Corporate Purpose Swings as a Social, Atheoretical Process: Will the Pendulum Break? (2024)

Abstract

1. Introduction

Even before its unrestricted assignment to private business purposes and the emergence of modern corporate capitalism, the corporation caused discomfort to those who sensed its wider impact on society. Among them, Adam Smith was quick in treating it with disdain as a badly governed monopoly instrument.1 Thomas Jefferson and James Madison implicitly shared equivalent views as they proposed restrictions against corporate power in the constitution of the United States.2 This aversion to the corporation concerned its organisational aspects (eg Smith critiqued the lack of directors’ accountability) and its potential as an instrument in the hands of private interests for exerting excessive social power. Nonetheless, over 200 years later, virtually every sector of the economy, even on a global scale, is dominated by a limited number of corporations vested with unprecedented economic and political power.

In this context, the question of corporate purpose is of critical importance. Corporate purpose encapsulates the goal pursued by a corporation and thus refers to the use of corporate law (and the corporation). As such, it is also related to the issue of the corporation’s socialisation, that is, its social positioning, impact and legitimacy. In turn, corporate law is essentially the field of law which establishes an organisational structure, the corporation, which can have very diverse uses (public, private, charitable, etc.). Concern with the unconditional use of corporate law is indeed unavoidable not only because of large corporate scale, but also because the corporate economy has expanded to an unprecedented degree that even Smith, Jefferson and Madison might not have imagined. On the one hand, we rely on corporations for meeting our most basic needs—eg utilities, healthcare or food—and we hand over to them information on almost every aspect of our existence, financial, physical and ideological to name but a few. To this, one could add that most individual income and virtually all payments are channelled through one or more corporations. On the other hand, as economic activity is now almost exclusively organised within corporations, its environmental impact and sustainability are matters pertaining to corporate purpose too, especially since environmental degradation has now reached existential levels.

Thus, the issue of corporate purpose as a tool for establishing corporate social legitimacy has re-emerged as an urgent theoretical and regulatory concern. For instance, academic funding bodies have sponsored colossal projects on this topic,3 while on the regulatory stage the UK Corporate Governance Code4 has recently been redrafted around corporate purpose. However, it is argued here that such efforts, noteworthy as they are, suffer from a fundamental methodological defect. By conceptualising corporate purpose as something which can be determined by organisation law or even by reflexive regulatory instruments5 in the hope of improving society, they seem to be placing the cart before the horse: they regard corporate purpose as an instrument for pushing social change. Implicitly or explicitly, they do so by treating it as something which is autonomously determined by the corporation as if the latter is a socially disembedded organisation, and/or as if corporate purpose is a corporate choice which can be ‘optimised’ with appropriate top-down interventions implementing specific normative positions. This flawed approach seems to underpin most of the scholarly debate on corporate purpose, even in its modern reincarnation, which moves on the spectrum between stakeholderism and shareholder primacy.

This article will thus explain the inadequacy and ultimate futility of conceptualising corporate purpose simply as a normative question which can be examined in isolation from its socio-historical context. It will do so by showing how corporate law doctrine pertinent to corporate purpose has remained fairly static, while purpose has oscillated between shareholder primacy and balancing stakeholder interests rather seamlessly as a reflection of social dynamics. Certainly, at the individual company level, different company-specific purposes often coexist and compete against each other. However, at the level of society there is always a dominant social purpose for the corporate sector, the tenets of which reflect the outcomes of fundamental social dynamics in each historical era. Company-specific purpose might be idiosyncratic, but only to the degree tolerated by social corporate purpose; hence the focus on the latter in this article. Simultaneously, the indeterminacy of the law on this matter has permitted the adaptation of corporate purpose as a ‘social fact’ in the Durkheimian sense, whereby its disposition (shareholder- or stakeholder-oriented or other) is ultimately socially determined. In other words, the business corporation is always socially embedded whether one considers its purpose as normatively acceptable or not.

