Corporate Purpose and the Misleading Shareholder vs Stakeholder Dichotomy

Abstract

Corporate purpose has again become a topic of discussion in company law and corporate governance. In the European Union, the tension between the societal approach to companies with its long history and the efficiency-based approach with its much shorter history (and weaker basis) is palpable in the heated debates ever since the European Commission launched its Sustainable Corporate Governance initiative in 2020. In this debate, shareholder primacy proponents have sought to frame the discussion within what we call a shareholder vs stakeholder dichotomy.

The dichotomy is misleading and outright dangerous in the way it takes company law proper out of the discussion and reinforces the shareholder primacy drive. We reject the dichotomy as a meaningful framing of the debate, and seek to dismantle some of the strawmen set up on the road towards sustainable corporate governance. We turn instead to a discussion of corporate purpose as a matter of company law and in ensuring the contribution of business to sustainability. We discuss how such an overarching purpose could be operationalised with a redefinition of duties of the board, and we integrate in this our first reflections on the Commission’s February 2022 proposal for a Corporate Sustainability Due Diligence Directive.

Keywords: EU Green Deal, Sustainability, Planetary Boundaries, Social Foundations, Corporate Law, Corporate Board, Sustainability Due Diligence, Sustainable Finance, Sustainable Corporate Governance, Corporate Sustainability Reporting, Sustainable Company Law, Agency theory, Shareholder Primacy, Stakeholders