Friedmann Legal Theory Pdf 18 _VERIFIED_
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Modern corporations are legally bound to act in the best interests of the shareholders. This is known as the fiduciary duty of the directors. However, this duty is not a mandate to behave solely in the corporation’s self-interest, but rather, a duty to act in the best interests of the shareholders. The corporation is considered legally to be an autonomous agent that can be controlled by its directors, but only in accordance with its legal obligations to act in the best interests of the shareholders.
The term ``agency theory'' was coined by the German sociologist Max Weber to differentiate his broader perspective on the social sciences from that of his peers, who followed a behaviorist outlook in which the ``personality'' of the actor was of major importance. Weber’s theory of the state as an ``organism,'' or complex social institutions, which have a life of their own, is equivalent to that of the family, or of the corporation in the social sciences. In contrast to the firm, or traditional businesses, Weber saw the state as a complex, bureaucratic, organized body, composed of individuals with varying degrees of status, authority, prestige and power (Eassa, 2014).
In recent years, the focus of agency theory has shifted from the state as an organism to the corporation as an individual. This development is only natural, given that the corporation is made up of individuals who may seek to pursue their own interests, and not those of the organisation.
The American agency theory has been influenced by the work of the English economist John R. Commons, who used the term ``shareholder primacy'' to describe the management of corporations that set their primary goal as maximizing returns to shareholders rather than those of their employees and their customers. The term has also been used by the Austrian economist Joseph Stigler 827ec27edc