Thus, this article traces the distinct evolutionary stages of corporate purpose to predict the future of corporate law or even its fall from grace as the dominant type of business organisation law. It will be shown that privatised corporate law has emerged together with and as a central structural element of capitalism. As such, it has shadowed various stages of capitalist reproduction through adaptations of corporate purpose. These are influenced by social critique and struggle through processes described by Polanyi as ‘double-movements’ and by Gramsci as a ‘passive revolutions’.

It will transpire that, as long as social critique focused on the issue of corporate income distribution, corporate purpose had little difficulty in absorbing that critique for the privatised use of corporate law as business organisation law to persist. However, more recently, to distributional critique have also been added new non-economic concerns caused by economic growth per se or its lack. Those have opened a new historical era which a privatised corporate purpose may not be able to accommodate irrespective of how ‘progressive’ it may prove on the shareholder–stakeholder spectrum. The article concludes with an analysis of what this could entail for society and for corporate law as a structure for private business organisation.

2. Purpose-Neutral Corporate Law and Corporate Purpose as a Social Fact

Corporate law as a broadly defined system of organisational rules has a very long history,6 with roots deeply placed in the human need for coexistence and cooperation if not for great ambition and power.7 What is particularly striking is that its basic structural elements have a remarkable stability, while corporate purpose (public or private) and the relation (regulated or unregulated) of the corporation with the state keeps changing. So, some of the earliest accounts of ‘corporate’ practice indicate how the Roman societas publicanorum combined loose but clear forms of legal personality, shareholders’ limited liability, perpetual succession, transferable shares and delegated management.8 These are the exact elements that in a much tighter arrangement represent the current ‘anatomy of corporate law’,9 the dominant structure of today’s business organisation. On the other hand, the uses to which these features are put have shifted from being predominantly public—even if with some private profit—throughout most of corporate law’s history to the exact opposite in modern times.10 This is of great importance for this discussion, because it indicates that corporate purpose may be determined independently of the standard corporate law anatomy.

This is expected, since such an organisational structure would not have survived virtually unscathed throughout the centuries unless it was purpose-neutral.11 Even eBay v Newmark,12 which is often portrayed as an affirmation of shareholder primacy in the United States, clearly illustrates how the corporation as a purpose-neutral structure can be stirred in opposite directions depending on who controls it. Chancellor Chandler’s words in this case are worth citing here because they declare how shareholder identity interacts and gives to corporate law doctrine on purpose its actual meaning:

[the defendants] did prove that they personally believe Craigslist should not be about the business of stockholder wealth maximization, now or in the future. As an abstract matter, there is nothing inappropriate about an organization seeking to aid local, national, and global communities by providing a website for online classifieds that is largely devoid of monetized elements … The corporate form in which Craigslist operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment. [The defendants] opted to form Craigslist, Inc. as a for-profit Delaware corporation and voluntarily accepted millions of dollars from eBay as part of a transaction whereby eBay became a stockholder … If [the defendants] were the only stockholders affected by their decisions, then there would be no one to object. eBay, however, holds a significant stake in Craigslist, and [the defendants’] actions affect others besides themselves.13

Certainly, nothing precludes the possibility of defining and fixing the purpose either contractually (eg in the corporate constitution) or legislatively in certain specific cases. For example, the recent proliferation of corporate entities with a ‘social’ purpose stated in their constitutions is a reflection of the social context which has demanded their existence as optional structures in the hope of facilitating social entrepreneurship.14 Even these vehicles are a response to pressures which are exogenous to corporate law rather than a reflection of an inherent bias in the standard corporate law anatomy which needs to be corrected; after all, corporate law could easily accommodate their social purposes in their constitutions. Moreover, as will be mentioned below,15 the purely optional character of such vehicles restricts their ability to ‘socially engineer’ corporate purpose since they cannot mandate a particular type of purpose for all business corporations.

