Organization Studies and the Legal Person

1 The Legal Person and the Organization Theory Tradition

The social construction of the legal person is one of the most salient social innovations ever devised. It has had a profound impact on the development and present state of the western world. The idea builds on Roman law about entities called universitas (united, turned into one) and was revived in Europe about a thousand years ago during the high middle ages, when it came to be referred to as a persona ficta – a person other than physical persons but with similar characteristics and rights.

A legal person was and still is an imagined entity that is seen and treated in several respects as having the same capabilities in relation to others as does a physical person. It has a name, and it is possible to contact and address it. Like a physical person, a legal person can own property and sell and buy property. It can make contracts with other physical or legal persons. A legal person has a degree of autonomy and sovereignty – a jurisdiction in which it can set its own rules. It can be a party in court and is responsible for its own actions.

As early as the 11th century, the church began to construct some of its subunits as legal persons. For example, by seeing its monasteries not as collections of people, but as persons in their own right, it could distinguish the property of a monastery from the property of the monks and nuns inhabiting the premises. The monastery could receive donations and become rich, while the monks and nuns remained poor, in line with their calling.

By the 13th century, the concept of legal person had spread into many areas. Not only had monasteries, bishoprics, and other units of the church become legal persons; also universities, guilds, and towns came to be treated as separate entities and actors (Ciepley 2024). The idea of a legal person was also used for defining the concept of a state as a unit, with property that was separate from the property of the king – ‘the Crown’ and the king were not identical (Kantorowicz 1997). This understanding of states is still valid and serves as a basis for the present system of international relations.

Later, the idea of legal person spread to economic life via new forms for arranging long-distance trade, such as the one invented by the Dutch East India Company in the late 17th century (Micklethwait and Wooldridge 2005). The modern business corporation (corporation is another word for legal person) was formed in the 19th century, revolutionizing capitalism by transferring the ownership of large resources from capitalists to legal persons (Ciepley 2013). Like physical or other legal persons, these corporations have no owners; they cannot be owned yet can be partly controlled via the ownership of a financial instrument, called ‘stock’, which gives the right to elect all or most of the members of the board of the corporation. The point of creating the legal form of the business corporation is often explained in terms of its effects on the physical persons, the capitalists, who are seen as having ‘limited liability’. They remain liable for their own debts but not, of course, for the debts of the corporation – a side effect of their having transferred ownership of property to the corporation. There was another effect that is key: the introduction of the idea of legal persons within the economic sphere allows legal persons to be active as sellers and buyers in markets, while still allowing ownership to provide power. But the important thing to own now is stock rather than physical assets.

Business corporations became common in the 19th century and are now ubiquitous. Independent of the mortality of individual capitalists, many of these corporations are able to concentrate large resources and keep them for long time. The 19th century also saw a great expansion of associations based upon social movements, such as unions, churches, and temperance associations. Such associations still form a substantial part of social life and are often treated as legal persons. Furthermore, many associations with members who are legal persons rather than individuals – meta-organizations – have been created, and those with international reach have increased in number substantially since World War II (Boli and Thomas 1999). Taken together, all these legal persons, particularly states and business corporations, own most of the resources on this earth and have long since passed virtually any physical person in wealth and power. Their effects on the life of physical persons is difficult to overestimate (Coleman 1982).

Given the immense number and salience of legal persons in contemporary western societies, one could expect that legal persons would have given rise to a social science discipline of their own. And that discipline could well have been the one that is now called organization studies. At least, one might expect that early writers on organizations would have integrated or at least commented on the existence of legal persons in some way, in their efforts to understand what an organization is or can be. But they did not. In fact, the early, fundamental work that came to define much of the field was all about physical rather than legal persons. And an understanding of organizations as comprising physical rather than legal persons remains dominant in organization studies. In spite of all the empirical studies of legal persons, and although organizational scholars have sometimes discussed the concept of legal person (Meyer, Leixnering, and Veldman 2022b), this concept has had little impact on the way organizations are understood and defined.

It is common to identify early 20th century writers, such as Weber (1922/1947), Taylor (1911/1998), and Fayol (1918/1999), as pioneers of organization studies, but they were primarily interested in ‘organizing’ (the verb) and less interested in defining organization (the noun). The emphasis was on the way a bureaucracy works, how production should be organized, or how an industrial firm should be managed. Later, however, around the middle of the 20th century, organization as a noun was the topic of a pair of highly influential books by Chester Barnard ([1938] 1968) and James March and Herbert Simon (1958). These authors were pioneers in an attempt to understand organizations as entities, systematically analysing what an organization is and how it functions. Their fundamental ideas were shared by several subsequent authors and still influence the way organization is understood in the field.

