In 1937, Ronald Coase, a British economist and author, presented a theory on the firm arguing that a firm exists because it minimizes and eliminates the ‘transaction costs’ involved in using the market and its resources. Nevertheless, more than three quarters of a century later, economists, legal theorists and other scholars continue to debate the nature of the firm. Tony Lawson in particular argues that “social positioning matters in social identity constitution and that different sorts of phenomena are positioned in different ways” (Lawson, 2015). He suggests that a firm or a corporation are essentially a form of a community where they are positioned just like artifacts and individuals. Furthermore, Lawson argues that it is these rights and obligations of a corporation, acquired through social positioning, that makes it a problematic institution in our modern society. Hence, this essay is going to discuss the concept of social positioning and its application to both the firm and the corporation in order to gain a deeper understanding of Lawson’s perception of the modern corporation being ‘out of control’.
Lawson (2014) believes that the structural properties of social positions are a “fundamental”, “integral” and “constitutive” feature of social life. He suggests that “the processes whereby such positions and their properties are created, reproduced, transformed” (Lawson, 2014) are equally important as the structures of the social positions themselves. He refers to these processes as ‘social positioning’. The idea of social positioning is usually concerned with the fulfillment of three requirements in regard to any object that is being positioned. First, the object in question should be placed practically within the boundaries of a (pre-existing or emerging) system. Second, certain capacities of that object should be used as one or more functions of the system. Finally, the object should be assigned a unique identity or status. Hence, if all three of these requirements are met, the object in question can only then be positioned effectively, for example, as a table or a seat.
The concept of social positioning can be used to understand the nature of the firm. However, given that a firm is essentially a form of a community, it is important to understand what is meant by a community first. Lawson defines a community “as a structured social entity that emerges from human interaction and includes human individuals amongst its component” (Lawson, 2015). He suggests that a community is one of the two types of emergent social entities where it is seen as being pervasive inside the social realm. It is structured using the “positions and associated rights, obligations and collective practices of individuals” (Lawson, 2014). He argues that just like an artifact (an object constituted from physical components) and an individual, a community can also be socially positioned. In fact, the positioning of a community parallels the positioning of an artifact where the community’s set of emergent powers becomes interpreted as its characteristic function set (depending on it’s overall role in the wider (national) community).
Typical entities that are referred to as a firm, include entities such as solder trader, business partnership, and limited company. Each of them is essentially a community where they’ve been appropriately positioned to become a member of the relevant firm type. Of course, if a group of people are to function as a limited company or as a charity, they first need to be positioned as such. The legal system acts as a guiding tool and helps the community to determine which sort of structure it can conform to in order to be positioned as a firm and be accepted by the larger (national) community. The process of positioning including the structuring of the positions themselves and the process of allocating occupants (communities) to those positions, is a legal affair. Firms, charities, non-profit organizations and etc. are all legally constituted in the end. Hence, in contemporary societies such as the U.K., for example, there are three legal requirements that need to be satisfied in order for a particular community to become a firm.
First, a community needs to be appropriately positioned and legally registered with the appropriate authorities. In the case of a sole trader and a business partnership, they need to be registered with Her Majesty’s Revenue and Customs (HMRC) whereas, a limited company needs to be registered with Company’s House. This is known as the process of acceptance of the sub-community (the firm) by an agent of the legal community (the legal authorities) on behalf of the larger national community, according to Lawson. By being appropriately positioned, the community in question gains the identity of the social position of a sole trader, a business partnership or a limited company and becomes a firm with the relevant positional function sets.
Second, it’s important for the community in question to possess a legal structure that is identical to one of these entities, a sole trader, a business partnership, or a limited company, in order to be eligible for registration. Lawson (2015) defines structure as “a community-specific set of positions and their organizing sets of rights, obligations and collective practices”. The social position of a sole trader is open to individuals working alone as well as to organizations where a single individual is fully responsible for running the entire business. So, if a particular individual assumes full responsibility in a community, it wouldn’t be surprising to see that individual making all the decisions by themselves including the decision to keep all the business’s earnings for the year. Similarly, the legal structure of a business partnership is also built along the same lines to that of a sole trader, the only difference being that in a business partnership, there are a group of individuals or ‘partners’ who all collectively share the responsibility for their business rather than just a single individual running the business. But, unlike a sole trader and a business partnership, the legal structure of a limited company is a lot more complex as it involves appointing board of directors who run the company, and other legal formalities such as submitting a number of financial statements including the ‘Statement of Capital’.
