Should Corporations have a Purpose?

55 Pages Posted: 27 Mar 2020 Last revised: 22 Aug 2020

See all articles by Jill E. Fisch

Jill E. Fisch

University of Pennsylvania Law School - Institute for Law and Economics, European Corporate Governance Institute

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: August 3, 2020

Abstract

The hot topic in corporate governance is the debate over corporate purpose and, in particular, whether corporations should shift their purpose from the pursuit of shareholder wealth to pursuing a broader conception of stakeholder or societal value. We argue that this debate has overlooked the critical predicate questions of whether a corporation should have a purpose at all and, if so, why.

We address these questions by examining the historical, legal and theoretical justifications for corporate purpose. We find that none of the three provides a basis for requiring a corporation to articulate a particular purpose or for a given normative conception of what that purpose should be. We additionally challenge recent corporate commitments to stakeholder value as lacking both binding legal effect and operational significance.

We nonetheless argue that articulating a corporate purpose can be valuable, and we justify a specification of corporate purpose on instrumental grounds. 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. Our instrumental view of the corporation brings a new perspective to the purpose debate.

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? (August 3, 2020). 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 Law School - Institute for Law and Economics, European Corporate Governance Institute ( 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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