Surely, and in the light of Chancellor Chandler’s statement above, one could argue that corporate law places shareholders at the top of the corporate hierarchy, especially as the general meeting determines the content of the constitution and appoints the directors. However, this deduction is quite misleading for various doctrinal and practical reasons which dilute shareholder influence. First, as a basic legal doctrine, the directors are the agents of the company and not of the shareholders.16 As such, they promote the corporate interest, which is practically a negotiated and circ*mstantial concept in respect of which directors have considerable but not unlimited discretion irrespective of current shareholders’ wishes.17 Secondly and more significantly, the division of real powers within the corporation is an area where the law in the books and the law in practice can diverge dramatically depending on the company-specific context. Thus, the larger—and more relevant for this discussion—a corporation, the greater the autonomy of directors, so that shareholders essentially rubberstamp managerial decisions on strategy and even on director selection.18 Also, corporate law enforcement (or lack of)—especially of governance rules such as directors’ duties—depends on the initiative of shareholders. In large managerial corporations, this initiative is usually constrained by information asymmetries and shareholders’ ‘rational apathy’.19 The latter is a natural consequence of corporate law which has indeed made large-scale business organisation possible. Any purpose-related bias, say, in favour of shareholder primacy or stakeholderism, is thus not an inherent feature of corporate law per se, but of a decision of whoever happens to be in control of a corporation and the social forces exerted upon them.

If, indeed, corporate purpose is not a product of corporate law doctrine, the futility of academic or policy-making efforts for socially engineering it with corporate law ‘reform’ irrespective of the socio-historical context becomes easy to comprehend.20 Reforming corporate purpose requires much more than the regulatory attempts various projects on corporate purpose seem to envisage. The introduction into the UK Companies Act 2006 of section 172, which required directors to ‘have regard’ to stakeholder interests, like employees’ rights or the environment, is a typical example of this approach and its limitations. Originally, it was drafted as a sincere attempt to institute stakeholder concerns into corporate decision making. However, instead of resolving the purpose problem, its implementation has raised more questions than it has answered, with some condemning it as a blatant adoption of shareholder primacy and others as an introduction of stakeholderism in the Companies Act; the practical impact has been negligible.21 Accordingly, Paul Davies has convincingly argued that proposals for enhancing section 172 in favour of balancing stakeholder interests would be ‘largely ineffective or largely unnecessary’;22 purpose is a matter of practice, not doctrine. On the other hand, the exogeneity of purpose in relation to corporate law also explains the effortless oscillation of the US Business Roundtable (the association of leading US companies’ CEOs) in its respective statements from shareholder primacy in 1997 to stakeholder balancing in 2019 without a call for supportive legislative reform.23

This inherent neutrality in corporate law is of great significance. On the one hand, it results in corporate purpose being predominantly context-specific and context-determined, whether this is at the company level or in the wider social context; both contexts certainly interact. On the other hand, by being a reflection of socio-historical contexts, corporate purpose is directly exposed to social tenacities and thus carries the gist of its historical surroundings. This can expose corporate law as an institution to the whims of society. For instance, in medieval times incorporation was common in the pursuit of religious and charitable purposes. However, it was also abruptly interrupted when the tide changed and the English Crown expropriated and effectively abolished incorporation rights of religious houses within just a few years.24 Similarly, the gradual shift to capitalism led to the restoration of corporate law, but this time mainly for private purposes, namely (private) wealth creation and appropriation; and things may change again if the social context demands it. So, contrary to what Hansmann and Kraakman attempted to convince us about in their provocative ‘end of history’ article,25 the use and significance of corporate law cannot be permanently fixed. Corporate purpose is socially determined and directly exposed to wider social change and historical turns. With it, corporate law as a structure may persist, be reassigned or even be disused.

