual company
where permitted by statute (for example, many jurisdictions provide for shareholder liability where a company breaches environmental protection laws)
Historically, because companies are artificial persons created by
operation of law, the law prescribed what the company could and could
not do. Usually this was an expression of the commercial purpose which
the company was formed for, and came to be referred to as the company's objects, and the extent of the objects are referred to as the company's capacity. If an activity fell outside the company's capacity it was said to be ultra vires and void.
By way of distinction, the organs of the company were expressed to have various corporate powers.
If the objects were the things that the company was able to do, then
the powers were the means by which it could do them. Usually
expressions of powers were limited to methods of raising capital,
although from earlier times distinctions between objects and powers have
caused lawyers difficulty.
Most jurisdictions have now modified the position by statute, and
companies generally have capacity to do all the things that a natural
person could do, and power to do it in any way that a natural person
could do it.
However, references to corporate capacity and powers have not
quite been consigned to the dustbin of legal history. In many
jurisdictions, directors can still be liable to their shareholders if
they cause the company to engage in businesses outside its objects, even
if the transactions are still valid as between the company and the
third party. And many jurisdictions also still permit transactions to
be challenged for lack of "corporate benefit", where the relevant transaction has no prospect of being for the commercial benefit of the company or its shareholders.
As artificial persons, companies can only act through human
agents. The main agent who deals with the company's management and
business is the board of directors,
but in many jurisdictions other officers can be appointed too. The
board of directors is normally elected by the members, and the other
officers are normally appointed by the board. These agents enter into
contracts on behalf of the company with third parties.
Although the company's agents owe duties to the company (and,
indirectly, to the shareholders) to exercise those powers for a proper
purpose, generally speaking third parties' rights are not impugned if it
transpires that the officers were acting improperly. Third parties are
entitled to rely on the ostensible authority of agents held out by the company to act on its behalf. A line of common law cases reaching back to Royal British Bank v Turquand
established in common law that third parties were entitled to assume
that the internal management of the company was being conducted
properly, and the rule has now been codified into statute in most
countries.
Accordingly, companies will normally be liable for all the act
and omissions of their officers and agents. This will include almost
all torts, but the law relating to crimes committed by companies is complex, and varies significantly between countries.
Corporate governance is primarily the study of the power relations among a corporation's senior executives, its board of directors and those who elect them (shareholders in the "general meeting" and employees), as well as other stakeholders, such as creditors, consumers, the environment and the community at large.
One of the main differences between different countries in the internal
form of companies is between a two-tier and a one tier board. The
United Kingdom, the United States, and most Commonwealth countries have
single unified boards of directors. In Germany, companies have two
tiers, so that shareholders (and employees) elect a "supervisory board",
and then the supervisory board chooses the "management board". There is
the option to use two tiers in France, and in the new European
Companies (Societas Europaea).
Recent literature, especially from the United States, has begun to discuss corporate governance in the terms of management science.
While post-war discourse centred on how to achieve effective "corporate
democracy" for shareholders or other stakeholders, many scholars have
shifted to discussing the law in terms of principal–agent problems.
On this view, the basic issue of corporate law is that when a
"principal" party delegates his property (usually the shareholder's
capital, but also the employee's labour) into the control of an "agent"
(i.e. the director of the company) there is the possibility that the
agent will act in his own interests, be "opportunistic", rather than
fulfill the wishes of the principal. Reducing the risks of this
opportunism, or the "agency cost", is said to be central to the goal of
corporate law.
The rules for corporations derive from two sources. These are the country's statutes: in the US, usually the Delaware General Corporation Law (DGCL); in the UK, the Companies Act 2006 (CA 2006); in Germany, the Aktiengesetz (AktG) and the Gesetz betreffend die Gesellschaften mit beschränkter Haftung (GmbH-Gesetz, GmbHG).
The law will set out which rules are mandatory, and which rules can be
derogated from. Examples of important rules which cannot be derogated
from would usually include how to fire the board of directors,
what duties directors owe to the company or when a company must be
dissolved as it approaches bankruptcy. Examples of rules that members of
a company would be allowed to change and choose could include, what
kind of procedure general meetings
should follow, when dividends get paid out, or how many members (beyond
a minimum set out in the law) can amend the constitution. Usually, the
statute will set out model articles, which the corporation's constitution will be assumed to have if it is silent on a bit of particular procedure.
