Should Corporations have a Purpose?

44 Pages Posted: 27 Mar 2020 Last revised: 5 Oct 2021

See all articles by Jill E. Fisch

Jill E. Fisch

University of Pennsylvania Carey Law School

Steven Davidoff Solomon

University of California, Berkeley - School of Law; University of California, Berkeley - Berkeley Center for Law, Business and the Economy; European Corporate Governance Institute (ECGI)

Date Written: 2021

Abstract

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.

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

JEL Classification: G30, G38, K20, L21, P120

Suggested Citation

Fisch, Jill E. and Davidoff Solomon, Steven, Should Corporations have a Purpose? (2021). Texas Law Review, Vol. 99, p. 1309, 2021, U of Penn, Inst for Law & Econ Research Paper No. 20-22, European Corporate Governance Institute - Law Working Paper No. 510/2020, Available at SSRN: https://ssrn.com/abstract=3561164 or http://dx.doi.org/10.2139/ssrn.3561164

Jill E. Fisch (Contact Author)

University of Pennsylvania Carey Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
215-746-3454 (Phone)
215-573-2025 (Fax)

Steven Davidoff Solomon

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

University of California, Berkeley - Berkeley Center for Law, Business and the Economy ( email )

Berkeley, CA 94720-7200

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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