This chapter argues that the existing corporate laws of the four Asian jurisdictions and the laws regulating social enterprises in the US and UK that deal with purpose are generally ineffective in preventing the subordination of social benefit to profit; the laws are inadequate to ensure that social benefit is prioritized. Thus, I argue that in my proposed legal form, under the first criterion, there should be a requirement to the following effect that “on the whole, the pursuit and delivery of social benefit is prioritised over profit-making except where doing so will have a material and adverse effect on the financial viability of the social enterprise.” To make this argument, I first distinguish between corporate interest, corporate object, and corporate interest. I then examine the company laws of the four common law Asian jurisdictions, followed by the US benefit corporation and social purpose corporation as well as the UK community interest company. Subsequently, I propose a corporate purpose to which social enterprises should adhere and I show how this purpose can be privately and publicly enforced.

One of the key claims of advocates of stakeholder capitalism, especially those in the legal academy, is that the foundational case – Dodge v. Ford Motor Co. – was not good law when it was first written, the key part of the decision, is mere dicta, and subsequent legal developments have undercut whatever validity the decision may have had at one time. All of these claims are demonstrably false. As Chief Justice Leo Strine put it, those who claim that shareholder value maximization is not the law are pretending.

Shareholder value maximization is the law. It ought to be the law. This is, in part, because the chief alternative available in liberal democratic societies – stakeholder capitalism – is fundamentally flawed. If executives such as those who signed the Business Roundtable’s 2019 statement on corporate purpose really tried to run their companies according to the altruistic principles laid out therein, they would find it an impossible task. Developing the set of objective and quantifiable metrics necessary to operationalize stakeholder capitalism will prove an intractable problem. Even if the requisite set of metrics could be designed, boundedly rational managers cannot reasonably be expected to balance the huge number of competing factors necessary to account for the varied interests of the firm’s many constituencies.

AP Smith Mfg. Co. v. Barlow is the seminal case on the fiduciary duties of corporate directors with respect to profit maximization and corporate philanthropy. The chapter provides the factual context of the case and analyzes the law. The chapter situates the case in the famous debate between Adolf Berle and E. Merrick Dodd over shareholder value maximization. It provides context for the business communitys approach to shareholder capitalism.

There are very few cases holding directors liable for failing to maximize shareholder value. The reason is the business judgment rule, a corporate law doctrine that precludes judges from reviewing the merits of director decisions absent some evidence of fraud, illegality, self-dealing, failure to make an informed decision, or waste of corporate assets. Shlensky v. Wrigley is the classic case of the business judgment rules application to cases in which the directors are alleged to have failed to maximize profit.

Defines the terms corporation, corporate purpose, shareholder value maximization, stakeholders, stakeholder capitalism, corporate social responsibility, and ESG (environmental, social, and governance). Provides the plan of the work.

Stakeholder capitalism results in a loss of accountability, as executives who are responsible to everyone are responsible to no one. Stakeholder capitalism would be extremely difficult to implement. Proposed means of doing so – such as constituency boards, codetermination, and team production – are all unworkable. Stakeholder capitalism is inconsistent with democratic capitalism. Shareholder value maximization is the result that would emerge if shareholder and stakeholders could bargain (the so-called hypothetical bargain). Shareholder capitalism is pro-social. The profit motive results in socially efficient resource allocation. The profit motive is an essential motivational spark for innovation. The profit motive promotes freedom.

Dodge v. Ford Motor Co. is the seminal case on the fiduciary duties of corporate directors with respect to profit maximization. The chapter provides the factual context of the case and analyzes the law.

The 2019 shift in position by the Business Roundtable CEOs from their traditional embrace of shareholder value maximization to stakeholder capitalism attracted enormous attention. Oddly, however, the CEOs offered nothing but platitudes to explain their shift. This chapter explores possible explanations for their shift. Were the Business Roundtable CEOs woke? It is true that CEO activism leans left but the profit motive survives. Were the Business Roundtable CEOs responding to changes in consumer, investor, and labor demands? Were the Business Roundtable CEOs responding to Green Activist Investors? Were the Business Roundtable CEOs trying to fend off regulation? Were the Business Roundtable CEOs just cynical oligopolists? All of these prove possible but unlikely explanations. Two more plausible explanations are that the Business Roundtable CEOs were pining for the days of Imperial CEOs, because stakeholder capitalism inevitably means that CEOs are less accountable, and that the Business Roundtable CEOs were greenwashing.

