‘Dams and flows’: boundary formation and dislocation in the financialised firm

Mainstream economic theories of the firm argue that the boundary between firm and market is determined by efficiency-enhancing logics which optimise coordination or bargaining outcomes. Drawing on social anthropological work, this paper critiques these accounts, arguing instead that firms are socially embedded and that firm boundary formation should therefore be understood as an attempt to fix the limits of certain relational rights and obligations that are moral in their conception. Consequently, boundaries are often contested and subject to renegotiation. We employ the parsimonious concepts of ‘dams and flows’ to examine how attempts to curtail the claims of some stakeholders and extend the claims of others at any one historical moment produce boundaries of different kinds. To illustrate this, we first trace the moral arguments used to advance limited liability rights to shareholders during the Companies Act in the mid-nineteenth century, which cut or ‘dammed’ obligations at a particular point and moment, directing new flows of obligation and wealth. We then explore the different moral reasoning of agency theory—the foundation of the financialised firm—which foregrounds the property rights of shareholder principles and obligations of managerial agents to them. We argue that this moral reasoning led to new dams and flows that have changed corporate governance and accounting practice, producing—counterintuitively—a reinvigorated form of managerialism, leaving the firm financially and morally unstable; its boundaries increasingly unable to contain its relational tensions.