Corporate Purpose Research Articles

Editorial

Editorial

Corporate Social Responsibility, ESG, and Compliance

In 2019, the CEO and chairperson of BlackRock, the world’s largest asset manager, called for corporate leaders to embrace corporate purpose and create value for stakeholders, and 181 CEOs of the Business Roundtable committed to lead their companies for the benefit of all stakeholders—customers, employees, suppliers, communities, and shareholders. The idea that corporations should engage in socially responsible business practices (“CSR”) or initiatives relating to environmental, social, and governance matters (“ESG”) is gaining prominence, but remains highly contested. Deeper examination reveals that these terms—CSR and ESG—each lack a singular meaning. From aligning shareholder and stakeholder interests for shared value and risk management, to going beyond compliance and profit-maximizing strategies, there is no consensus on what socially-responsible activity entails and the rationale for its pursuit. This chapter aims to illuminate the landscape of CSR, ESG, and their connection to compliance. Varying usage and mixed empirical research reveals that CSR and ESG lack a clearly defined connection to compliance. This indeterminacy extends to (1) whether CSR and ESG are correlated with or refer to greater levels of legal compliance, as well as (2) what it means for a corporation to “comply” with CSR or ESG goals in light of the proliferation of standards and metrics pertaining to sustainability and social impact. Exploring these topics through the U.S. perspective reflects that the business world is in a state of flux regarding how companies take account of their impact on stakeholders and the environment, and laws are evolving on issues such as sustainability disclosures that could help us better understand existing practices.

The Corrosion Critique of Benefit Corporations

This Article evaluates what it labels the corrosion critique of benefit corporation statutes. These statutes have emerged as the leading new statutory alternative to enable and encourage social enterprises, businesses which seek both to generate financial returns for their investors while also pursuing social missions. Some persons who strongly support social enterprises have criticized benefit corporation statutes, arguing that they create a mistaken impression that companies organized under ordinary corporation statutes cannot consider the interests of non-shareholder stakeholders except insofar as doing so benefits shareholders in the long run. This corrosive effect on the understanding of most corporations may impede the adoption of socially responsible behavior. The Article distinguishes three conceptions of the legal purpose of corporations and whose interests officers and directors should consider: shareholder-only, stakeholder-optional, and stakeholder mandatory. It also identifies two leading justifications of benefit corporation statutes. The enabling justification asserts that corporate law constrains the ability of directors and officers to consider the interests of stakeholders other than shareholders because it imposes the shareholder-only conception of corporate purpose. The branding justification asserts that benefit corporations help companies attract investors, customers, and employees by giving them a way to credibly commit to considering the interests of other stakeholders through adopting the stakeholder-mandatory conception. Having established these categorizations, the Article offers a mixed verdict as to the validity of the corrosion critique. The critique does not apply to the branding justification. For the enabling justification, the critique is mostly valid in states with corporate constituency statutes, since such states have adopted the stakeholder-optional conception for ordinary corporations, and thus it is false to imply (as the enabling justification does) that ordinary corporations are constrained in considering the interests of various stakeholders. The corrosion critique does not, however, apply in Delaware and probably other non-constituency statute states, which have adopted the shareholder-only conception for ordinary corporations. The Article concludes that advocates of benefit corporations should stop using the enabling justification, which is subject to the corrosion critique in over half of all states (those with constituency statutes), and which justification is weak on other grounds as well. Focusing on the branding justification will direct transactional lawyers and businesses to the right reasons for considering becoming a benefit corporation, and will focus policymakers and scholars on the right questions to ask in evaluating the usefulness of benefit corporation statutes.

Session I: Corporate Purpose and Governance

In this first of five sessions of a recent Columbia Law School symposium devoted to discussion of his new book, Prosperity—and The Purpose of the Corporation, Oxford University's Colin Mayer begins by calling for a “radical reinterpretation” of the corporate mission. For all but the last 50 or so of its 2,000‐year history, the corporation has combined commercial activities with a public purpose. But since Milton Friedman's famous pronouncement in 1970 that the social goal of the corporation is to maximize its own profits, the gap between the social and private interests served by corporations appears to have grown ever wider, helping fuel the global outbreaks of populist protest and indictments of capitalism that fill today's media.In Mayer's reinterpretation, the boards of all companies will produce and publish statements of corporate purpose that envision some greater social good than maximizing shareholder value. To that end, he urges companies to make continuous investments of their financial capital and other resources in developing other forms of corporate capital—human, social, and natural—and to account for such investments in the same way they now account for their investments in physical capital. Although the author appears to prefer that such changes be mandatory, enacted through new legislation and enforced by regulators and the courts, his main efforts are directed at persuading the largest institutional owners of corporations—many of whom are already favorably predisposed to ESG—to support these corporate initiatives.Marty Lipton, after expressing enthusiasm about Mayer's proposals, suggests that mandating such changes is likely neither feasible nor desirable, but that attempts—like his own New Paradigm—to gain the acceptance and support of large shareholders is the most promising strategy. Ron Gilson, on the other hand, after voicing Lipton's skepticism about the enforceability of such statements of purpose, issues a number of warnings. One is about the political risks associated with ever more concentrated ownership of public companies in a world where populist distrust of all concentrations of wealth and power is clearly on the rise. But most troubling for the company themselves is the confusion such proposals could create for corporate boards whose responsibility is to limit two temptations facing corporate managements: short‐termism, or underinvestment in the corporate future to boost near‐term earnings (and presumably stock prices); and what Gilson calls hyperopia, or overinvestment designed to preserve growth (and management's jobs) at all costs.

