In a forthcoming chapter, we explore the duality of corporate purpose, which reflects two sides of corporate law and governance. First, because each corporation must specify a purpose in its charter, corporate purpose can be understood at the level of the individual corporation. Corporate law is generally enabling, and the law of corporate purpose is no different: Corporate organizers can specify their own choice of purpose, which allows for customization. Second, by contrast, as a great debate at the heart of corporate law, corporate purpose is viewed in the abstract as a generalizable and monolithic concept across corporations, particularly for paradigmatic large public corporations. In the context of these debates, corporate purpose raises deeper issues such as the role of corporations in society and in whose interest they should be run.

Our chapter examines these two sides of corporate purpose and their relationship. Is corporate purpose a choice for an individual firm to determine for itself? Or is it a norm or doctrine that applies to business corporations generally? What can be learned by considering these corporate law principles and areas of debate in tandem?

We begin with an examination of the law of corporate purpose at the individual corporation level. We trace the historical evolution from detailed statements of corporate purpose in special acts chartering corporations to general incorporation statutes that allowed for broad statements of purpose such as engaging in any lawful activity. We observe that through this historical shift, the baseline requirement that incorporators specify a purpose has remained. Under modern law, however, the choice of purpose for any particular corporation is highly flexible and varied – business organizers can craft a purpose clause to be broad or narrow, customize their own specific ends, and select a form of business corporation that allows for or even requires consideration of diverse constituencies. Although the legal requirement for purpose requires very little specificity, many companies advertise a guiding “purpose” for the business embodied in a mission statement or statement of values, which can be altered or discarded entirely as circumstances change.

Subsequently, we turn to the great corporate purpose debate in which this flexibility disappears, and the focus becomes a question of whether the corporation should be managed for the shareholders’ financial benefit. We start by exploring how the most famous corporate law debate of corporate purpose, between Adolf Berle, Jr. and E. Merrick Dodd, Jr. in the early 20th century, focused discourse around two competing views, both of which eschewed a purely enabling and firm-specific view of a corporation’s purpose in society. Instead, the paradigm for debate became the large public corporation, abstracted and spared the details of firm-specific missions or objectives. In this era, the foundation was laid for an extra-legal corporate purpose overlay that would direct fiduciaries of all companies to discharge their duties with certain goals in mind.

We then explore how in the century that followed, through the twists and turns of managerialism to an era of shareholder primacy, scholarly debate and views evolved, as did market conditions, but the framing between notions of duties to shareholders versus social responsibilities was lasting. By the end of the twentieth century, intellectual and market environments generally adhered to the idea that companies of all sizes and across all industries should focus on shareholder value maximization. Amid the rising power of large asset managers and institutional shareholders, the twenty-first century has witnessed a renaissance of thinking about corporate purpose and a willingness to look anew at the interests of shareholders and stakeholders and the extent to which they can be made to align through enlightened shareholders, shareholder welfare, ESG, or some other concept. Nonetheless, the legacy of a shareholder-oriented purpose remains, with proponents of various approaches purporting that they should bind all companies, no matter their composition, size, or business strategy.

Finally, we reflect on this duality and argue that while both sides are commonly understood ways of thinking about the topic, they operate in tension with each other. The flexibility provided under law is effectively modified or constrained by the cultural, legal, and institutional environment that fiduciaries operate in, which has been and continues to be shaped by the great debate about corporate purpose. Moreover, although management retains the power to specify the firm’s purpose as an initial matter, shareholders can play a role in forcing change. Certain ownership structures or defensive tactics such as the public benefit corporation form, dual-class stock, or poison pills might help to protect a corporation’s idiosyncratic or social purpose, but ultimately shareholders and capital markets operate as a powerful force that can reshape such a purpose. This dynamic highlights the potential for evolution in a corporation’s purpose and the continued importance of debate on whether and how law could change to facilitate corporate commitments to goals beyond the pursuit of economic value.

This piece comes to us from professors Dorothy S. Lund at Columbia Law School and Elizabeth Pollman at the University of Pennsylvania Carey Law School. It is based on their new chapter, “Corporate Purpose,” forthcoming in the Oxford Handbook of Corporate Law and Governance (Jeffrey N. Gordon and Wolf-Georg Ringe editors, Oxford Univ. Press 2d ed.) and available here.