One of Aesop's fables tells the story of a war between the Birds and the Beasts, and the problems which this posed for the Bat. Whilst sharing characteristics in common with each set of protagonists, the Bat nevertheless did not belong to either side. Unfortunately this subtlety was not noticed by the warring parties'who each dismissed the Bat as an enemy. This image of the Bat's difficult position captures what I am attempting to do in this article. I examine the debate (“war” is too strong a word for it) between the two dominant justificatory theories of corporate governance and regulation in Australian corporate jurisprudence—the concession theory and the contract-based theories. I argue that although this debate has offered some important insights, ultimately it has proved to be either too simplistic (offering one-dimensional pictures of corporate life) or too restrictive (limiting our conception of how corporate governance and regulation might be improved). I sketch out an alternative justificatory theory which I call “corporate constitutionalism”.

The Commonwealth has since federation formed and controlled many corporations, both statutory and those created under companies legislation. In this article we explore the constitutional basis for the Commonwealth forming and controlling a Corporations Law company. This is a topic which has received little attention but it is becoming increasingly clear that a proper understanding of the Commonwealth's constitutional position, when it forms and controls companies, is necessary because of the increased emphasis on commercialisation and entrepreneurialism and the sometimes drawn-out process of privatisation of Commonwealth bodies.

It is generally assumed in this article that the Commonwealth will make use of a company for some commercial purpose, but we acknowledge this is not always the case. It is possible, and quite common, for the Commonwealth to use a company for the implementation of a policy or for some other governmental purpose not directly related to commercial activity. The use of the company form by the Commonwealth in any situation raises important questions about government responsibility and accountability. While we do not address these questions directly in this paper, our underlying concern nevertheless is that the use of a company by the Commonwealth for ordinary commercial purposes has the potential to erode the notion of governmental responsibility.

Socio-legal scholars have long recognised the importance of understanding the difference and the interaction between the ‘law in the books’ — the formal legal rules and doctrines made by parliaments and the courts, and the ‘law in action’ — the processes and practices by which those rules and doctrines are put into effect. Similarly, public lawyers and regulatory theorists have highlighted the importance of understanding the role of regulatory discretion in the enforcement of rules. The commonly understood message in these overlapping areas of research is that we cannot properly understand the law if we limit our attention to formal rules. A related point is that there is nothing necessarily improper about the exercise of regulatory discretion. Nor is there anything necessarily improper about the fact that the processes of rule enforcement can produce different outcomes than might be suggested by a simple reading of the rule itself.

Corporate regulation is front-page news in Australia. In recent years we have witnessed the unedifying debate between the Federal and State governments about how the responsibility for, and benefits of regulating companies and securities law should be allocated. Federal Parliamentary committees have conducted inquiries into the law relating to directors' duties, insider trading, and (currently) minority shareholders' rights. The chairman of the National Companies and Securities Commission and the Australian Securities Commission, Mr Tony Hartnell, has gained frequent publicity and support for his concern to “deal with the excesses of the past”.

As this brief survey indicates, the renewed concern about corporate regulation has tended to focus on the task of defining and controlling the conduct of some company personnel (directors, managers, and their advisers) in order to protect the interests of other corporate players (particularly shareholders and creditors). This focus is not surprising, but where does it leave the corporation?