Clash of Norms: Shareholder Primacy vs. Sustainable Corporate Purpose

Shareholder primacy poses a fundamental challenge to sustainability. The maximization of returns to shareholders tends to externalize the negative environmental and social impacts of corporate activity, ensuring that social and environmental impacts remain on the margins of corporate concern, rather than as the defining limits of their activity. Yet, comparative research into company law has shown that mainstream legal-economic assumptions enshrining shareholder primacy as a legal purpose of the corporation are incorrect: shareholder primacy is a social norm, not a legal norm embedded in statute. This article explores the interaction of company law with social norms, notably shareholder primacy and sustainability, to develop a ‘regulatory ecology’ of corporate purpose. Building on the results of comparative company law research, we deploy a polycentric analysis of regulation, in which the regulatory power of law interacts with the regulatory power of markets, social norms and material constraints. We focus on the dominance of the shareholder primacy norm as fundamental obstacle to corporate sustainability, and consider the options for legal reform to place the legal purpose of the corporation on a socially and environmentally sustainable footing.

Corporate Purpose and Firm Ownership

Analyzing data from approximately 1.5 million employees across 1,108 established public and private US companies, we find that the strength of employee beliefs in purpose is weaker in public companies. Among public companies, purpose is stronger for firms with long-term investors and weaker for firms with high hedge fund ownership. These patterns are most pronounced within the salaried middle and hourly ranks, rather than senior executives. These differences in purpose across firms can be attributed, in part, to differences in the background of the CEOs and reward structures within the companies. Our findings are consistent with higher owner commitment, and the corresponding policies that arise alongside this higher commitment, enabling a stronger sense of purpose inside organizations.

Compliance: norms as an instrument and a threat to the administration

This document analyzes the legal notion of compliance in relation to the activity of business administration. We will see that this institution expresses itself through a set of norms that guide the performance of companies seeking to mitigate the risks arising from the activities of the corporate purpose. In this regard, compliance can be interpreted as an auxiliary instrument, which helps management achieve a company’s goals, by providing relatively safe standards of action. In this way, the law manifests itself as a guide that serves to channel the economic activity of a company. However, regulations also operate as a standard that allows an expost evaluation on the conformance of business management. The existence of norms that set a previous course of safe action implies risks for those who choose not to exercise the duty of surveillance. Thus, the administration must combine a careful observation of norms, with the exercise of economic freedom, in order to implement a safe but productive business activity.

Corporate Purpose and Firm Ownership

Analyzing data from approximately two million employees in a sample of more than 1,000 established public and private US companies, we find that corporate purpose is lower among employees of public companies. This result is driven by weaker beliefs held by employees in the salaried middle ranks and hourly workers, and not by senior executives. Among public companies, purpose is progressively lower in companies with more concentrated shareholders, suggesting that shareholder power is associated with a lower sense of purpose among employees. A substantial portion of these patterns can be explained by differences in CEO backgrounds and CEO-employee pay gap. Public firms, particularly those with strong shareholders, choose outsider CEOs at a higher rate and pay them more relative to their employees. Altogether, this study finds that the strength of corporate purpose varies substantially across companies, and is related to the identity of the firm owners, and the choices they make.

Say on purpose: lessons from Chinese corporate charters

ABSTRACTWhat is the purpose of the corporation? The debate has continued for a long time without a clear answer partly because corporate law is often silent or ambiguous on the purpose of the corporation. The debate is largely academic and has limited dialogues with corporations that manage business in the real world. If corporations themselves articulate the purpose in their constitutive documents, it might be helpful to resolve the corporate purpose controversy. China offers a valuable empirical setting to examine how corporations formally state the purpose in their corporate charters. The empirical findings in this article show that the purpose clause in the articles of incorporation is not static but evolving with institutional and organisational demands. However, the purpose clause serves only a signalling or marketing function because of external and intrinsic constraints.

