Corporate Purpose Put to the Test

The debate on corporate purpose — that is, the faculty, opportunity or even obligation for a company to articulate its objectives and values beyond the maximization of shareholder value and to provide information, including quantitative information where possible, on how they are pursued — has experienced, if not a complete reversal, at least a slowdown, a pause for reflection. Only a few years ago there was a certain convergence of voices in favor of the pursuit of broad goals from business associations, representatives of major investment funds, self-regulatory codes and scholars. These goals encompassed the interests of numerous and heterogeneous stakeholders inspired by ESG/DEI objectives relating to the environment, human rights and inclusion. European legislation was moving in this direction, with a series of initiatives ranging from disclosure requirements on these metrics to real duties of conduct. Today, by contrast, the difficulties and costs of regulating the matter in an orderly way are becoming apparent in Europe, dampening regulatory enthusiasm. The US government has instead engaged in a battle against these trends, deeming them inefficient and politically hostile. Meanwhile, China and more broadly, other countries in Asia are opening the door to more structured and binding approaches.

The balancing of companies’ economic and financial objectives with their role in society is perhaps one of the oldest issues in business law and practice. Traces of it can be found in the writings and disputes of medieval merchants and, at least since the early 20th century, it has — alternating in the fortunes of the two camps—occupied courtrooms, shareholders’ meetings and newspaper pages. Given the immense power of multinational corporations, particularly in the technology sector, and the deep inequalities of our time, the issue has become increasingly pressing. 

However, I would not like to go into the merits of the different approaches, but rather offer a brief reflection on the reasons why this debate often appears vague and inconclusive. Indeed, the issue does not stem solely from opposing political positions — or, more broadly, from differing value systems — but also from methodological questions that are too often overlooked.

First and foremost, a more rigorous distinction is needed between what could be called a corporate and managerial perspective and a legal one. The former is guided by economic considerations. Without disregarding its ethical dimension, corporate purpose thus becomes a strategic choice, a business opportunity, a tool for addressing individual and systemic risks, an element of organizational culture and a benchmark for assessing sustainable success in a broad sense. However, when these concepts must be embedded within a regulatory framework characterized by mandatory duties, difficulties arise — not only because the force of law lends greater weight and rigidity to every choice, but also because there is a need for surgically precise definitions and parameters capable of grounding rights and obligations, assigning responsibility and delineating powers and degrees of freedom. On closer inspection, the success of joint-stock companies has also been ensured by the fact that they are more neutral in their purpose than is commonly assumed. Their aims emerge, and vary, from the interaction among corporate actors: rather than setting a specific objective, the law is primarily concerned with establishing how this interaction should take place and with placing limits on abusive or inefficient conduct, as well as on practices that are unfair or distort the market. It is therefore not surprising that jurists and the law are impatient with formulas that may be effective and relatively clear on a managerial level, but inevitably uncertain when it comes to sanctioning or imposing specific behaviors that require certainty and predictability. These formulas are thus seen by many as not very useful at best, and dangerous at worst. And in fact, in the English legal system, where for the past 20 years the law itself has required directors — alongside shareholders — to take into account a wide range of stakeholders (including workers, local communities, suppliers and the environment), there has essentially not been a single case in which a judge has affirmed a violation of top management for not having "sufficiently" considered these different interests. 

There is also another layer of complexity. A certain “globalist” mindset — now receding with the reemergence of national interests and the troubling fractures within international organizations and the global community — tends to overlook this, but the law remains strongly national in character. Even in the quintessential federal system, the US, corporate law is a state matter. Though there are similarities, each of the 50 states provides for a different regime, as seen in the recent competition for companies between Delaware, Texas and Nevada. It is therefore evident that the same principle, the same formula can have very different repercussions depending on geography. Failing to account for the misalignment between aspirations regarding the functions of capitalism — more or less widely shared but inherently transnational — and the practical demands of justice, which operate within a specific territory and legal tradition, often results in confusion and limited effectiveness.