'Corporate Purpose': Just Old Wine in New Bottles?

The 20th century has seen many debates about the shareholder or stakeholder focus of companies. More fundamentally, it may even be argued that the public function of companies has been dominant for most of its history: the early colonial joint-stock companies served, at least partly, to uphold public interests, and in the state concession system, which lasted until the 19th century, it was clear that the incorporation of a company should serve the common good.

Thus, is the current debate about ‘corporate purpose’ just another repeat of these long-standing debates about the social role of companies? To some extent, this may indeed be the case if we assume that ‘corporate purpose’ is understood in a similar manner. For example, according to Martin Lipton and colleagues, it means  ‘to conduct a lawful, ethical, profitable and sustainable business in order to create value over the long-term, which requires consideration of the stakeholders that are critical to its success (shareholders, employees, customers, suppliers, creditors and communities)’; according to Colin Mayer, ‘businesses should take account of the interests of all their stakeholders’; and according to Rebecca Henderson, we should be ‘embracing a pro-social purpose beyond profit maximization and taking responsibility for the health of the natural and social systems on which we all rely not only makes good business sense but is also morally required’.

In my paper ‘Corporate Purpose’ as a False Friend: A Bibliometric Analysis’ (ECGI Working Paper version), I present a different perspective on this topic. I note that, today, ‘corporate purpose’ is indeed frequently used, both in academic and non-academic writings. However, I also find that it is a term that is also quite ambiguous, in particular if we move beyond the views of contemporary authors, such as those cited in the previous paragraph.

Specifically, this paper is based on a bibliometric analysis of the use of the term ‘corporate purpose’ over recent decades. Bibliometric tools are not without limitations. Their main advantage is that they can provide answers to questions about an academic field that go beyond anecdotal examples. Among its shortcomings are gaps in databases, limitations of search functions, risks of false positives and false negatives and the corresponding degree of subjectivity of some of the choices a researcher may make. To reduce those risks, my analysis is based on multiple databases, notably Google Scholar, Westlaw and JSTOR.

In the paper, I show that ‘corporate purpose’ is a term that has seen an increased use throughout the 21st century. Specifically, I find that recent publications discuss this term in more detail than those in the past and that it is today often associated with social and environmental topics. However, this positive news for the term ‘corporate purpose’ is overshadowed by its ambiguity. The bibliometric analysis shows the term was also relatively popular in the 1960s and 1980s, yet the way it was utilised then was fundamentally different. In the past, the phrase typically appeared in discussions of various norms of company law (for example, referring to the company’s object), but sometimes also in other fields of law (for example, in tax law, insider dealing law and the law on municipal corporations). 

I also explore the use of the term ‘corporate purpose’ across different academic disciplines. I find that, overall, it is most frequently used in legal scholarship, while management-related disciplines (business, finance, accounting etc) are also well represented. I also examine which discipline has led to the rise of the term ‘corporate purpose’ in general, and in particular with respect to the social dimension, for example, proxied by using the term ‘stakeholder’. I show that the higher results for legal scholarship mainly come from publications prior to the year 2000. In other words, only in legal scholarship, but not in management, have there been many older publications that have dealt with the various non-social uses of the term ‘corporate purpose’. However, for more recent publications, if one adds the term ‘stakeholder’, management publications now exceed the number of law publications.

From a legal perspective, the main problem with the term ‘corporate purpose’ is its ambiguity. For example, it is unclear whether a social corporate purpose should be the rule for all companies or whether it is for individual companies to decide; where and by whom in the company the corporate purpose should be specified; and whether it is meant to refer to an enforceable legal obligation, a comply-or-explain rule, a recommendation or a mere ethical rule. Thus, while it may, in any case, be preferable to enact more specific rules on the social and environmental responsibilities of companies, I suggest that the phrase ‘corporate purpose’ may be better suited as a conceptual framing device than a precise legal term.

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Mathias Siems is a Professor of Private Law and Market Regulation at the European University Institute (EUI) in Florence, Italy.

This blog is based on a discussion which took place at The Corporation in Society: Corporate Law and Criminal Law Perspectives Workshop. Visit the event page to explore more conference-related blogs.

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