A Purpose-Based Theory of Corporate Law

Modern corporate law scholarship focuses on flexible, dynamic questions: should multiple-class shares be permitted? To what extent should staggered boards be implemented? Even when making the more structural inquiry – what is a corporation, and what is its purpose? – corporate jurists tend toward generalizations: perceiving corporate law as either contract law, property law, or public law, and being either shareholderists (shareholder primacy advocates) or stakeholderists (corporate social responsibility advocates). In these accounts, fiduciary duties presumably run directly to shareholders or stakeholders. However, as this Article demonstrates, careful examination of corporate law (in Delaware and many other jurisdictions) reveals that all of these prevailing conceptions are, positively and normatively, inaccurate. This Article offers a new paradigm through which to examine corporate law. It provides an integrative theory, fully congruent with both existing law and policy analysis, showing that corporate law is not any other field, but has its own structure, with uniquely beneficial economic and practical implications. At the heart of corporate law's anatomy is a simple, yet profound, fact: the corporation is a person with a purpose. The corporation itself has Hohfeldian relationships with its stakeholders, shareholders, and fiduciaries. The benefit of both stakeholders and shareholders is derived from the degree to which the corporation attains its purpose (for example, the lawful pursuit of profit). Directors and other fiduciaries, in turn, have an obligation to cause the corporation to achieve its purpose. While corporate purpose, personhood, stakeholders, shareholders, and fiduciaries are all subjects of heated discussion, this Article is the first to tie them together, providing a fully self-explanatory picture of their mutual interactions. Doing away with both the contract/property and shareholder/stakeholder dichotomies, this Article applies the theory to several high-currency topics, including shareholder activism, corporations' constitutional rights, the rise of LLCs and other alternative corporations, mandatory arbitration, and Senator Warren's Accountable Capitalism Act. At each turn, the purpose-based theory of corporate law produces more refined conclusions, and charts a way forward – from conceptions devised in the 1980s, to a nuanced framework, capable of providing better answers to the many issues corporate law faces in its current state of flux.

Technological Unemployment, Meaning in Life, Purpose of Business, and the Future of Stakeholders

We offer a precautionary account of why business managers should proactively rethink about what kinds of automation firms ought to implement, by exploring two challenges that automation will potentially pose. We engage the current debate concerning whether life without work opportunities will incur a meaning crisis, offering an argument in favor of the position that if technological unemployment occurs, the machine age may be a structurally limited condition for many without work opportunities to have or add meaning to their lives. We term this the axiological challenge. This challenge, if it turns out to be persuasive, leads to a second challenge, to which managers should pay special attention: the teleological challenge, a topic especially relevant to the broad literature about corporate purpose and governance. We argue that both the shareholder profit-maximization model and its major alternative, stakeholder theory, are insufficient to address the meaning crisis. Unless rebutted, the two challenges compel business leaders to proactively rethink the purpose of business for future society. Otherwise, businesses will be contributors to a major ethical crisis and societal externality in the coming society.

The Economic Significance of Long‐Term Plans

The authors summarize the findings of their event study of the capital market reactions to an inaugural set of 17 CEO presentations of their ‘long‐term plans’ to institutional investors. The findings show that, although sell‐side analysts appear unresponsive to such plans, both trading volumes and stock prices exhibit significant abnormal reactions to the presentations, providing suggestive evidence that the communication of such plans conveys ‘value‐relevant’ information to investors with longer time horizons. Although based on an admittedly small sample, these findings shed light on the promise of long‐term plans and have been corroborated by analysis of the market response to the presentations of 10 more companies since the study was conducted.The authors also provide the outlines of a ‘content framework’ designed to help companies put together effective corporate plans and other long‐term disclosures. The framework is organized around nine main ‘themes,’ including policies governing capital allocation, corporate governance, and human capital development, as well as the statement of corporate purpose. After applying this framework to the 17 CEO presentations, the authors find that the more specific and forward‐looking the information disclosed in these long‐term plans, the more positive the capital market reaction.

