The Purposive Transformation of Company Law
Forthcoming, American Journal of Comparative Law
45 Pages Posted: 2 Apr 2020
Date Written: March 31, 2019
In December of 2018 a potentially transformative event occurred within UK corporate law and governance with the coming into force of the Revised Corporate Governance Code and its requirement that ‘the board should establish the company’s purpose’. This article explores how the Code’s references to ‘company purpose’ should best be understood, arguing, through a process of elimination, that it is an animated mission-purpose idea about what the company does; an animated idea that can both transform the nature of corporate life and offer pathways to value generation unavailable to non-purposeful companies. But in embracing purpose the Code invites the question: does the UK offer companies the legal and non-legal conditions to support and nurture purposeful companies? The article argues that although UK company law is theoretically capable of providing a purposeful legal ecology it is prevented from doing so by a constraining legal normality which is supported by, inter alia, investor inertia arising from the incentive structures of modern investment vehicles and the stickiness of default rules. Such practical barriers mean that legal reforms are required to enable company purpose to evolve into a meaningful concept, rather than an empty phrase. The article explores the nature of such reforms and the possible theoretical and empirical objections to them, which it rejects.
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