The conclusion higlights continuing challenges for the EU and the rest of the world and how the future humanity faces is uncertain. Yet an optimistic message is also presented. Noting that shareholder primacy is increasingly coming under question and a growing interest in the concepts of corporate purpose and sustainable value creation, the conclusion draws upon the suggestions made among the chapters throughout the book to highlight the potential for corporations to be a force for good if supported by more effective legal and regulatory reforms and operating with more innovative structures and technologies. More stable, resilient and democratic institutional structures are necessary too as is the inclusion of active political and entrepreneurial women. Also fundamental to change is setting sustainable value creation within planetary boundaries as an overarching purpose for business, with mandatory rules to ensure that sustainability is integrated into the governance of business across global value chains. In a policy coherence for sustainability perspective, the book concludes by positioning the research-based reform proposals for business and finance within broader European Union laws and policies, underlining the necessity of reform also of other related areas, including circular economy policies, competition and state aid law and public procurement.

In Chapter 2 I discuss how boards can work on the company’s purpose and shift their attention from profit maximization alone to become a purpose-driven organization. A corporate purpose offers a concise explanation of why a company exists and what it intends to do for customers, employees and society in a sustainable way. It provides a frame for shareholder and stakeholder expectations. With the growing emphasis on sustainability and ESG dimensions, firms need to develop an overall purpose-driven framework to ensure these pieces fit together and are well integrated into the firm’s strategy. Boards should learn how to work with the firm’s purpose, make it consistent with the firm’s strategy and understand how their work can reinforce or erode corporate purpose.

This chapter identifies the “building blocks” of organizational architecture. A group structure is composed of two or more legal entities. This chapter discusses the significance of the selection of legal entities and is divided into selections on legal form, corporate purpose, and corporate function in a group structure. The chapter contributes to the literature by distinguishing the roles of operative, service, holding, and dormant companies in groups and the implications of these upon the selection of affiliation linkages (Chapter 5) and internal governance mechanisms (Chapter 6).

‘Shareholder democracy’ and ‘corporate purpose’ are concepts periodically cited in the context of dual-class stock.Shareholder democracy, and the contention that one share, one vote is democratic or just plain fair, although an elegant soundbite, has been disputed, with many commentators opining that one share per shareholder is a better representation of democracy, and that analogies between corporate governance and political theory are built on fragile grounds.In relation to corporate purpose, commentators have vacillated between ideologies of shareholder primacy and stakeholder pluralism over the years, with numerous ‘theories of the firm’ being proposed to justify, often opposing, ideals.However, the United Kingdom’s regulatory environment prioritises shareholders, the premium tier prohibition on dual-class stock stems from a presumption that it harms public shareholders and institutional shareholders, who are traditionally antagonistic to dual-class stock, enjoy significant influence on the UK public markets.Therefore, whatever one’s predilections on the shareholder primacy/stakeholder pluralism debate, when considering dual-class stock, the impact on public shareholders is key.Additionally, although Big Tech has attracted a hostile press in recent years, the potentially pernicious dominance of large tech companies is not an attribute unique to dual-class stock, and, in fact, dual-class stock could inspire greater competition in the industry.

The goal of the business corporation traditionally has been understood to be the maximization of shareholder wealth. A growing demand for social enterprise has led to the creation of various new forms of business organization, including the benefit corporation, that have the goal of creating both shareholder wealth and other public benefits. Although benefit corporations were developed to overcome the shareholder wealth maximization norm, it is not fair to say that they also overcome shareholder primacy. Properly understood, benefit corporations are shareholder-centric: they exist to allow shareholders to pursue altruistic goals rather than to require them to do so. This essay demonstrates this from the history and structure of the Model Benefit Corporation Act and argues that benefit corporation legislation ought to remain essentially enabling rather than mandatory in nature.

Women have become increasingly central to initiatives aimed at achieving sustainable development and changing corporate practice. Global gender empowerment projects have allowed corporations to expand into new markets, while increasing the number of female leaders is thought to bring business advantages. These initiatives reveal a preoccupation with offering women more opportunities to participate in shareholder-centric corporate life but fail to address the real reason for women’s exclusion and subordination within companies: deep-seated structural barriers and biases. This Chapter explores how gender might be a catalyst for change towards sustainability. It suggests three reforms: changing conceptions of the ideal corporate worker to recognise companies’ dependence on unpaid caring labour; recognising how the process of globalisation is creating fresh patterns of inequality; and replacing the social norm of shareholder primacy with a corporate purpose based around principles of proportionality that may act in pursuit of strong sustainability.