Therefore, the proposition here is that the dependency of purpose upon social dynamics has defined past uses of corporate law and will also decide the future ones provided some use for corporate law is found. As far as the broader social context is concerned, Polanyi eloquently developed his double-movement concept in The Great Transformation26 to explain how society embeds and disembeds its economy. Recently, along similar lines, Gilson and Milhaupt27 relied on Hirschman28 to explain historical shifts in the use of corporate law between shareholder primacy and stakeholderism as social reflections. If this is correct, a corporation can articulate its idiosyncratic purpose, but only to the degree allowed by movements and countermovements in the social context. In the short term, exceeding those limits might be likely to the extent that corporation can withstand social critique, eg by exercising any social power it may possess. However, in the medium term, this idiosyncrasy will be subjugated to prevalent social demands whether that corporation’s controllers—or any related scholarship factions—agree or not. So, although some authors29 insist on distinguishing between idiosyncratic and general corporate purpose as if they could evolve independently of each other, the former will eventually align with the latter to reflect social dynamics. Anything else would reduce the socialisation of the corporation through its purpose to an autonomous managerial choice. Indeed, in the field of organisation studies following the seminal works of Granovetter and of DiMaggio and Powell, the tight social constraints on organisational diversity have been firmly recognised and signified by the concepts of ‘institutional isomorphism’ and ‘social embeddedness’.30

This framework of analysis points to the importance of social tendencies in the examination of the role, effectiveness and legitimacy of the corporation through its purpose. The latter can be conceived as a Durkheimian ‘social fact’ rather than as a practice which evolves independently from the socio-historical context. Durkheim used this term for types of behaviour and thinking external to the individual which are endowed with coercive power.31 Social facts enact social norms, ideas or values and ultimately constitute social reality by translating and enacting the world of ideas. For Durkheim, social facts can be studied empirically, and this requires a socio-historical examination to comprehend their nature and effects. Indeed, corporate purpose can be viewed as a social fact whereby the corporation is socialised through its human controllers, who receive and enact prevalent ideas about what corporate purpose ought to be. In this way, society imposes its own gist upon the corporation as a social legitimation process too. However, this is a dynamic process, as norms, ideas and values can certainly be transformed. Even if this is a painstaking social process which exceeds the individual or, in the case of corporate purpose, the individual corporation, some degree of freedom of action is always permitted.

Thus, as Granovetter32 cautions, our approach should not lead to the ‘over-socialisation’ of the corporation by treating it as a monolithic over-determined type of organisation. Instead, a socially embedded corporate purpose should also reflect and incorporate the dialectical process between dominant practices (movement) and social critique (countermovement) whereby the former normally adapts by absorbing the latter. As long as this remains possible, the trajectory of corporate purpose may reflect Gramsci’s concept of ‘passive revolution’. This describes the way in which a dominant social system reproduces itself by absorbing social critique of its practices and institutions to suppress counterforces. Ultimately, this process may even undermine the system from within by pushing it off balance so that a ‘passive revolution’ converts itself into a ‘war of position’ where radical change is imminent.33

A social order, in our case capitalism, unavoidably generates contradictions often expressed as crises, which give rise to Polanyian double-movements. Those are then ‘resolved’ as social compromises, which are normally in some conformity with the systemic logic. However, systemic conformity is not absolute. Social contradictions may build up to an extent that critique becomes too radical and incompatible for a viable compromise within the instituted systemic logic. In such a systemic crisis, the ‘old’ appears to die even if the ‘new’ has not yet emerged. Gramsci used the terms ‘morbid symptoms’ and ‘interregnum’ to describe this phenomenon of systemic legitimacy crisis.34 Being a social fact, corporate purpose is bound to reflect these processes. Where it is unable to absorb social critique effectively—eg because social critique is too antagonistic to economic accumulation, the basic principle of capitalism—its reproduction is hindered and a legitimacy crisis of the use of corporate law as instituted in a declining social order is inevitable.