The United States, and a few other common law countries, split
the corporate constitution into two separate documents (the UK got rid
of this in 2006). The memorandum of association (or articles of incorporation)
is the primary document, and will generally regulate the company's
activities with the outside world. It states which objects the company
is meant to follow (e.g. "this company makes automobiles") and specifies
the authorised share capital of the company. The articles of association (or by-laws)
is the secondary document, and will generally regulate the company's
internal affairs and management, such as procedures for board meetings,
dividend entitlements etc. In the event of any inconsistency, the
memorandum prevails and in the United States only the memorandum is publicised. In civil law jurisdictions, the company's constitution is normally consolidated into a single document, often called the charter.
It is quite common for members of a company to supplement the corporate constitution with additional arrangements, such as shareholders' agreements,
whereby they agree to exercise their membership rights in a certain
way. Conceptually a shareholders' agreement fulfills many of the same
functions as the corporate constitution, but because it is a contract,
it will not normally bind new members of the company unless they accede
to it somehow.
One benefit of shareholders' agreement is that they will usually be
confidential, as most jurisdictions do not require shareholders'
agreements to be publicly filed. Another common method of supplementing
the corporate constitution is by means of voting trusts, although these are relatively uncommon outside the United States and certain offshore jurisdictions. Some jurisdictions consider the company seal
to be a part of the "constitution" (in the loose sense of the word) of
the company, but the requirement for a seal has been abrogated by
legislation in most countries.
The most important rules for corporate governance are those concerning the balance of power between the board of directors
and the members of the company. Authority is given or "delegated" to
the board to manage the company for the success of the investors.
Certain specific decision rights are often reserved for shareholders,
where their interests could be fundamentally affected. There are
necessarily rules on when directors can be removed from office and
replaced. To do that, meetings need to be called to vote on the issues.
How easily the constitution can be amended and by whom necessarily
affects the relations of power.
It is a principle of corporate law that the directors of a
company have the right to manage. This is expressed in statute in the DGCL, where §141(a) states,
(a) The business and affairs of
every corporation organized under this chapter shall be managed by or
under the direction of a board of directors, except as may be otherwise
provided in this chapter or in its certificate of incorporation.
In Germany, §76 AktG says the same for the management board, while under §111 AktG the supervisory board's role is stated to be to "oversee" (überwachen). In the United Kingdom, the right to manage is not laid down in law, but is found in Part.2 of the Model Articles. This means it is a default rule, which companies can opt out of (s.20 CA 2006)
by reserving powers to members, although companies rarely do. UK law
specifically reserves shareholders right and duty to approve
"substantial non cash asset transactions" (s.190 CA 2006), which means
those over 10% of company value, with a minimum of £5,000 and a maximum
of £100,000. Similar rules, though much less stringent, exist in §271 DGCL and through case law in Germany under the so-called Holzmüller-Doktrin.
Probably the most fundamental guarantee that directors will act
in the members' interests is that they can easily be sacked. During the Great Depression, two Harvard scholars, Adolf Berle and Gardiner Means wrote The Modern Corporation and Private Property,
an attack on American law which failed to hold directors to account,
and linked the growing power and autonomy of directors to the economic
crisis. In the UK, the right of members to remove directors by a simple
majority is assured under s.168 CA 2006
Moreover, Art.21 of the Model Articles requires a third of the board to
put themselves up for re-election every year (in effect creating
maximum three year terms). 10% of shareholders can demand a meeting any
time, and 5% can if it has been a year since the last one (s.303 CA
2006). In Germany, where employee participation creates the need for
greater boardroom stability, §84(3) AktG states that management board
directors can only be removed by the supervisory board for an important
reason (ein wichtiger Grund) though this can include a vote of
no-confidence by the shareholders. Terms last for five years, unless 75%
of shareholders vote otherwise. §122 AktG lets 10% of shareholders
demand a meeting. In the US, Delaware lets directors enjoy considerable
autonomy. §141(k) DGCL states that directors can be removed without any
cause, unless the board is "classified", meaning that directors only
come up for re-appointment on different years. If the board is
classified, then directors cannot be removed unless there is gross
misconduct. Director's autonomy from shareholders is seen further in
§216 DGCL, which allows for plurality voting and §211(d) which states
shareholder meetings can only be called if the constitution allows for
it.
The problem is that in America, directors usually choose where a
company is incorporated and §242(b)(1) DGCL says any constitutional
amendment requires a resolution by the directors. By contrast,
constitutional amendments can be made at any time by 75% of shareholders
in Germany (§179 AktG) and the UK (s.21 CA 2006).
