Eric Orts’ Business Persons: A Legal Theory of the Firm is a work of legal scholarship. Legal scholarship traditionally has two purposes. The first is to provide a service to the reader by reviewing the current state of knowledge and debate on the topic under consideration and providing notes that direct the reader to the leading sources that discuss the topic. The second is to make an original argument that breaks new ground and either advances understanding or helps to resolve the debate. Business Persons serves the first purpose admirably well. It is somewhat less successful with regard to the second purpose.

Orts presents an argument for what he calls an institutional theory of the firm, which he identifies by contrasting it with both the “concession” theory and the “participant” theory of the firm. The former “represents the top-down perspective of the political state. It holds that business enterprises, including corporations, are simply the creations of government,” (12) while the latter “takes a bottom-up perspective of individual people who aggregate together within a firm . . . [who] possess cognizable rights and interests…that the state should not . . . extinguish by fiat” (13). Orts describes his institutional theory of the firm as one that “describes a broad middle ground between the extremes that result from strict adherence to either a concession theory or a participant theory. . . [and] provides a moderate perspective by: (1) recognizing that governmental regulation of forms makes sense on a policy level, but leaving open the substantive content and scope of this regulation for elaboration through political and legal processes; and (2) recognizing that some of the prerogatives and rights of individual participants represented in business firms deserve legal protection against government intrusion” (19).

This is a promising beginning that leads the reader to expect that the specifics of the theory are forthcoming; that in upcoming chapters information about the proper realm of regulation and the set of protected prerogatives and rights will add flesh to the bones of the theory. Unfortunately, readers with this expectation are likely to be disappointed. Instead, Orts provides a wealth of information about the legal structures that undergird and govern business enterprises.

In chapter one, “Foundations of the Firm I: Business Entities and Legal Persons,” Orts examines the nature of legal fictions, what it means for a firm to exist as a legally recognized entity, and the significance of legal personhood. In chapter two, “Foundations of the Firm II: Agency, Contracts and Property,” he explains the way the law of agency, contracts, and property undergirds business organizations, details the source and nature of the separation of ownership and control in the modern corporation, and demonstrates how these building blocks allow for the creation of highly complex business structures. In chapter three, “The Public/Private Distinction: Two Faces of the Business Enterprise,” he provides an overview of the contemporary jurisprudential debates concerning the distinction between public and private law and the indeterminacy of the law. All of this is valuable information, yet what it all means for Orts' theory of the firm is not entirely clear.

Orts' strange reluctance to draw normative implications from the information he provides is illustrated by chapter four, “Enterprise Liability, Business Participant Liability, and Limited Liability,” which contains a valuable dissertation on the legal liabilities of both firms and individuals engaged in business enterprises. He does an excellent job of explaining the conditions under which firms may be held legally liable for the actions of corporate agents, the ramifications of businesses themselves holding stock in other enterprises, and the nature of limited liability for individual business participants. He provides an accessible account of the control test for vicarious liability, thoroughly explores the limitations on personal liability for executives, managers, employees, and equity owners, and details when the corporate veil may be pierced and such parties held liable for the debts of the firm. Yet he seems unwilling to examine where this wealth of information leads. His account of the control test for vicarious liability, for example, appears to provide a good justification for the limitation of investors' liability for the firm's tortious actions (to the extent that the separation of ownership and control suggests that investors do not exercise control over corporate actions). It is unfortunate that Orts does not pursue such interesting implications, which could help provide more definite content to his institutional theory.

Chapter five, “The Nomenclature of Enterprise: A Taxonomy of Modern Business Firms,” which reviews in considerable detail every conceivable form of business enterprise from the sole proprietorship through the most complex multilayered conglomerate, continues this pattern. There is a wealth of information contained in these pages. But, once again, Orts does little to relate it to his underlying theory, coming only to the rather unsurprising conclusion that “different legal forms are better for different kinds of businesses [and] perhaps national culture and politics matter” (222).

Chapters six and seven are designed to synthesize the material of the preceding chapters and demonstrate how Orts' institutional theory of the firm can be applied to two controversial contemporary issues—executive compensation and corporate political speech. Orts claims that what a firm consists of depends on what one is interested in examining. Thus, he offers his "uncertainty principle in the law of business organization," which holds that “[t]he boundaries of a particular firm will often change when different inquiries are made about (1) the firm's authority and power . . . ; (2) the firm's capital ownership structure; (3) the potential liability of the firm itself for harmful wrongs . . . ; or (4) the potential liability of various of the firm's participants for harmful wrongs . . . .” (223). Orts contends that his theory of the firm is "compatible with an array of normative orientations and approaches” (228); indeed, such a wide array that the only normative theories that it excludes are those "advocating anarchy or an extreme form of libertarianism which eschews any central role for government . . . [and] Marxist views advocating government expropriation of all private property” (229).

Orts sums up his thesis by stating that "the main point . . . is to stress that government acting through law has the ability–and uses it–to set the boundary conditions for the business enterprise. In the final analysis, government creates the rules of the game for business, and the legal rules can be changed in light of different normative objectives and changing social circumstances” (229). This proposition is clearly true. The problem is that it is not controversial enough to require a book length argument to establish it.

In discussing how his theory applies to the question of executive compensation, Orts claims that his institutional theory of the firm "casts doubt . . . on the idea that simple references to stock price performance can capture the complexity and difficulty in many of these top jobs” (235), and that "[o]nce the mainstream principal-agent economic model of the firm is rejected as too narrow, simple, and naive . . . , a path toward other possible law reform opens” (237). It is, of course, valuable to know that executive compensation should not be determined exclusively on the basis of stock performance, but one would hope for a bit more from a theory of the firm than the recognition that there is "conceptual space for other ethical and prudential arguments favoring moderation in executive compensation” (237).

Orts' treatment of the issue of corporate political speech raised by the United States Supreme Court’s Citizens United decision (2010) is more informative. He provides a useful analysis of both the majority opinion in Citizens United and Justice Stevens' dissenting opinion. He characterizes the majority opinion as based on the participant theory of the firm and Justice Stevens' dissent as based on the concession theory. Since his institutional theory of the firm implies that both of these are incorrect, Professor Orts argues that neither the majority opinion, nor Justices Stevens' dissent, correctly capture the extent of and limits on corporations' right to engage in political speech. Because his institutional theory of the firm avoids the dichotomy of having to choose between the "absolutist position of 'no regulation of rights' or 'no boundaries to regulation,' . . . [it] suggests some possible grounds for compromise–or at least opens some conceptual space for further productive debate” (245). Orts concludes that his theory of the firm implies that corporations should be allowed to engage in some forms of political speech subject to some forms of regulation by the state, for example, through disclaimer and disclosure requirements. This is indeed a substantive conclusion, but one that is a bit too open-ended to be entirely satisfying.

In sum, Orts has provided a very valuable reference work, one that I will keep close at hand for those times when I have questions about the law of corporations. In contrast, it contains an underdeveloped theory of the firm, one that is unobjectionable, but mainly because it does so little of the work that it holds the promise to do. For, after eliminating the two untenable extremes, Orts' institutional theory of the firm functions more as an invitation to further thought about the proper role of and limits on the contemporary business enterprise than as a prescription for what that role and those limits should be.