The possibility of a legitimacy crisis also defines the meaning and limits of ‘progressive’ corporate law, if there is such a thing. ‘Progressive’ generally means serving and adapting to social change irrespective of whether such change is, in hindsight, for the best of society or not. Indeed, due to its purpose-neutrality, corporate law is always open to progressive tendencies even if its institutional legitimacy might be temporarily challenged during the relatively short period of inertia before full adaptation of its use to changed socio-historical demands. However, this flexibility can be rather misleading. That corporate purpose is socially and not doctrinally determined does not mean corporate law as a private business vehicle can have no role in social processes affecting purpose. As an organisational structure, the business corporation is designed to facilitate infinite organisational expansion and therefore it enables the build-up of significant constellations of social power, which impacts on double-movement processes. Thus, as it has been elaborately explained elsewhere, the availability of corporate law to private business has had a cataclysmic social impact.35 First, it acted as the institutional foundation for the transition from entrepreneurial to corporate and managerial capitalism. Secondly, it led to a ‘closure’ of society in a mode that promotes economic accumulation—whether that is productionist or financialised—at all costs. The self-determined corporate hierarchy of the managerial corporation has now become a powerful political actor dedicated to its self-perpetuation by stifling any challenge to economic accumulation (ie profit or capital growth), the default purpose of private business. So, ironically and despite doctrinal neutrality, the use of the corporate law anatomy by private business has specific institutional significance because it bridles the very process by which corporate purpose is determined. It converts corporate purpose from an organisational to a political problem.

Political economy perspectives on corporate governance have recognised this wider consequence of modern corporate law and have explored the need for its facilitative role (as business organisation law) to be counter-balanced by policy and regulatory measures protective of non-economic interests. The objective is to promote social sustainability by balancing economic accumulation with labour, environmental or any other stakeholder concerns through specific regulation without compromising the anatomy of the corporation. Using specific regulation to calibrate corporate liability in specific areas (eg employment, environment)36 is theoretically sound, but such systemic reform is only possible in practice if it is supported, or rather demanded, by the social context. In other words, while organisational law remains adequately neutral and facilitative, policy and the law itself, when they become regulatory, can also be treated as social facts.37

Indeed, as section 4 will show, a regulatory effort to harmonise labour and financial interests, with managers acting as the arbiters between them, did occur in the second half of the 20th century. This interest alignment was possible because it did not contradict economic accumulation; it actually served it. This is important because, in hindsight, the victory of distributionally ‘progressive’ corporate purpose proved to be less progressive than originally thought since it disregarded the environmental impact even of a fairer distribution of revenues. Indeed, section 6 will demonstrate how the introduction of environmental protection into the purpose mix can only be subjugated to economic purposes which are still prioritised. However, this inflexibility of corporate purpose as a for-profit one may render it antagonistic and therefore vulnerable to social double-movement forces which do not prioritise accumulation itself. As the environmental cost of the latter increases, its legitimacy is undermined and the limits of using corporate law as business organisation law become narrower.

Consequently, that corporate purpose is formed as a result of social processes and evolves as a socio-historical phenomenon is of critical significance. A socio-historical analysis is the most appropriate method for understanding the past, present and future of corporate purpose and of the business corporation more generally. Hence, this article will trace corporate purpose formation in the socio-historical context of various phases of capitalism from the offering of corporate law to private business (corporate law ‘privatisation’) until today, when, as we will see, the ‘morbid symptoms’ of corporate capitalism are already noticeable.

On the other hand, the examination of corporate purpose through the socio-historical lens inevitably redefines the significance of respective scholarly debates which hope to ‘resolve’ the question of corporate purpose once and for all as if it is an ahistorical concept. So, before embarking on the historical examination of corporate purpose, it is necessary to probe the role of corporate law theory—ie the field of legal theory which seeks to conceptualise the nature and purpose of the corporation—and of corporate law scholarship in the social process of purpose determination.

3. The Limited Role of Corporate Law Theory (and Scholarship)

The discussion above unavoidably points at the elephant in the room of corporate law scholarship by posing an essential question: can corporate law theory influence corporate practice to socially ‘optimise’ purpose?38 If the answer is affirmative, then theoretical scholarship plays a very important guiding role so that double-movement dynamics can generate socially optimal corporate norms. If, on the other hand, theoretical debates cannot stir corporate practice in this way, then one ought to accept that corporate purpose is essentially the outcome of social dynamics defined by the antagonism between social interest groups irrespective of scholarly debates in this field.