Countries with co-determination
employ the practice of workers of an enterprise having the right to
vote for representatives on the board of directors in a company.
In most jurisdictions, directors owe strict duties of good faith,
as well as duties of care and skill, to safeguard the interests of the
company and the members. In many developed countries outside the English
speaking world, company boards are appointed as representatives of both
shareholders and employees to "codetermine" company strategy. Corporate law is often divided into corporate governance (which concerns the various power relations within a corporation) and corporate finance (which concerns the rules on how capital is used).
Directors also owe strict duties not to permit any conflict of interest
or conflict with their duty to act in the best interests of the
company. This rule is so strictly enforced that, even where the
conflict of interest or conflict of duty is purely hypothetical, the
directors can be forced to disgorge all personal gains arising from it.
In Aberdeen Ry v. Blaikie (1854) 1 Macq HL 461 Lord Cranworth stated in his judgment that,
"A
corporate body can only act by agents, and it is, of course, the duty
of those agents so to act as best to promote the interests of the
corporation whose affairs they are conducting. Such agents have duties
to discharge of a fiduciary nature towards their principal. And it is a
rule of universal application that no one, having such duties to
discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting or which possibly may conflict,
with the interests of those whom he is bound to protect... So strictly
is this principle adhered to that no question is allowed to be raised as
to the fairness or unfairness of the contract entered into..."
However, in many jurisdictions the members of the company are permitted
to ratify transactions which would otherwise fall foul of this
principle.
It is also largely accepted in most jurisdictions that this principle
should be capable of being abrogated in the company's constitution.
The standard of skill and care that a director owes is usually
described as acquiring and maintaining sufficient knowledge and
understanding of the company's business to enable him to properly
discharge his duties. This duty enables the company to seek compensation
from its director if it can be proved that a director has not shown
reasonable skill or care which in turn has caused the company to incur a
loss. In many jurisdictions, where a company continues to trade despite foreseeable bankruptcy,
the directors can be forced to account for trading losses personally.
Directors are also strictly charged to exercise their powers only for a
proper purpose. For instance, were a director to issue a large number
of new shares, not for the purposes of raising capital but in order to
defeat a potential takeover bid, that would be an improper purpose.
Company law theory
Ronald Coase
has pointed out, all business organizations represent an attempt to
avoid certain costs associated with doing business. Each is meant to
facilitate the contribution of specific resources - investment capital,
knowledge, relationships, and so forth - towards a venture which will
prove profitable to all contributors. Except for the partnership, all
business forms are designed to provide limited liability to both members of the organization and external investors. Business organizations originated with agency law,
which permits an agent to act on behalf of a principal, in exchange for
the principal assuming equal liability for the wrongful acts committed
by the agent. For this reason, all partners in a typical general
partnership may be held liable for the wrongs committed by one partner.
Those forms that provide limited liability are able to do so because the
state provides a mechanism by which businesses that follow certain
guidelines will be able to escape the full liability imposed under
agency law. The state provides these forms because it has an interest in
the strength of the companies that provide jobs and services therein,
but also has an interest in monitoring and regulating their behaviour.
Members of a company generally have rights against each other and
against the company, as framed under the company's constitution.
However, members cannot generally claim against third parties who cause
damage to the company which results in a diminution in the value of
their shares or others membership interests because this is treated as "reflective loss" and the law normally regards the company as the proper claimant in such cases.
In relation to the exercise of their rights, minority
shareholders usually have to accept that, because of the limits of their
voting rights, they cannot direct the overall control of the company
and must accept the will of the majority (often expressed as majority rule).
However, majority rule can be iniquitous, particularly where there is
one controlling shareholder. Accordingly, a number of exceptions have
developed in law in relation to the general principle of majority rule.
Where the majority shareholder(s) are exercising their votes to
perpetrate a fraud on the minority, the courts may permit the minority
to sue
members always retain the right to sue if the majority acts to
invade their personal rights, e.g. where the company's affairs are not
conducted in accordance with the company's constitution (this position
has been debated because the extent of a personal right is not set in
law). Macdougall v Gardiner and Pender v Lushington present irreconcilable differences in this area.
in many jurisdictions it is possible for minority shareholders to take a representative or derivative action in the name of the company, where the company is controlled by the alleged wrongdoers
Through the operational life of the corporation, perhaps the most
crucial aspect of corporate law relates to raising capital for the
business to operate. The law, as it relates to corporate finance, not
only provides the framework for which a business raises funds - but also
provides a forum for principles and policies which drive the
fundraising, to be taken seriously. Two primary methods of financing
exists with regard to corporate financing, these are:
Equity financing; and
Debt financing
Each has relative advantages and disadvantages, both at law and
economically. Additional methods of raising capital necessary to finance
its operations is that of retained profits Various combinations of financing structures
have the capacity to produce fine-tuned transactions which, using the
advantages of each form of financing, support the limitations of the
corporate form, its industry, or economic sector.