2 Problems with the Traditional Definition

Although well established, a definition of organizations as a group of interacting physical persons is not without its problems and challenges, which have sometimes been analysed, handled, and even solved in one way or another. But mostly they are overlooked, because the concept of organization is taken for granted and not carefully defined. There are at least seven such problems.

1. The traditional definition makes it difficult to determine if there is an organization in the social landscape. In order to establish that a phenomenon can be subsumed under the concept of organization, the empirical researcher must select some people, observe their interactions, and determine if their interactions have the proper characteristics: are they based on common goals and explicit rules and decisions? Scholars interested in organizations meet an initial obstacle: finding an organization to study. Furthermore, convincing others that they have actually found one may not be a trivial thing (cf. Frankel 2022).

2. Organizations seem to constitute a conspicuously unstable phenomenon: if the interaction ceases, the organization disappears – a problem that Chester Barnard observed. Do organizations exist at night when the employees have gone home, for example? And if they don’t, are they resurrected the next morning? Given his definition of organization, Barnard did not find any logical answer to this question but was forced merely to assume that organizations have a continuous life around the clock and longer (Barnard 1938, p. 80–81).

3. Furthermore, it seems difficult and complicated to create an organization, to convince people to interact in the prescribed way. Attempts at creating an organization by this definition would often fail and it would take time before it would be possible to determine whether the attempt has succeeded. But all these complications, together with the instability of organizations, makes it difficult to understand how the present society, filled with organizations (Perrow 1991), could emerge, remain, and expand.

4. The traditional definition introduces another problem: it is not crystal clear how an organization differs from other forms of interaction among physical persons. The definition seems to cover a broad range of phenomena. What is the difference between an organization and a market, for example? Sellers and buyers interact in a market, and although they have different goals and interests in some respects, they also share common ones: that a transaction is made and that the market generally works as a scene for transactions. This is not far from March and Simon’s (1993) definition and Scott’s (1981) third definition of organizations as ‘systems of interdependent activities linking shifting coalitions of participants’, which in turn draws on Cyert and March’s (1963) descriptions of organizations as coalitions of persons with different interests. And most markets are, like organizations, characterized by explicit rules (Brunsson and Jutterström 2018).

5. Definitions of organizations that fail to recognize them as legal persons make it difficult for scholars to think of organizations as actors. In both social discourse and the law, most organizations are seen as entities that can do things (Czarniawska 1997). To denote an organization, people tend to use the pronoun ‘it’ rather than ‘they’. But in the classic definitions, it is only individuals who act. It seems that with that understanding, organizational actorhood can be, at most, a metaphor, describing an outcome that may arise when several people cooperate towards a common goal. Even though the classical authors show by example that they want to refer to what in general, outside academia, is called ‘an organization’, it is perhaps in this respect that they deviate most from one of the commonest ways the term is used – at least presently.

6. The traditional definition creates yet another problem: if organizations cannot act, they cannot interact to form another organization. Thus claims that a number of organizations have formed a meta-organization – an organization with other organizations as its members – cannot be taken seriously. If organizations cannot act, they can hardly be members of other organizations, at least not in any active sense. March and Simon (1958) avoided this problem by explaining that their book was not about ‘the diffuse and variable relations among organizations’ (p. 23). But for those interested in meta-organizations and draw on the traditional definition, the only solution seems to be to treat meta-organizations as industry associations, sport associations, and international government organizations, as if their members were interacting individuals. Many students of meta-organizations have followed that maxim by perceiving the secretariat of the meta-organization as the true organization and employees as its members, while treating the organizations claiming membership as some sort of environment of the secretariat organization (Barnett and Finnemore 2004; Marcussen 2002). But this viewpoint may make it difficult to analyse and understand many key aspects of meta-organizations and excludes the organizational study of any meta-organization that lacks a secretariat (But for a different take on meta-organizations as a form for organizing organizations rather than individuals, see Ahrne and Brunsson (2005) or Berkowitz et al. (2022)).

