1932

Abstract

Corporate purpose should be at the heart of corporate law. This article addresses objections that corporate law already permits firms to determine their purposes, and companies would not in any event do more than at present in formulating their purposes. It argues, first, that critics of the law of corporate purpose have failed to recognize that purpose can address divergences of private interests of corporations from public interests of society and the natural world. Second, the law provides a means of commitment to delivery of long-term prosperity. At present, the law fails to protect companies seeking to create long-term prosperity through committing to other parties’ interests. It can and should ensure alignment of corporations’ incentives with individual, societal, and planetary interests and enable firms to commit credibly to resolution of their problems.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-lawsocsci-050520-102251
2022-10-18
2024-06-15
Loading full text...

Full text loading...

/deliver/fulltext/lawsocsci/18/1/annurev-lawsocsci-050520-102251.html?itemId=/content/journals/10.1146/annurev-lawsocsci-050520-102251&mimeType=html&fmt=ahah

Literature Cited

  1. Admati A. 2021. Capitalism, laws, and the need for trustworthy institutions. Oxford Rev. Econ. Policy 37:678–89
    [Google Scholar]
  2. Anderson R. 2020. A property theory of corporate law. Columbia Bus. . Law Rev 65:2
    [Google Scholar]
  3. Armour J, Min G, Garrett B, Gordon J 2020. Board compliance. Minn. Law Rev. 104:1191–273
    [Google Scholar]
  4. Babiak P, Neumann C, Hare R. 2010. Corporate psychopathy: talking the walk. Behav. Sci. Law. 28:174–93
    [Google Scholar]
  5. Bainbridge S. 2012. Case law on the fiduciary duty of directors to maximize the wealth of corporate shareholders. ProfessorBainbridge.com May 5. https://www.professorbainbridge.com/professorbainbridgecom/2012/05/case-law-on-the-fiduciary-duty-of-directors-to-maximize-the-wealth-of-corporate-shareholders.html
    [Google Scholar]
  6. Bakan J. 2004. The Corporation: The Pathological Pursuit of Profit and Power London: Constable & Robinson
    [Google Scholar]
  7. Bebchuk L, Kastiel K, Tallarita R. 2021. For whom corporate leaders bargain. South. Calif. Law Rev. 94:1467–560
    [Google Scholar]
  8. Bebchuk L, Kastiel K, Tallarita R. 2023. Stakeholder capitalism in the time of COVID. Yale J. Regul. 40: In press
    [Google Scholar]
  9. Bebchuk L, Tallarita R. 2020a. Was the Business Roundtable statement mostly for show? - (2) Evidence from corporate governance guidelines. Harvard Law School Forum on Corporate Governance Aug. 18. https://corpgov.law.harvard.edu/2020/08/18/was-the-business-roundtable-statement-mostly-for-show-2-evidence-from-corporate-governance-guidelines/
    [Google Scholar]
  10. Bebchuk L, Tallarita R. 2020b. The illusory promise of stakeholder governance. Cornell Law Rev. 106::91–178
    [Google Scholar]
  11. Bénabou R, Tirole J. 2010. Individual and corporate social responsibility. Economica 77::1–19
    [Google Scholar]
  12. Berle A. 1932. For whom are corporate managers trustees: a note. Harvard Law Rev. 45:1365–72
    [Google Scholar]
  13. Berrey E. 2018. Social enterprise law in action: organizational characteristics of U.S. benefit corporations. Transactions 20:21–114
    [Google Scholar]
  14. Bisconti A. 2009. The double bottom line: Can constituency statutes protect socially responsible corporations stuck in Revlon Land?. Loyola Los Angel. Law Rev. 42:765–806
    [Google Scholar]
  15. Brest P, Gilson R, Wolfson M. 2019. How investors can (and can't) create social value. J. Corp. Law 44::205–30
    [Google Scholar]
  16. Br. Acad 2021. Policy and practice for purposeful business: the final report of the Future of the Corporation Programme Rep. Br. Acad. London: https://www.thebritishacademy.ac.uk/publications/policy-and-practice-for-purposeful-business/
    [Google Scholar]
  17. Broccardo E, Hart O, Zingales L. 2020. Exit versus voice Financ. Work. Pap. 694/2020 Eur. Corp. Gov. Inst. Brussels, Belg:.