Third, “all such legal structures presuppose a conception of the set of capacities of the community that any-would be firm must possess and which, on positioning, are to constitute the community’s characteristic function” (Lawson, 2015). The underlying assumption of a community is that its capacity involves “the coordinated production of goods and services to be sold to others, in a way that is intended to be advantageous to (at least some of) the community members, with (at least some of) that advantage interpreted as ‘profits'” (Lawson, 2015). In simpler terms, a community’s intended positional function set is to produce goods and services for the society, profitably, regardless of which firm type it is registered as.
Any such positioned community is subject to further positioning where it would undergo a process known as ‘multiple positioning’ to become a corporation. Multiple positioning occurs “when multiple positions are occupied by the same occupant, simultaneously” (Lawson, 2014). However, the occupant can do this through two different methods. The occupant can either be positioned at the same time in different communities (eg. a teacher and a father) or that same occupant can’ve all of their positions nested in each other. For example, an individual can be a citizen of the United States, a US senator, a member of the democratic party in the US and so on. The former method is known as multiple horizontal positioning whereas the latter method is known as multiple vertical positioning. The positioning of a corporation involves multiple vertical positioning yet the process is a hybrid of the positioning of artifacts and human beings.
When a community is first positioned as a firm, the process parallels the positioning of an artifact where the community acquires positional properties such as functions rather than powers, yet, when this same community undergoes a second round of positioning and is positioned as a corporation, the process parallels the positioning of a human being. The positional properties that are gained are powers such as rights and obligations. The firm acquires certain rights and obligations just like when an individual is positioned, and so, in this sense, the firm positioned as a corporation acquires a ‘legal person hood’. In other words, the community gets positioned as a legal person in the second round of positioning. Lawson (2014) defines legal person as “a position such that any occupant acquires the right to bear various other (albeit typically a restricted set of) rights and obligations that exist in a wider (typically national) community”. Contemporary corporations, for example, are legally allowed to own different assets such as cars, properties, shares and etc., make contracts, sue and etc, and these are powers that an individual typically possesses.
The actions of modern corporations result in significant mechanisms of social change. A mechanism “is a way of acting of that entity that is made possible by its organizing structure; and is triggered under different conditions” (Lawson, 2014). There is, indeed, a large agreement that the mechanisms of the modern corporation that are in play are “dynamic”, “pervasive”, and “consequential”. For example, a corporation enables both the entire business and the individual members (eg. employees) to be protected from the misdemeanors, financial failures and other limitations of the other. Unlike human beings that are subject to death, a corporation may last for centuries. In the case of financial problems, the shareholders’ liability is limited to their original investment. They’re not liable for any of the obligations or debts incurred by the business. Any debts incurred by the business are rationalized as the property of the corporation itself and not of the shareholders. Hence, a corporation is often referred to as a business with limited liability. Moreover, by being a legal person, corporations can themselves invest in other companies or corporations and become shareholders of those businesses. This can help them to reduce their liability in situations where these businesses including their subsidiaries run into financial problems or non-financial problems such as them being caught in fraudulent activities.
Nevertheless, there is less agreement as to the extent to which these mechanisms, or their effects, are particularly desirable. Informed commentators and officials regularly criticize that modern multinational corporations across the globe never operate in accordance with the local regulators and local tax authorities. Some, including Lawson, argue that that modern corporations are not only frequently ‘beyond control’ of the local authorities but are also ‘out of control’ on occasions.
One way they are able to do this is by setting up separate entities (either locally or in different countries) where they legally own majority of the shares in them. This enables the parent company to make the other entities their subsidiaries each with a separate and distinct legal status. So, as a result, such an act produces opportunities for endless transference of liabilities from one another where a subsidiary can sue or be sued and it’s obligations won’t be passed onto the parent. Furthermore, there is often no one to take responsibility for the corporation’s misdeeds. Shareholders do not regard themselves responsible as they possess a limited liability status if things were to go wrong.
When the financial benefits that are deemed to be significant, the rewards often produce strong incentives for a corporation or one of its subsidiaries to get involved in damaging, irresponsible and dangerous acts. Furthermore, since corporations don’t possess “a state of mind”, criminal courts cannot prosecute and hold them liable for criminal acts. They are often able claim their right to freedom of expression and their right to a fair trial. They also cannot be forced to incriminate themselves. But, even if the corporation is found liable for a criminal act, unlike individuals, it can not be imprisoned or assigned community service. The only punishment the corporation faces is a fine and this is something that they can easily afford to pay for.
To sum up, social positioning is the process of creation, reproduction and transformation of properties that are associated with different social positions. Just like individuals and artifacts, communities can also be positioned to take the form of a firm which can then be further positioned to take the form of a corporation. In the first round of positioning, the process parallels that of the positioning of an artifact where the community’s certain capacities becomes interpreted as its characteristics function sets. In the second round of positioning, the process parallels that of the positioning of an individual as rights and obligations are acquired. But, it’s these rights and obligations that makes the modern corporation ‘out of control’.