Rethinking Corporate Purpose … But Not as One Might Expect

Corporate purpose is having a moment, as it seems to do each generation or so. The Business Roundtable made waves last year by pivoting away from shareholder centrism in its “redefinition” of corporate purpose. Directors, officers, institutional investors, and others have been buffeted by a new enthusiasm for SRI, Social Impact, and ESG investing. B Lab and a growing cadre of academics, public intellectuals, and legislators have generated interest in bespoke organizations capable of fostering social enterprise. Taken in whole, these developments have fed bold predictions of a generational shift toward prosocial preferences amongst investors and entrepreneurs.

At the center of these developments has been renewed debate over how corporate purpose should be understood at large and defined at law (see here and here). Some U.S. scholars have advocated for a reevaluation of the “law of corporate purpose” for conventional corporations. Others, believing that that the law has been settled in favor of shareholder primacy, champion other options, including the promulgation of enabling legislation for benefit corporations.

I offer a different perspective on the legal significance of corporate purpose in a forthcoming chapter.

Building on earlier work (here and here), my chapter asks not how the law conceives of purposes for corporations, but instead how the law relies on evidence of purposes specified for corporations by their agents in structuring corporate liability.

The chapter begins with a puzzle born of unique features of corporate personality and corporate agency: How to resolve, in a principled way, disputes over the attribution of liability-generating action where a corporation and its agent wish to disown the action and responsibility for it. How is a court to decide whether a given action, and associated liability, is truly corporate, recognizing that corporations must always act through representatives if they are to act at all, and, in turn, that corporate agents may act in either a personal or a corporate capacity?

I suggest the puzzle is, at bottom, one of determining objective bases upon which actions may deemed to be representative (i.e., taken for or on behalf of another person, natural or artificial) or personal (i.e., taken, as is the default, by a natural person in her own capacity). I note that there are a number of bases upon which an action may characterized as representative, and thus as having been truly corporate (e.g., tokens of position and authority). An overlooked basis is evidence of corporate purpose; that is, evidence that a given action was imbued with, or otherwise manifests, the institutional or operational purposes of a given corporation.

Among other things, I comment on the significance of corporate purpose, so understood, to the resolution of disputes about the attribution of personal and vicarious forms of liability to corporations. For example, I note that evidence that a given action or course of conduct was taken pursuant to an operational purpose (concrete business objective or goal) of a corporation provides objective grounds upon which to attribute the action and associated liability to a corporation. I also offer some suggestions on the sense in which institutional and operational corporate purpose – and, more broadly, the capacities for purposive action that the law generates and recognizes in corporations – enable corporations to manifest indicia of personality in a wider, non-legal, sense (including indicia of social identity and moral personality). For example, a pattern of purposive action taken for and on behalf of a corporation has the potential to shape distinctive identity of a corporation, including aspects of identity that are usually thought to reflect personal characteristics (e.g., religious convictions, moral commitments, and even more ephemeral qualities such as worldliness and trendiness).

Ultimately, my wariness about the way in which questions about corporate purpose are usually framed is driven not by a lack of interest or a sense that they are trivial, but rather by abiding doubt over whether we reasonably look to law for dispositive answers to them. At the same time, to the extent that my chapter is a paean to counter-trend, it aims to show the value of paying closer attention to the ways in which the law makes use of familiar concepts that are unfamiliar but nonetheless practically important.

This post comes to us from Paul B. Miller, professor and associate dean at Notre Dame Law School. It is based on his recent chapter, “Corporate Personality, Purpose, and Liability,” available here.

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