Ideally, scholarly work is written in the hope that its insights, findings or arguments will influence and, even better, improve our society by informing social evolution processes, policy and the law. In this way, expanding and fine-tuning our theorising of corporate purpose could help resolve double-movement processes in what would be optimal within any socio-historical context. With such an ‘optimised’ corporate purpose as a beacon, law, policy and corporate practice would then adapt accordingly to serve social needs and ensure social cohesion, welfare, prosperity and so on. To use as an example the current context where the mode of economic accumulation is financialised and, thus, tends to polarise incomes,39 one would expect that a scholarly consensus on corporate purpose would emerge arguing for its calibration in a stakeholder mode that could balance inequalities. This consensus on the theorisation of corporate purpose would then stir corporate law reform to introduce new ‘progressive’ institutions or to enhance existing ones which facilitate a balanced distribution of corporate income. By this point, the reader with a basic understanding of the evolution of business regulation may begin to question whether corporate scholarship has actually had any positive influence over corporate purpose. However, such as claim requires further elaboration and support. The socio-historical analysis in sections 4 and 5 will indeed offer empirical support to corporate purpose as a reflection of social processes rather than academic scholarship. However, it cannot provide any explanation for the inability of corporate law theory to act as a beacon of purpose optimisation. For this, the epistemology of science offers significant analytical tools.

In his early theoretical work, Cheffins queried the role and trajectory of theoretical scholarship in understanding the nature and social impact of corporate law as well as the ability of such scholarship to develop a clear trajectory similarly to what natural sciences often do. With regard to the former, quite uncontroversially he argued that, unlike pure doctrinal analysis, corporate law theorising is necessary to appreciate the social impact of the law and its reform in this area.40 This finding, however, is very different from claiming that corporate law theory can determine the trajectory of law reform or at least of corporate purpose. With corporate law doctrine being sufficiently open-ended as shown above, corporate purpose does not justify organisational law reform anyway. Even if regulatory reform outside of organisational law were independent of social dynamics, to act as a beacon for optimising purpose, corporate law theorising ought to have a specific quality. It ought to be able to resemble natural science by generating some general consensus based on objective empirical foundations.

On this latter point, the social impact even of scientific knowledge and its mechanics has been contested for a long time, and at least since Thomas Khun offered his ‘disciplinary matrix’ and ‘paradigm shift’ analysis.41 Kuhn showed that scientific consensuses as ‘normal science paradigms’—ie standard scientific beliefs and practices—do not emerge simply through an evolutionary process of linear knowledge accumulation towards some absolute truth. Rather, a science paradigm arises through a ‘pre-mature’ scientific stage where different schools of thought compete until one prevails by offering a better solution to a common scientific puzzle. Gradually, a consensus (‘matrix’) is constructed as ‘normal science’. The latter evolves into a ‘scientific paradigm’, which is stabilised, not necessarily because of its general validity, but because of value judgments, plain bias, tunnel vision, groupthink, etc which permeate what otherwise seem to be strongly objective and rational scientific methods. With time, gradual accumulation of anomalous results which do not easily fit the scientific paradigm may destabilise the consensus, generate a scientific ‘revolution’ and eventually lead to a ‘paradigm shift’ if another school of thought offers some other, more probable solution to the same scientific problem.

What is important for this discussion is that the mere capacity of science to produce long-standing and consensus-based paradigms, irrespective of their (in)validity, has given rise to a growing literature on its influence on policy making. Perhaps corporate law scholarship could develop paradigms and at least have this beacon potential. However, such a proposition would be very difficult to sustain for two reasons. First, corporate law theory has a limited capacity to establish obvious and unequivocal legitimacy for any specific policy choice—there is no positive and empirically proven truth, only social truth which is usually subjective. Theoretical arguments, in this area at least, rarely find solid grounding in empirical facts and objective observations as natural sciences do; there is no social laboratory. So, they almost exclusively rely on value judgments, and, where available, empirical studies tend to be contradictory or inconclusive, or suffer from severe statistical or theoretical bias.42 Secondly, even if some eternal truth and stable consensus could indeed be within the reach of corporate law theory, the influence of such scholarship (or any law scholarship even) in political processes is far from guaranteed—as it is even for science.