7. The classic definition renders difficult any distinction between organizations and organizing. If organizing is a process and organization is defined by processes, the distinction becomes blurred or unclear. The classic scholars did not use or define a concept of organizing, but it is tempting to speculate that if they had, they would have referred to the same processes they viewed as constituting organizations. But that interpretation has a somewhat counterintuitive effect: there is no organizing outside of organizations. And as soon as organizing occurs, an organization exists. That would mean that social movements are organizations early in their inception – as soon as people start interacting and cooperating towards a common goal. And the notion in many social-movement studies that an organization is commonly created in a later phase (cf. den Hond, de Bakker, and Smith 2015) makes no sense. Similarly, families could not be organized without becoming organizations, and it would not be possible to distinguish the idea that society is organized from the idea that there is a society of organizations.

To conclude : if we want to keep the traditional definition of organization and want a concept of organizing that does not make all organizing equivalent to organization, we cannot simultaneously use the processes that the classic scholars thought were constitutive for organizations as a definition of organizing. We must find another definition of organization, organizing, or both. One candidate for another definition of organization could be something in line with and closer to the legal-person concept. How does the legal-person concept differ from the classic authors’ understanding of organizations?

3 Organizations as Legal Persons

The fact that neither Barnard nor March and Simon analysed the phenomenon of legal persons is somewhat surprising, given the basically empirical way they understood organizations and given the examples they used. In fact, one could have expected that March and Simon’s lead metaphor of the organization as a biological organism would have led them to perceive an organization as one person rather than several. But because they did not analyse the concept of the legal person, we cannot know why or how they saw the relationship between this construction and their understanding of organizations. What would have happened if these influential authors had started their analysis with the phenomenon of legal persons rather than physical ones? At the extreme, they could even have started by defining the concept of organization as equivalent to a legal person. In a contra-factual historical mode, one can ask what effects that approach would have created. I have identified eight such consequences.

1. One perhaps unexpected effect would be that the role of physical persons would have been clearer. The organization defined as a legal person consists of neither people nor their interactions. It is a person in its own right. But this person can have relationships with various physical persons. Fundamental to organizations understood in this way is not the relationships that people may have with each other, but the relationship they have with the organization as employees in a firm or as members in an association, for instance. Any relationships that employees or members have with each other are indirect; they are created by their relationship with the organization. They are expected to work for the organization – not for each other. Furthermore, in an organization defined as a legal person, employees or members need not interact with each other. In large associations, in fact, passive members are the rule rather than the exception. And in large firms, there may be many employees who interact extensively with customers in various parts of the world but almost never with other employees in their own firm. Yet no lack of interaction or possible lack of explicit goals or rules guiding these interactions would have challenged the notion that those associations or firms are organizations.

2. Another effect of a legal-person approach would have been a clearer distinction between organization and environment. This distinction was part of the language of early writers and has since become a dominant metaphor in organization theory. But it is often unclear what should be counted as organization versus environment. So-called ‘members’ of the organization are often seen as the organization, and any other people and organizations are perceived as constituting the environment. But the idea is rendered awkward by the fact that an organizational affiliation is only part of a person’s life. With the legal-person definition, it is crystal clear what constitutes the organization, and if one wants to use the metaphor of environment, one can say that any organization has an extensive one indeed.

   Whether physical or legal, all other persons are part of the environment of a legal person. The closest environment includes members (in the narrow meaning of the term) of associations, citizens of states, and employees connected to any type of legal person. Even though some physical persons represent the legal person on various occasions, they are not part of it. But of course employees, members, or citizens have different relationships with the legal person than customers do, for instance.

3. Rather than using the crude and unclear distinction between organization (or ‘members’) and environment, a legal-person definition of organization would have lent itself to a more exact specification of the various possible relationships between organizations and physical persons (and other organizations). And relationships should be distinguished from interactions. Just as employees or members do not necessarily interact with each other, an employee who is involved in interaction may leave the organization and continue to interact with the same people as a consultant. The change occurs in the relationship with the organization (from employee to provider), not necessarily in the patterns of interaction with other people.

4. A legal-person definition would make it easier to judge whether an organization actually exists. A legal person is created by a decision – a performative decision. To claim convincingly that an organization exists, one must refer to that decision rather than demonstrate any particular interactions among particular people. Researchers interested in the study of organizations need not find and study various interactions among physical persons in order to find an object for study because legal persons have names and addresses. And they are addressable.