Sustainable Development Strategy through GRI with Reference to VEDANTA Company

Sustainable development has become one of the key principles for succeeding human development goals while at the same time strengthening the power of natural systems in order to provide ecosystem services which the economy and society depends upon. The society’s end result is where the use of resources and the living conditions prolong to meet the human needs without hindering the balance of the natural systems. If ever focusing on Environmental sustainability, it will have a concern with the natural environment and how it remains diverse and productive. For natural resources are derived from the environment, the state of water, air, soil are of particular concern. GRI (Global Reporting Initiative) has an important role to form a framework of sustainable development in businesses, government and other organizations. The goal of the sustainable development process is to achieve the status of ‘sustainability’ in all communities. It is important to make compatible with developed and flexible using the standards laid down by GRI therefore in the long term, strategies’ of sustainable development should assist the continuance of the system of biodiversity of city and suburbs through the active protection and sustainable utilization of natural sources. Therefore in order to achieve sustainability, it is necessary to make structural reforms as regarded in the standards set by GRI and to create some deep and fundamental changes in all levels of communities. Sustainable Business Models (SBM) integrates a triple bottom line approach and includes stakeholder interests, including the environment and society. They are important in implementing business innovation for sustainability and can help fix sustainability into corporate purpose, and serve as a key driver of competitive advantage. This study focuses on the analysis of the sustainable development of Vedanta Company.

Sustainable Development Strategy through GRI with Reference to VEDANTA Company

Sustainable development has become one of the key principles for succeeding human development goals while at the same time strengthening the power of natural systems in order to provide ecosystem services which the economy and society depends upon. The society’s end result is where the use of resources and the living conditions prolong to meet the human needs without hindering the balance of the natural systems. If ever focusing on Environmental sustainability, it will have a concern with the natural environment and how it remains diverse and productive. For natural resources are derived from the environment, the state of water, air, soil are of particular concern. GRI (Global Reporting Initiative) has an important role to form a framework of sustainable development in businesses, government and other organizations. The goal of the sustainable development process is to achieve the status of ‘sustainability’ in all communities. It is important to make compatible with developed and flexible using the standards laid down by GRI therefore in the long term,strategies’ of sustainable development should assist the continuance of the system of biodiversity of city and suburbs through the active protection and sustainable utilization of natural sources. Therefore in order to achieve sustainability, it is necessary to make structural reforms as regarded in the standards set by GRI and to create some deep and fundamental changes in all levels of communities. Sustainable Business Models (SBM) integrates a triple bottom line approach and includes stakeholder interests, including the environment and society. They are important in implementing business innovation for sustainability and can help fix sustainability into corporate purpose, and serve as a key driver of competitive advantage. This study focuses on the analysis of the sustainable development of Vedanta Company

Rehabilitating Corporate Purpose

In this essay, I address how the ascendance of the theory of shareholder value maximization into the central consciousness of public corporations and its canonization as the only legitimate expression of corporate purpose has contributed to both a widening breach between American-style capitalism and justice and increased alienation of the public from capitalism as a system of economic governance. Despite the vast academic literature and many management testimonials advocating a broader conception of corporate purpose — one that addresses the interests of firms’ multiple constituencies and the well-being of their employees, customers, and operating environment — shareholder value maximization remains the de facto expression of corporate purpose and guide for decision making for most publicly owned firms in the United States (and the United Kingdom). I argue that narrowing the compatibility gap between capitalism and justice and reversing declining public trust in contemporary capitalism requires a very different conception of corporate purpose — one reflecting established moral and economic principles that challenge those underlying the shareholder value maximization doctrine. To this end, I start by discussing the vulnerability of contemporary capitalism, which is largely rooted in the social and moral disengagement of firms operating under this doctrine. I then explain how the emergence of the doctrine over the past four decades has led to this social and moral disengagement, what the theoretical underpinnings of the shareholder value maximization doctrine are, how this doctrine has become so deeply ingrained in our capitalist system, and the conceptual and practical problems presented by this doctrine and related theory of the firm. Next, I propose an alternate, principle-based guideline for corporate purpose that blends Aristotle’s theory of reciprocal justice with considerations of corporate purpose, along with Chester Barnard’s compatible theory of business organizations as cooperative systems. Aristotle stresses the ethicality of cooperation in transactional settings; Barnard stresses the efficiencies and adaptive benefits flowing from cooperation. Both see utility in truly reciprocal, cooperative relationships, which is not a priority in a shareholder value maximization regime. This alternative approach — referred to as ethical reciprocity — not only provides the basis for a rebuttal of the shareholder-primacy doctrine based on principles of justice and economic efficiency, but also offers a practical guideline for balancing the interests of shareholders and other corporate constituencies in the conduct of everyday business affairs. After presenting ethical reciprocity as a justice-sensitive guideline for corporate purpose, I turn to two practical questions related to its implementation: (a) whether “reciprocity practitioners” can compete in a world dominated by shareholder value maximizers, and (b) if so, what asset holders and asset managers, corporate directors, and educators can do — and, in some instances, are currently doing — to foster increased attention to both the principle and spirit of ethical reciprocity in the definition and pursuit of corporate purpose.