With regard to the first of the two objections above, in a 2004 article, Cheffins suggested that the introduction of ‘law and economics’ concepts and methods in the legal theorisation of corporate purpose, allowed financial economists to ‘test’ hypotheses with empirical studies and in mathematical models so that some form of Kuhnian ‘normal science’ in corporate law emerged.43 Certainly, from the 1970s onwards, a tremendous amount of theoretical and empirical know-how was summoned to justify shareholder primacy with more prevalence in US scholarship. Initially, Jensen and Meckling brought together older microeconomic theorisations of the corporation by Coase, Williamson, Alchian and Demsetz, Manne and others to create an all-round normative framework on corporate purpose.44 Then, lawyers such as Easterbrook and Fischel tried to explain the whole anatomy of corporate law along these lines too.45 However, one could in no way speak of a Kuhnian paradigm. To do justice to Cheffins, his assertion above was made a few years before the cataclysmic effect of the global financial crisis of 2007–08, which demolished the efficient market hypothesis, the unrealistic foundation of most of law and economic studies. So, if anything, the contribution of financial economics to corporate law theory was proven to be pseudoscientific and therefore never drove scholarship forward or any closer to a particular objective truth.

Moreover and perhaps more importantly, the more law and economics flourished as a school of thought, the fiercer the counter-arguments seeking to refute its postulates and modelling became. For example, one can easily deduce the fundamental disagreement even among a closed circle of US corporate law scholars in the historic November 1989 Columbia Law Review volume titled ‘Contractual Freedom in Corporate Law’.46 Elsewhere, some have even used the same law and economics logic as in Jensen and Meckling, mentioned above, to justify a stakeholder model.47 On the other hand, and somewhat ironically, as shareholder primacy was gaining some traction in the United States, stakeholderism appeared to have won the theoretical argument in the UK48 and to be echoed, albeit only informally, in policy making.49 Indeed, Chancellor Chandler’s statement in eBay, mentioned earlier, could easily serve as the epitome of ambivalence even among those converted to shareholder primacy. The latter is presented as the basic principle in Delaware corporate law, but the same judge in the same judgment accepts that, where shareholders agree, ‘no one would object’ to a stakeholder-balancing purpose either. It is difficult to imagine this type of ambivalence within a science paradigm. For instance, it is unthinkable today for a doctor not to take a clear and stable position against smoking. No comparable scholarly consensus has ever existed in respect of corporate purpose in any of its formulations, so in Kuhn’s terms the field is permanently stuck in the ‘pre-science’ stage. This is not an accusation against corporate law scholarship. It was never meant to be a positive science, otherwise an obscene version of legal positivism would dominate the discipline.50

The engrained bipolar ambivalence of corporate law theory between shareholder primacy and stakeholderism was also interpreted by Cheffins51 as evidence of a potential ‘pendulum’ movement by which each side wins the argument, albeit only temporarily. In fact, in a work that will be discussed in more detail later, Gilson and Milhaupt52 seem to endorse this line of thought by relying on a historical observation of corporate decision making where they find reflections of this type of oscillation. If such a pendulum did exist, it would be arguable that corporate law theory has at least produced two stable policy alternatives to choose from depending on specific socio-historical needs. However, even this second-best claim cannot be easily supported. First, as mentioned briefly in the previous section and in more detail elsewhere,53 in most of its long history, corporate law has been put to public or quasi-public uses. So, the corporate purpose pendulum does not only move sideways between shareholders and stakeholders, but also back and forth between private and public purposes. Cheffins as well as Gilson and Milhaupt adopt a rather narrow approach in their historical analyses by merely looking into the private business corporation. This arbitrary configuration of their historical examination introduces a severe bias in their analyses which unavoidably confines the theoretical debate on the shareholder–stakeholder axis and disregards the possibility of corporate purpose movement on the public–private axis too.54 In fact, the discussion in sections 6 and 7 below will show that even such a double-axis movement may rely on an excessively restrictive conception of corporate purpose as it excludes the possibility of not finding a socially legitimate use for the business corporation at all. In sum, the ability of corporate law theory to even provide a second-best normative frame with a numerus clausus of policy options is at least questionable.

