An Alternative View of Corporate Purpose: Colin Mayer on Prosperity

Abstract

In this paper I review Prosperity, which was published in 2018 by Colin Mayer, Professor and former Dean at the Said Business School at the University of Oxford. In Prosperity we find a passionate defence of the corporation as an institution. Mayer’s criticism mainly refers to how corporations have misbehaved and failed us in our era. As to possible remedies, M. rejects regulation as an appropriate response, save for financial firms. He would mainly rely on private law and corporate governance as a means to ground commitment to corporate purpose. He also suggests specifying corporate purpose in the articles of association of companies, a solution that has been recently adopted by the French legislator allowing them to define their raison d’etre in the statute. I argue, however, that there are limits to this remedy, for the wording of corporate purpose will often be generic; managers will always find ways to circumvent it; shareholders will find it difficult to monitor compliance; enforcement of similar undertakings in cases of breach will be too difficult. I also argue that regulation should have a greater say in disciplining corporations than Mayer suggests. We cannot rely on corporate governance and shareholders as the main instruments to preserve the integrity of corporations. A balanced view of corporate purpose requires a multidisciplinary approach to the corporation. No enlightened CEO would manage a large corporation by looking narrowly at the financial capital or by targeting exclusively shareholder wealth creation. Rather, she will consider all types of capital and try to optimize the management of each of them if she wants the firm to grow sustainably. Indeed, stakeholders are taken care of even in countries that do not follow the German model of corporate governance, but a shareholder primacy model. Stakeholders’ protection in these countries mainly depends on either contracts or regulation (such as environmental and labour laws), but also on corporate governance to the extent that stakeholders’ interests are considered at board and management levels. In particular, the theory of enlightened shareholder value suggests that shareholder wealth should be maximized in the medium-long term, which requires the interests of stakeholders to be met as a condition for maximizing the value of the firm. In conclusion, I argue that corporate purpose should be seen from the intermediate perspective of the enlightened shareholder value theory, which represents a sort of compromise between the traditional shareholder primacy theory and the stakeholder approach to the corporation. Moreover, corporate purpose should be specified and implemented in practice mainly by the board of directors and the top managers, who should reconcile the interests of the shareholders with those of other stakeholders and the community in general. There is no need to specify the purpose of the corporation in its charter, even without considering the difficulties of such a definition and of its enforcement in practice. The criticisms developed in this paper, however, do not detract from the obvious merits of Prosperity which are also highlighted. This excellent book will stimulate fresh thinking and research on corporate governance and the future of the enterprise in modern capitalism. In addition, it will influence the work of legislators and the action of those constituencies that want to defend the corporation from political attacks and heavy regulatory interference, while promoting its integrity and prosperity.