Business Purpose and the Objective of the Corporation

Abstract

There is evidence that purpose-driven businesses outperform competitors. A traditional business planner’s question that arises in response to this evidence – namely, which enterprise form is best suited to a purpose-driven business? – contains deep conceptual insights. In this chapter, I explore the business planner’s question in order to draw a sharp conceptual distinction between “business purpose” and “the objective of the corporation.” “Business purpose” should be understood to be a property of business enterprises, however they are organized. “Corporate objective,” by contrast, is best understood as a characteristic of a particular enterprise form (the general corporation) and not as a description of what actual businesses do on a day to day basis. Confusing these two concepts under the heading “corporate purpose” limits our ability to understand what sort of organizational form is best suited to a particular enterprise, and leads to confusion in the management debates over how to build successful businesses and the political debates over the social role and obligations of large scale business enterprises.

Keywords: Corporate Law: Corporate & Financial Law: Interdisciplinary Approaches, Corporate Governance U.S., Business Purpose; Corporate Objective; Corporate Purpose, Corporate Governance, Institutional Investors

JEL Classification: K22, M14, N20, G30, G34