The application of Rousseau's theory of social contract to corporate governance

Much of the literature in the area of Australian corporate law reveals dissatisfaction with our current regulatory scheme. Despite extensive (and ongoing) legislative reforms, the scheme continues to be criticised as costly, complex and largely inefficient in regulating corporate abuse. The objective of this thesis is to consider a new model of corporate governance, both internal (that is, between the members and the management of the corporation) and external (that is, between the corporation and the state). This model is based upon the theory of contractual rights and obligations proposed by Jean Jacques Rousseau in The Social Contract. The value of this model is that it recognises and seeks to reconcile the inherent tension which underlies all associations (be they family, state or corporation): that of individual self-interest on the one hand and the collective good on the other. In this thesis, I shall argue that our ideas of what a corporation is and how it should be governed have been largely constructed by liberal theory. The corporation and its regulation, then, are not absolutes, but social and historical constructs which we are free to reject or modify as we see fit. By examining the ways in which the values and assumptions of liberalism are made explicit in corporate law; then by comparing the traditional model of corporate law with that based upon Rousseau's social contract theory, I shall seek to show that many of the assumptions and values underlying corporate law are no longer valid. Merely 'patching up' the existing model is insufficient. What is needed is a complete re-evaluation of the corporation and its place in our society. The thesis will begin by examining the corporation as a political entity. Rousseau's political theory will then be contrasted with those of Hobbes and Locke in order to reveal the different values and assumptions that underlie these theories. I shall then examine the way in which contemporary company law is based upon the values and assumptions of liberalism, before examining both the internal and external governance of corporations in order to identify the problems of regulation and the application of Rousseau's theory to those problems.