A mix of both debt and equity is crucial to the sustained health of the
company, and its overall market value is independent of its capital
structure. One notable difference is that interest payments to debt is
tax deductible whilst payment of dividends are not, this will
incentivise a company to issue debt financing rather than preferred stock in order to reduce their tax exposure.
A company limited by shares, whether public or private, must have at least one issued share; however, depending on the corporate structure,
the formatting may differ. If a company wishes to raise capital through
equity, it will usually be done by issuing shares (sometimes called
"stock" (not to be confused with stock-in-trade)) or warrants.
In the common law, whilst a shareholder is often colloquially referred
to as the owner of the company - it is clear that the shareholder is not
an owner of the company but makes the shareholder a member of the
company and entitles them to enforce the provisions of the company's
constitution against the company and against other members.
A share is an item of property, and can be sold or transferred. Shares
also normally have a nominal or par value, which is the limit of the
shareholder's liability to contribute to the debts of the company on an
insolvent liquidation. Shares usually confer a number of rights on the
holder. These will normally include:
voting rights
rights to dividends (or payments made by companies to their shareholders) declared by the company
rights to any return of capital either upon redemption of the share, or upon the liquidation of the company
in some countries, shareholders have preemption rights, whereby they
have a preferential right to participate in future share issues by the
company
Companies may issue different types of shares, called "classes" of
shares, offering different rights to the shareholders depending on the
underlying regulatory rules pertaining to corporate structures,
taxation, and capital market rules. A company might issue both ordinary
shares and preference shares, with the two types having different voting
and/or economic rights. It might provide that preference shareholders
shall each receive a cumulative preferred dividend of a certain amount
per annum, but the ordinary shareholders shall receive everything else.
Corporations will structure capital raising in this way in order to
appeal to different lenders in the market by providing different
incentives for investment. The total value of issued shares in a company is said to represent its equity capital. Most jurisdictions regulate the minimum amount of capital which a company may have, although some jurisdictions prescribe minimum amounts of capital for companies engaging in certain types of business (e.g. banking, insurance etc.).
Similarly, most jurisdictions regulate the maintenance of equity
capital, and prevent companies returning funds to shareholders by way of
distribution when this might leave the company financially exposed.
Often this extends to prohibiting a company from providing financial assistance for the purchase of its own shares.
Dissolution
Events such as mergers, acquisitions, insolvency, or the commission of a crime affect the corporate form.
In addition to the creation of the corporation, and its financing,
these events serve as a transition phase into either dissolution, or
some other material shift.
If unable to discharge its debts in a timely manner, a corporation
may end up on bankruptcy liquidation. Liquidation is the normal means by
which a company's existence is brought to an end. It is also referred
to (either alternatively or concurrently) in some jurisdictions as winding up or dissolution. Liquidations generally come in two forms — either compulsory liquidations (sometimes called creditors' liquidations) and voluntary liquidations (sometimes called members' liquidations,
although a voluntary liquidation where the company is insolvent will
also be controlled by the creditors, and is properly referred to as a creditors' voluntary liquidation). Where a company goes into liquidation, normally a liquidator
is appointed to gather in all the company's assets and settle all
claims against the company. If there is any surplus after paying off all
the creditors of the company, this surplus is then distributed to the
members.
As its names imply, applications for compulsory liquidation are normally made by creditors
of the company when the company is unable to pay its debts. However,
in some jurisdictions, regulators have the power to apply for the
liquidation of the company on the grounds of public good, i.e., where
the company is believed to have engaged in unlawful conduct, or conduct
which is otherwise harmful to the public at large.
Voluntary liquidations occur when the company's members decide
voluntarily to wind up the affairs of the company. This may be because
they believe that the company will soon become insolvent,
or it may be on economic grounds if they believe that the purpose for
which the company was formed is now at an end, or that the company is
not providing an adequate return on assets and should be broken up and
sold off.
Some jurisdictions also permit companies to be wound up on "just and equitable" grounds.
