1. I would like to thank Thomas L. Carson, Alexei Marcoux and Patricia H. Werhane for their comments on an earlier draft of this paper.

2. Strictly, of course, stockholders are stakeholders too, along with employees, customers, vendors, lenders, and, sometimes, local communities.

3. Some of this work is usefully collected in Lawrence E. Mitchell, ed., Progressive Corporate Law (Boulder, Col.: Westview Press, 1995). See also Amitai Etzioni, “A Communitarian Note on Stakeholder Theory,” Business Ethics Quarterly 8 (1998): 679-691.

4. Stakeholder theories also invoke distributive justice. See Thomas Donaldson and L. E. Preston, “The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,” Academy of Management Review 20 (1995): 84.

5. Joseph William Singer, “The Reliance Interest in Property,” Stanford Law Review 40 (1983): 729.

6. Singer, “Reliance Interest,” p. 723.

7. David Millón, “Communitarianism in Corporate Law: Foundations and Law Reform Strategies,” in Mitchell, Progressive Corporate Law, p. 24.

8. Margaret M. Blair, Ownership and Control (Washington, D.C.: Brookings, 1995), p. 277.

9. Millon, “Communitarianism,” p. 3.

10. “[N]o one is forced to use the corporate form of organization. . . . Thus, we do not observe all economic activity being carried on through one type of economic activity. Instead, we observe millions of organizations of many types, sizes, and structures” (Henry N. Butler and Larry E. Ribstein, The Corporation and the Constitution [Washington, D.C.: AEI Press, 1995], p. 4).

11. Eugene F. Fama and Michael C. Jensen, “Separation of Ownership and Control,” Journal of Law and Economics 26 (1983): 301-325; Michael C. Jensen and William H. Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” Journal of Financial Economics 3 (1976): 305-360. See also Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of Corporate Law (Cambridge, Mass.: Harvard University Press, 1991).

12. Kenneth E. Goodpaster terms this a “multi-fiduciary” theory of managerial responsibility in “Business Ethics and Stakeholder Analysis,” Business Ethics Quarterly 1 (1991): 53-73. See also Etzioni: “The stakeholder argument . . . accepts the legitimacy of the claim that shareholders have . . . rights and entitlements, but maintains that the same basic claim should be extended to all those who invest in the corporation. This often includes employees (especially those who worked for a corporation for many years and loyally); the community . . . ; creditors ... ; and, under some conditions, clients” (Etzioni, “Stakeholder Theory,” p. 682, emphasis omitted); and John Orlando, “The Fourth Wave: The Ethics of Corporate Downsizing,” Business Ethics Quarterly 9 (1999): 295-313.

13. “When we adjust for the risks involved and for various other factors that influence the return to an activity, we see that the returns most firms earn are not excessive compared to what the same resources could have earned in such manifestly nonexploitative alternatives as tree growing” (Robert Frank, Choosing the Right Pond [New York: Oxford University Press, 1985], p. 39). See also Easterbrook and Fischel, Corporate Law, p. 213.

14. This would not take the form of a “capital strike,” as suggested by Lindblom, but would be the result of uncoordinated actions of millions of investors each acting in rational self-defense (Charles E. Lindblom, Politics and Markets [New York: Basic, 1977]).

15. The cost of the rule change would be borne by its beneficiaries. “Any legal regime that ‘protects’ workers by making them the ‘beneficiaries’ of fiduciary duties will, by definition, make those same workers less valuable (in monetary terms) to their employers. . . . Since workers generally prefer to receive compensation in the form of cash wages rather than in other ways, even the workers themselves will prefer that fiduciary duties not be imposed on employers since such duties will, at the margin, result in lower cash compensation to workers” (Jonathan R. Macey, “An economic analysis of the various rationales for making shareholders the exclusive beneficiaries of corporate fiduciary duties,” Stetson Law Review 21 (1991): 37-38).

16. Millon, “Communitarianism,” p. 24.

17. Ibid., p. 31.

18. Ibid., p. 28.

19. Richard A. Posner, Economic Analysis of Law (Boston: Little, Brown and Co., 1977), p. 396.

20. Note that an employment-security rule might be more efficient than an employment-at-will rule. This essay is agnostic on that point. However, the rule change would be neutral from the standpoint of distributive justice.

21. Millon, “Communitarianism,” p. 26.

22. Ibid., p. 23.

23. Posner, Economic Analysis, p. 395. Posner suggests various reasons why creditors (rather than stockholders) might be better placed to bear the risk of business failure. Assume the lender is a bank. The bank might be in a better position to appraise the risk than is the individual investor who may know little or nothing about the business he has invested in. Then, also, the stockholder is likely to be more risk-averse than the bank.

24. Ibid.

25. Corporate Law, p. 50.

26. Ibid., p. 51. “Equity investors and managers have incentives to make arrangements that reduce risk and thus reduce the [interest rate] premium they must pay to debt claimants” (p. 51). The parties may also purchase insurance. As Easterbrook and Fischel say, “The ability of potential victims to protect themselves against loss through insurance is a strong reason for disregarding distributional concerns in choosing among liability rules” (p. 52).

27. Singer, “Reliance Interest,” p. 667. See also Marleen A. O’Connor, “Promoting Economic Justice in Plant Closings: Exploring the Fiduciary/Contract Law Distinction to Enforce Implicit Employment Agreements,” in Mitchell, Progressive Corporate Law, pp. 224 et seq. According to Etzioni, “[a] fair number of court decisions recognize employees’ rights to employment by the corporation for which they have been working, based on good faith implied by continuous satisfactory service” (“Stakeholder theory,” p. 684).

28. Otherwise why would employees not already have purchased this right in return for lower wages? Or, what is probably the more usual case, why would they have chosen employment in a firm that insisted on its right to dismiss at will?

29. Millon, “Communitarianism,” p. 10.

30. New jobs in Europe tend to be temporary or casual owing to the difficulty of firing regular staff. Moreover, in Europe “those out of work for more than a year account for one-third of the unemployed” (Gary Becker, “Unemployment in Europe and the United States,” Journal des Economistes et des Etudes Humaines, 7 [1996]: 101. Cited by David Schmidtz in Schmidtz and Robert E. Goodin, Social Welfare and Individual Responsibility [New York: Cambridge University Press, 1996]).

31. “Laws in many European countries, including Germany, Italy, and France, make it all but impossible to fire people. So companies don’t hire—they invest in equipment instead.” Thomas K. Grose, “Labor, Social Costs, Taking Toll on Governments,” USA Today, September 19, 1996, pp. B-l, 2. Cited in Schmidtz and Goodin, Social Welfare.

32. Singer, “Reliance Interest,” pp. 722-723. See also Orlando, “The Fourth Wave.”

33. It also assumes employees won’t change their behavior. But, as Jonathan R. Macey has pointed out, if employees can acquire the plant at less than fair market value, then they will be tempted to sabotage its operations and drive it into bankruptcy. See “Symposium: Fundamental Corporate Changes: Causes, Effects, and Legal Responses: Externalities, Firm-specific Capital Investments, and the Legal Treatment of Fundamental Corporate Changes,” Duke Law Journal, February 1989, p. 193.

34. Macey, “Symposium,” p. 180.

35. Ian Maitland, “Rights in the Workplace: A Nozickian Argument,” Journal of Business Ethics, 1989, p. 953; Richard B. McKenzie, “The Case for Plant Closures,” Policy Review 15 (1981): 122.

36. Singer, “Reliance Interest,” p. 723.

37. O’Connor, “Plant Closings,” p. 233. ³⁸Easterbrook and Fischel, Corporate Law, p. 231.