Should Corporations Have a Purpose?

Should Corporations Have a Purpose?

Jill Fisch, Steven Davidoff Solomon

Series number :

Serial Number: 
510/2020

Date posted :

April 24 2020

Last revised :

October 04 2021
SSRN Share

Keywords

  • Corporations law • 
  • Corporate governance • 
  • Charters • 
  • Constituency statutes • 
  • social responsibility • 
  • CSR • 
  • Shareholder primacy • 
  • value & profit maximization • 
  • Stakeholders • 
  • Environmental • 
  • social & governance purpose • 
  • ESG • 
  • Public Benefit Corporations

Corporate purpose is the hot topic in corporate governance. Critics are calling for corporations to shift their purpose away from shareholder value as a means of addressing climate change, equity and inclusion, and other social values.

We argue that this debate has overlooked the critical predicate questions of whether a corporation should have a purpose at all and, if so, what role it serves.

We start by exploring and rejecting historical, doctrinal, and theoretical bases for corporate purpose. We challenge the premise that purpose can serve a useful function either as a legal constraint on managerial discretion or as a tool to promote the interests of stakeholders over those of shareholders.

Instead, we identify an instrumental function for corporate purpose. Because a corporation consists of a variety of constituencies with differing interests and objectives, an articulated, measurable, and enforceable corporate purpose enables those constituencies both to select those corporations with which they wish to identify and to navigate the terms of that association through contract or regulation. We highlight the role of purpose in enabling a corporation to commit to core policies of its business model and for which the corporation has a comparative advantage. Critically, our instrumental view highlights the role of purpose as a voluntary tool to facilitate the goals of corporate participants rather than a regulatory instrument to promote specific public policies.

 

 

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Published in

Published in: 
Publication Title: 
Texas Law Review, Vol. 99, p. 1309, 2021

Authors