The neglect of society in the theory of the firm: a systems-theory perspective

The prevailing theories of the firm acknowledge the importance of trust and loyalty but neglect such behaviour in the substance of their analyses. The present paper unravels this paradox by drawing on Niklas Luhmann's ground-breaking insight that the complexity-reducing function of social systems leads them to neglect their critical environmental dependencies, thereby compromising their own sustainability. If the firm is conceived as a social system, Luhmann's theory implies that the neglect of social behaviour by the predominant theories of the firm can be explained as reflecting the neglect of society by actual firms. This argument promises to not only furnish the theory of the firm with a concern for sustainability, but also render it more amenable to unconventional institutions, such as cooperatives and non-profit organisations, that help compensate for the damage inflicted by conventional firms on the social environment.