5. Because organizations defined as legal persons are created by decisions, organizations can pop up quickly; one does not have to wait for certain patterns of interaction to emerge or for more or less complicated work to establish those patterns. Barnard had already observed that most organizations are created by a decision made by one or a few individuals or by existing organizations. Sometimes there are two decisions, the second one consisting of confirmation by a state authority. There is normally no requirement of interaction among a group of people in order to obtain that licence. As Barnard also observed, the recruitment of members or employees often begins after the organization has been created.

6. A legal-person definition of organization would make it easier to distinguish organizations from other social forms. Goal-directed interactions among physical persons in a market, family, or social movement does not make them organizations; nor does it create any doubt in this matter.

7. It would become easier to include states in organization studies. March and Simon mentioned New York State as an example of an organization, but that example does not seem to have inspired many students of organizations. In organization studies, it is common to study parts of states in the form of various administrative units, but the study of states as a whole is rare. Yet states are both historically and presently legal persons. Perhaps they have not been included in organization studies simply because they have too many citizens to allow for the traditional definition that emphasizes interaction among people.

8. A legal-person definition would imply that organizations are entities rather than activities. Because the term ‘legal person’ is clearly a noun, it becomes easier to distinguish between organization as a noun and organizing as a verb. The extent to which interactions among people are connected to organizations would have become an empirical question – not part of the definition.

4 The Legal Person as Institution

It is one thing to speculate what might have happened to organization studies had it started as studies of legal persons. It is another thing to consider whether the concept of legal persons could be used today for understanding organizations. After a thousand years or so, the idea that a firm or an association is a separate entity with characteristics like those of a legal person has spread far outside the legal system, and it can now be seen as a societal institution rather than a mere legal technicality. The existence of legal persons tends to be taken for granted; seeing firms, associations, or states in legal-person terms as autonomous actors is routine in common parlance and is seldom met with astonishment, bewilderment, or criticism, even though some of them may not be legal persons according to law (Czarniawska 1997; King, Felin, and Whetten 2010).

This image became manifest in a reform agenda in many countries during the last decades of last century, when public administration was transformed into sets of legal persons or entities with legal-person characteristics. A central component of the so-called new public management reforms was to change various departments of the public administration into legal persons by turning them into business corporations controlled by the state or local government or by outsourcing them to corporations under private control (Christensen and Pallesen 2001). Remaining departments were given such legal-person characteristics as autonomy, ownership-like capacity, and actorhood (Brunsson and Sahlin-Andersson 2000). The traditional view that state authorities were mere agents for a higher political level and that schools, universities, or hospitals were mainly arenas for work controlled by professionals was replaced by a view of these units as highly autonomous actors. State authorities, schools, or day-care units should not be centrally controlled by detailed rules, in the new view, but could be influenced by advice and standards. These units should make their own decisions, in developing their own purposes (often called goals or policies), for instance. They should control and be responsible for their own resources, and by introducing financial accounting systems, including a balance sheet, they were depicted as capable of owning property (although that was not legally the case). The departments were seen as capable of acting in markets, particularly those recently created under the same reform agenda. They were also expected to relate or interact with each other, by competing, by cooperating, or by selling and buying, for instance.

Autonomy in the case of such professional arenas as universities meant that it was the universities that were to become autonomous, rather than the teachers and researchers that they employed (Wedlin and Pallas 2017). The sovereignty of the university increased; top administration obtained a more powerful role, were seen as the representatives of the university, and often spent much of their working life marketing, trying to reinforce the ‘trademark’ of the university and obtain high positions in various university ranking systems (Wedlin 2006). Universities could make contracts with central state authorities, were attributed responsibility, and were seen as competing with each other (Hasse and Krücken 2013; Musselin 1996).

At the same time or somewhat later, organizational scholars developed ideas and concepts about organizations that lay closer to the concept of legal person than did the traditional understanding. Czarniawska (1997) described a general understanding of organizations as ‘super-persons’, with many characteristics common to individual persons. In the organization-as-communication tradition, the organization has been understood as an entity with a name and with someone to speak for it – someone that emerges in communications (although not necessarily or usually in the communication of a decision) (Taylor 2011).

Other authors used the concept of organization for the same phenomenon. Brunsson and Sahlin-Andersson (2000) described the new public management reforms as a massive-scale construction of organizations, but not organizations in the traditional sense of a group of interacting people. The fact that departments, schools, and universities in the public sector employed people for cooperation towards a common goal was not a new phenomenon. What was new was the new legal-person-like capabilities that were now given to these entities.