“Because They Could”: trust, integrity, and purpose in the regulation of corporate governance in the aftermath of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry

In an era of declining levels of public trust, royal commissions retain symbolic and actual power to provide potential reassurance. The handing down of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in February 2019 marks a defining moment. It offers, for the first time, a coherent and cohesive normative framework that integrates law, morality and public expectations. In so doing, it invigorates debate on corporate purpose and duty to the society in which it operates. It also provides mechanisms to ensure more effective pathways towards binding sanction. The report, however, suffers from a significant flaw. It presents identified failures in governance in mechanistic terms as independent and episodic rather than a systemic question of sub-optimal culture. The behaviours in the sector reflect the wider inculcation of social norms within and beyond specific communities of practice. In so doing, the report undermines rather than strengthens the power of administrative agencies to guide industry as a whole towards socially beneficial outcomes. Change will only come from a broader exercise in deliberative governance in which cultural renewal is determined, endorsed, and lived.

Corporate Management in the Age of AI

Recent media reports and press releases have created the impression that Artificial Intelligence (AI) is on the verge of assuming an important role in corporate management. While, upon closer inspection, it turns out that these stories should not always be taken at face value, they clearly highlight AI’s growing importance in management and hint at the enormous changes that corporate leadership may experience in the future. This article attempts to anticipate that future by exploring a thought experiment on corporate management and AI. It argues that it is not an insurmountable step from AI generating and suggesting expert decisions (which is already common today) to AI making these decisions autonomously. The article then proceeds based on the assumption that next-generation AI will be able to take over the management of business organisations and explores the corporate law and governance consequences of this development. In doing so, the article focuses on the fundamental areas of corporate leadership/management structures, managerial liability, and the corporate purpose. It also considers the phenomenon of algorithmic entities and leaderless entities.

Restoring trust and rebuilding reputation: The critical roles of corporate purpose, earned media and the new CEO mandate

Global studies underscore how the world is filled with uncertainty and people are in search of truths. Globally, trust is stagnating; in the USA, it has collapsed altogether. The corporate reputation bubble has burst, and with it, people’s trust that organisations will do the right thing. The flipside of these issues is an opportunity for companies to take action to restore trust and enhance reputation. At the top of the list is strong corporate purpose — the new business imperative that is quickly becoming today’s clarion call. Unlike traditional corporate social responsibility, a moral purpose should reflect a company’s DNA, serving as a natural extension of its business, addressing a societal problem like climate change or world hunger. Another area involves a renewed focus on earned media. Society is now looking to experts like trusted journalists as sources of credible information; companies must continue to cultivate relationships with them in order to tell their stories through respected media channels. There is also a new expectation for chief executives, who now must play the role of chief values officer and demonstrate activism for relevant causes to enhance reputation. This paper gives insights into how to restore trust and enhance reputation.

Reconsidering Stockholder Primacy in an Era of Corporate Purpose

Corporate governance rules have an enormous impact on people’s lives. This is true whether the corporation is public or private, and regardless of its size, since the rules governing behavior and director conduct apply regardless of the size of the corporation or the number of its stockholders. As corporations have gained increased freedom to impose their values on the company's employees and even on our political system, the issues surrounding purpose have become more pronounced. Yet even as purpose has become a growing issue in recent years, the framework for any discussion over purpose debate has been constrained by the dominance of stockholder primacy ideology. Stockholder primacy has been the dominant ideology since the early 1980s, and whenever new rules of governance have been considered they have been viewed under a single prism: how do these rules impact stockholder value? Even in recent years, when occasionally broader consideration of purpose have been debated, the discussion has largely been limited to managers, directors and stockholders; other stakeholders, who may have interests other than stockholder value, are typically not even invited to participate in this debate. As a result, their concerns are only addressed within the broader framework of how their issues may affect stockholder value. The purpose of this short essay is two-fold: first, to show that ideology matters. Specifically, the dominance of stockholder ideology has determined who gets to participate in -- and who is excluded from -- the debate about purpose. This has a huge effect on the lives of people (including the large numbers of working people who own no stock) because these people have no meaningful ability to participate in this debate. Second, the essay looks at some recent cracks in the stockholder primacy ideology, and in particular recent efforts to expand the definition of corporate ownership so that other stakeholders can have the opportunity to participate in the on-going debate over purpose.

Statements of Corporate Purpose of Key Global Financial Institutions and Social Aspiration

An assessment of the extent to which corporate mission statements of leading global financial institutions reference corporate purpose, and connect that purpose with social outcomes.