    [Google Scholar]
  18. Brueckner M. 2013. Corporation as psychopath. . In Encyclopedia of Corporate Social Responsibility SO Idowu, N Capaldi, L Zu, AD Gupta pp. 61318 Berlin: Springer
    [Google Scholar]
  19. Business Roundtable 2019. Statement on the purpose of a corporation Lett., Aug. 19. https://s3.amazonaws.com/brt.org/BRT-StatementonthePurposeofaCorporationOctober2020.pdf
    [Google Scholar]
  20. Ciepley D. 2013. Beyond public and private: toward a political theory of the corporation. Am. Political Sci. Rev. 107:139–58
    [Google Scholar]
  21. Clark R. 1986. Corporate Law Boston: Little Brown
    [Google Scholar]
  22. Culpepper P. 2011. Quiet Politics and Business Power Cambridge, UK: Cambridge Univ. Press
    [Google Scholar]
  23. Davids R. 1995. Constituency statutes: An appropriate vehicle for addressing transition costs?. Columbia J. Law Soc. Probl. 28::145–47
    [Google Scholar]
  24. Davies P. 2020. Introduction to Company Law Oxford, UK: Oxford Univ. Press. , 3rd ed..
    [Google Scholar]
  25. Davies P. 2022. The role of corporate law in corporate purpose. European Corporate Governance Institute Blog forthcoming
    [Google Scholar]
  26. Dodd M. 1932. For whom are corporate managers trustees?. Harvard Law Rev. 45:1145–63
    [Google Scholar]
  27. Dodge v. Ford Motor Company 204 Mich. 459, 170 N.W. 668 (Mich 1919.)
  28. Dorff MB, Hicks MJ, Solomon SD. 2021. The future or fancy? An empirical study of public benefit corporations. Harvard Bus. Law Rev. 11::114–58
    [Google Scholar]
  29. Edmans A. 2020. Grow the Pie: How Great Companies Deliver Both Purpose and Profit Cambridge, UK: Cambridge Univ. Press
    [Google Scholar]
  30. Ferreras I. 2017. Firms as Political Entities: Saving Democracy through Economic Bicameralism Cambridge, UK: Cambridge Univ. Press
    [Google Scholar]
  31. Fisch J. 2006. Measuring efficiency in corporate law: the role of shareholder primacy. J. Corp. Law 31::637–74
    [Google Scholar]
  32. Fisch J, Solomon SD. 2021. Should corporations have a purpose?. Tex. Law Rev. 99:1309–46
    [Google Scholar]
  33. Freeman E. 1984. Strategic Management: A Stakeholder Approach Boston: Pitman/Ballinger
    [Google Scholar]
  34. Friedman M. 1962. Capitalism and Freedom Chicago: Univ. Chicago Press
    [Google Scholar]
  35. Friedman M. 1970. The social responsibility of business is to increase its profits. New York Times Sept. 13
    [Google Scholar]
  36. [Google Scholar]
  37. Gartenberg C 2022. Purpose-driven companies and sustainability. Handbook on the Business of Sustainability: The Organization, Implementation, and Practice of Sustainable Growth G George 24–42 Cheltenham, UK: Edward Elgar
    [Google Scholar]
  38. Gartenberg C, Prat A, Serafeim G. 2019. Corporate purpose and financial performance. Organ. Sci. 30::1–18
    [Google Scholar]
  39. Gartenberg C, Serafeim G. 2021. Corporate purpose in public and private firms Work. Pap. Univ. Pa. Philadelphia:
    [Google Scholar]
  40. Guenther D. 2020. Of bodies politic and pecuniary: a brief history of corporate purpose. Mich. Bus. Entrep. Law Rev. 9:1–77
    [Google Scholar]
  41. Harris R. 2006. The transplantation of the legal discourse on corporate personality theories: from German codification to British political pluralism and American big business. Wash. Lee Law Rev. 63:1421–78
    [Google Scholar]
  42. Hart O, Zingales L. 2017. Companies should maximize shareholder welfare not market value. J. Law Finance Account. 2:247–74
    [Google Scholar]
  43. Heminway J. 2018. Let's not give up on traditional for-profit corporations for sustainable social enterprise. Univ. Mo.-Kans. City Law Rev. 86::779–803
    [Google Scholar]
  44. Henderson R. 2020. Reimagining Capitalism in a World on Fire New York: Public Affairs
    [Google Scholar]
  45. Henderson R. 2021a. Innovation in the 21st century: architectural change, purpose, and the challenges of our time. Manag. Sci. 67::5479–88
    [Google Scholar]
  46. Henderson R. 2021b. Changing the purpose of the corporation to rebalance capitalism. Oxford Rev. Econ. Policy 37:838–50