Meyer and Bromley (2013) argued that there has been rapid growth during recent decades of what they called ‘formal organization’. Older social forms, such as bureaucracies, family firms, and professional and charitable associations have been transformed into something new. Their characterization of the new form is almost equivalent to the definition of a legal person: ‘Unlike the classic bureaucracy or firm that is obedient to an external sovereign or owner, the modern organization has sovereignty (and accountability) and makes decisions in light of its own purposes (Meyer and Bromley 2013, p. 377). Like contemporary individuals, these organizations are described as ‘actors’, which implies such characteristics as ‘autonomy, clarity of purpose, decision-making capacity and sovereignty, technical action capability, effective self-control … ’ (p. 377). In short and in the terms used here, the authors described how people increasingly understand organizations as being similar to legal persons, and they presumably describe an increase in the number of ‘legally legal’ persons as well.

The concepts of actor and actorhood are used not only for organizations, but also for individuals, which is a reminder of the fact that legal and physical persons are constructed in a similar way (Meyer and Jepperson 2000). The concepts have become particularly popular for describing organizations. Grothe-Hammer (2019, p. 325) even argued that ‘most scholars explicitly or implicitly build on the assumption that organizations have to be externally recognized as actors to become constituted as organizations’. It seems that the term ‘actor’ has even become so taken for granted that it is often left undefined in organizational analyses (Suddaby et al. 2010).

However, King, Felin, and Whetten (2010) made an ambitious analysis of what could be meant by seeing organizations as social actors similar to individuals and states. They argued that organizations can be considered actors because they have sovereignty, responsibility, and intentionality. Sovereignty implies the right to control its members within the limits of authority that is granted from the state or other ‘stakeholders’. Sovereignty, in turn, produces responsibility for the organization as such, not necessarily for its members (cf. Bovens 1998). These two notions echo the concept of a legal person. The assumption of intentionality was motivated by a reference to the institution of the individual, however, and refers to more internal characteristics of organizations. Just as an individual is capable of ‘deliberation, self-reflection and goal-directed action’, organizational intentionality refers to the organization’s ‘self-view’, its identity and goals.

5 Research Implications of a Legal Person Inspired Understanding of Organization

It is not only organizations that deserve their own specific research questions and research programs, as argued by du Gay (2020); organizing and the organized deserve the same. The phenomena that these three concepts denote may be more loosely connected than the similarity in the terms suggest. If, when, and how they are empirically related is a salient area for inquiry. A clear distinction among the three concepts may be used for systemizing past research, for increasing attention and clarifying the role of some pertinent issues in organizational research, and even for finding new research questions.

6 A Definition That Can Travel?

In this essay, I have speculated about what would have happened if the classical authors of organization theory had paid more attention to the concept and social institution of the legal person when establishing the concept of organization. To have initiated the field of organization studies in that way would have solved some problems that their definitions of organization created and would have led to other explanations of some fundamental aspects of organizations. Later, organization scholars have paid more attention to aspects of legal persons when discussing organizations, although almost never by explicitly referring to this fundamental institution. Yet, a definition of organizations as legal persons or legal-person-like entities would be a possible outcome of this development. Whereas the definitions of the classic authors confused organizations, organizing, and the organized, a legal-person definition would make it easier to distinguish among these core concepts of organization theory.

Maybe such a development would also have implications for the status of organization theory in social science as a whole. As described in the introduction, there has been a certain tendency in organization studies to avoid clear definitions of its core concepts. For better or for worse, that tendency may have facilitated the import of ideas, concepts, and theories from other fields of social science and allowed research into phenomena with loose connections to any concept of organization. But it may also have created export difficulties – difficulty in convincing scholars in other fields that an organizational perspective is a relevant and useful way of understanding contemporary society. After all, these scholars may need more precise definitions than do scholars who are already submerged in the field of organization studies (Besio, du Gay, and Serrano Velarde 2020; Ringel 2024).

An understanding of organizations that connects to the well-known social fact of the legal person may help to convince scholars in other fields of social science of the relevance of organization studies. Although one can assume that people in medieval times found the legal person a mystical construction (another name for ‘legal person’ was actually corpus misticum), contemporary people, including scholars in other fields, may find the traditional definition of organizations, with its spatial metaphors of an inside and outside, more mystical than a concept of organization that is closer to the concept of the legal person. And with separate and clear definitions of organizing and the organized, it may be easier to convince other scholars that the phenomena that these concepts denote are also necessary for understanding modern society – not least because they exist not only in the context of organizations, but elsewhere as well.