What is Wrong with Corporate Law? The Purpose of Law and the Law of Purpose

This article argues that corporate purpose should be put at the heart of corporate law. It addresses the objections to this that there is little that corporate law prevents firms from doing in determining their corporate purposes, and, even if they were given greater latitude, companies would do little more than they do at present in formulating their purposes.

The claim of the article is twofold. First that the critics of the law of corporate purpose have failed to recognize the role that purpose can play in addressing the primary defect of the current system – namely the divergence of the private interests of the corporation from the public interests of society and the natural world. That derives from the disconnect that currently exists between the private incentives of the pursuit of profit from the public interest in human and natural world flourishing and prosperity.

The second claim is that not only can the law address that defect through requiring the adoption of appropriately formulated corporate purposes, but it also provides an essential means of commitment to the delivery of long-term prosperity. At present, the law does not permit a commitment to objectives beyond the pursuit of the success of the company for the benefit of its members and it thereby fails to protect companies which seek to create long-term prosperity through committing to the interests of others.

The law can and should both ensure the alignment of the corporation’s incentives with individual, societal, and planetary interests and promote the resolution of their problems by enabling one of the most powerful institutional entities that we have created to date, namely the firm, to commit credibly to their resolution. Its failings on both counts have been the source of intensifying crises. We need to acknowledge this and recognize the potential to provide a remedy for the cause of them – namely the laws that have created the corporation.