Generally, applications for just and equitable winding-up are brought
by a member of the company who alleges that the affairs of the company
are being conducted in a prejudicial manner, and asking the court to
bring an end to the company's existence. For obvious reasons, in most
countries, the courts have been reluctant to wind up a company solely on
the basis of the disappointment of one member, regardless of how
well-founded that member's complaints are. Accordingly, most
jurisdictions that permit just and equitable winding up also permit the
court to impose other remedies, such as requiring the majority
shareholder(s) to buy out the disappointed minority shareholder at a
fair value.
Insider trading is the trading of a corporation's stock or other securities (e.g., bonds or stock options)
by individuals with potential access to non-public information about
the company. In most countries, trading by corporate insiders such as
officers, key employees, directors, and large shareholders may be legal
if this trading is done in a way that does not take advantage of
non-public information. However, the term is frequently used to refer to
a practice in which an insider or a related party trades based on material non-public information obtained during the performance of the insider's duties at the corporation, or otherwise in breach of a fiduciary or other relationship of trust and confidence or where the non-public information was misappropriated from the company.
Illegal insider trading is believed to raise the cost of capital for
securities issuers, thus decreasing overall economic growth.
In the United States and several other jurisdictions, trading
conducted by corporate officers, key employees, directors, or
significant shareholders (in the United States, defined as beneficial
owners of ten percent or more of the firm's equity securities) must be
reported to the regulator or publicly disclosed, usually within a few
business days of the trade. Many investors follow the summaries of these
insider trades in the hope that mimicking these trades will be
profitable. While "legal" insider trading cannot be based on material non-public information,
some investors believe corporate insiders nonetheless may have better
insights into the health of a corporation (broadly speaking) and that
their trades otherwise convey important information (e.g., about the
pending retirement of an important officer selling shares, greater
commitment to the corporation by officers purchasing shares, etc.)
Trends and developments
Most case law on the matter of corporate governance dates to the 1980s and primarily addresses hostile takeovers, however, current research considers the direction of legal reforms to address issues of shareholder activism, institutional investors and capital market intermediaries.
Corporations and boards are challenged to respond to these
developments. Shareholder demographics have been effected by trends in
worker retirement, with more institutional intermediaries like mutual funds
playing a role in employee retirement. These funds are more motivated
to partner with employers to have their fund included in a company's
retirement plans than to vote their shares – corporate governance
activities only increase costs for the fund, while the benefits would be
shared equally with competitor funds.
Shareholder activism prioritizes wealth maximization and has been
criticized as a poor basis for determining corporate governance rules.
Shareholders do not decide corporate policy, that is done by the board
of directors, but shareholders may vote to elect board directors and on
mergers and other changes that have been approved by directors. They may
also vote to amend corporate bylaws. Broadly speaking there have been three movements in 20th century American law that sought a federal corporate law: the Progressive Movement, some aspects of proposals made in the early stages of the New Deal
and again in the 1970s during a debate about the effect of corporate
decision making on states. However, these movements did not establish
federal incorporation. Although there has been some federal involvement
in corporate governance rules as a result, the relative rights of
shareholders and corporate officers is still mostly regulated by state
laws. There is no federal legislation like there is for corporate
political contributions or regulation of monopolies and federal laws
have developed along different lines than state laws.
European company law is the part of European Union law which concerns the formation, operation and insolvency of companies (or corporations) in the European Union. The EU creates minimum standards for companies throughout the EU, and has its own corporate forms. All member states
continue to operate separate companies acts, which are amended from
time to time to comply with EU Directives and Regulations. There is,
however, also the option of businesses to incorporate as a Societas Europaea (SE), which allows a company to operate across all member states.
In the United States, most corporations are incorporated, or organized, under the laws of a particular state.
The laws of the state of incorporation normally governs a corporation's
internal operations, even if the corporation's operations take place
outside that state. Corporate law differs from state to state. Because
of these differences, some businesses will benefit from having a
corporate lawyer determine the most appropriate or advantageous state in which to incorporate.
Business entities may also be regulated by federal laws and in some cases by local laws and ordinances.
A majority of publicly traded companies in the U.S. are Delaware corporations. Some companies choose to incorporate in Delaware because the Delaware General Corporation Law offers lower corporate taxes than many other states. Many venture capitalists prefer to invest in Delaware corporations. Also, the Delaware Court of Chancery is widely recognized as a good venue for the litigation of business disputes.