    [Google Scholar]
  47. Honoré A. 1961. Ownership. Oxford Essays in Jurisprudence AG Guest pp. 10747 Oxford, UK: Oxford Univ. Press
    [Google Scholar]
  48. House of Commons 2003. The White Paper on modernising company law: sixth report of session 2002–03 White Pap., Trade Ind. Comm., House Commons London:
    [Google Scholar]
  49. Khatib K. 2015. The harms of the benefit corporation. Am. Univ. Law Rev. 65::151–89
    [Google Scholar]
  50. Keay A. 2011. Moving towards stakeholderism? Constituency statutes, enlightened shareholder value, and more: Much ado about little?. Eur. Bus. Law Rev. 22::1–49
    [Google Scholar]
  51. Kershaw D. 2018. The Foundations of Anglo-American Corporate Fiduciary Law Cambridge, UK: Cambridge Univ. Press
    [Google Scholar]
  52. Kraakman R, Armour J, Davies P, Enriques L, Hansmann H et al. 2017. The Anatomy of Corporate Law Oxford, UK: Oxford Univ. Press
    [Google Scholar]
  53. Lafferty W, Schmidt L, Wolfe D. 2012. A brief introduction to the fiduciary duties of directors under Delaware law. Pa. State Law Rev 116:837–77
    [Google Scholar]
  54. Mayer C. 2013. Firm Commitment: Why the Corporation Is Failing Us and How to Restore Trust in It. Oxford, UK: Oxford Univ. Press
    [Google Scholar]
  55. Mayer C. 2018. Prosperity: Better Business Makes the Greater Good Oxford, UK: Oxford Univ. Press
    [Google Scholar]
  56. Mayer C. 2022. Shareholderism versus stakeholderism—a misconceived contradiction: a comment on “The Illusory Promise of Stakeholder Governance,” by Lucian Bebchuk and Roberto Tallarita.. Cornell Law Rev. 106:1859–80
    [Google Scholar]
  57. Millon D. 1990. Theories of the corporation. Duke Law J. 1990:201–62
    [Google Scholar]
  58. Neron P-Y. 2010. Business and the polis: What does it mean to see corporations as political actors?. J. Bus. Ethics 94:333–52
    [Google Scholar]
  59. Nyombi C. 2014. The gradual erosion of the ultra vires doctrine in English company law. Int. J. Law Manag. 56:347–62
    [Google Scholar]
  60. Orts E. 2013. Business Persons: A Legal Theory of the Firm Oxford, UK: Oxford Univ. Press
    [Google Scholar]
  61. Pistor K. 2019. The Code of Capital: How the Law Creates Wealth and Inequality Princeton, NJ: Princeton Univ. Press
    [Google Scholar]
  62. Pollman E. 2021. The history and revival of the corporate purpose clause. Tex. Law Rev. 99::1423–52
    [Google Scholar]
  63. Raz A. 2020. A purpose-based theory of corporate law. Villanova Law Rev 65:523–84
    [Google Scholar]
  64. Rock E. 2020. Business purpose and the objective of the corporation Law Econ. Res. Pap. 20–44 N.Y. Univ. New York:
    [Google Scholar]
  65. Rock E. 2021. For whom is the corporation managed in 2020? The debate over corporate purpose. Bus. Lawyer 76:363–92
    [Google Scholar]
  66. Roe M. 2021. Corporate purpose and corporate competition Law Work. Pap. 601/2021 Eur. Corp. Gov. Inst. Brussels:
    [Google Scholar]
  67. Rosenberg N. 1974. Adam Smith on profits—paradox lost and regained. J. Political Econ. 82::1177–90
    [Google Scholar]
  68. Singer A. 2017. The corporation as a relational entity. Polity 49:328–51
    [Google Scholar]
  69. Smith A. 1937 (1776). Wealth of Nations New York: Modern Libr.
    [Google Scholar]
  70. Springer J. 1999. Corporate constituency statutes: hollow hopes and false fears. Annu. Survey Am. Law 1999:85–123
    [Google Scholar]
  71. Stout L. 2012. The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public San Francisco: Berrett Koehler
    [Google Scholar]
  72. Trustees of the University of Carolina v. Foy 5 N.C. 58 (N.C 1805.)
  73. Vaughan S, Arsneault S. 2018. The public benefit of benefit corporations. Political Sci. Politics 51::54–60
    [Google Scholar]
  74. Vos T. 2020. The corporate purpose debate(s) under the spotlight. ECGI Spotlight Series, Sept. 23. https://ecgi.global/news/corporate-purpose-debates-under-spotlight
    [Google Scholar]
/content/journals/10.1146/annurev-lawsocsci-050520-102251
Loading
  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error