Inevitably, the lack of paradigms in corporate law theory undermines the ability of scholarship to determine the direction of policy and practice on corporate purpose. This inevitability is amplified by the fact that even in respect of natural sciences, where paradigms are the norm, the sociology of science literature has been debating whether scientific knowledge drives political decisions or whether politics selectively uses science to legitimise pre-set political agendas. At best, some see a dynamic hybridisation between scientific and political forces where the two spheres are mutually influenced by each other, while others are more cynical in finding that science has the tendency to play an instrumental role by being over-politicised.55 As Resnik observes, expert selection bias can predetermine ‘scientific’ advice to policy makers to the point of equivalence with ‘cooking the data’ to fit a premade policy choice.56 Even if the more optimistic view on sciences’ social impact were accepted, transferring these arguments to corporate law reform outright would certainly exaggerate the influence of corporate law scholarship. The inability of the latter to produce paradigms renders it a perfect candidate for its exploitation by prevailing social interests which ultimately determine corporate and regulatory practice.

So even if scholarship is frequently called to participate in the drafting of legislation, it would be a big logical leap to use this to support a claim that it can influence corporate purpose. For instance, the UK Company Law Review Group, which drafted the Companies Act 2006, did include some corporate law academics, including the late John Parkinson, who was an advocate of diluting shareholder control.57 However, the vast majority of the Group’s membership and external advisors were representatives of government and business, with the latter constituting the majority. This may explain the corporate purpose statement in section 172 of the Act, which seems to have entrenched deference to managerial judgment instead of promoting a stakeholder reorientation. The same could be stated with respect to the development of the UK Corporate Governance Code, which is still established on the foundations set by the corporate sector in the 1990s.58 Similarly, in the United States, the American Bar Association, a legal practitioner body, has been the dominant force behind legislative reform in corporate law. On the other hand, the American Law Institute (ALI), an organisation where academic representation dominates, has not been very influential in corporate purpose matters because of lack of consensus,59 the prerequisite for a Kuhnian paradigm. Thus, the legislature of Delaware—the primary corporate law jurisdiction in the United States—has always been more responsive to business preferences than to the ALI’s proposals.60 The situation is not too different outside the Anglo-American world, as the German law-making and general regulatory process has been rather similar: the influential Committee on Corporate Law Reform (‘Baums Committee’)61 was chaired by a corporate law scholar, Theodor Baums, but its membership was dominated by business representatives and consensus on reforms was essentially built on that basis rather than on a scholarly consensus; Baums has acknowledged this and even praised the input of US institutional investors in the process.62

All this leads to the conclusion that the role of corporate law theory scholarship in corporate practice (including legislative reform) is at best limited. Academic analysis seems to be more useful in rationalising, legitimising and stabilising social choices as they happen, or more likely in retrospect, than in influencing the trajectory of corporate purpose. Thus, instead of driving change, it has a stabilising effect in (legal) institutions and practice. This role is hardly a progressive one and reinforces the argument that corporate purpose evolves largely independently as a social fact rather than as an outcome of scholarly debates. In most respects, this social embeddedness relegates the endless theoretical debate between shareholder-primacists and stakeholder-balancers to a second- or third-order exercise and demands the emphasis fall onto socio-historical factors.

The remaining discussion will therefore trace the modern history of corporate purpose as a social fact rather than a theoretical problem. It will be shown that oscillations on the shareholder–stakeholder spectrum and beyond do emerge and can be entirely explained by social double-movements which determine the past, present and future of corporate purpose but also of corporate law itself.

4. The Long, Rough Road to Distributional Balance as a Social Fact

Having conceptualised corporate purpose as a social fact (in section 2) and established that its theorisation is of limited significance for its formation (in section 3), the discussion inevitably turns to the socio-historical examination of relevant double-movements as determining forces. However, since the history of the corporation fades through the centuries, it is impossible to fully account for all the factors that have determined corporate purposes since antiquity. In any case, this discussion is more concerned with the future of the corporation as the principal legal structure for private business. So, it is sufficient to focus here on its purpose after the ‘privatisation’ of corporate law with the grant of general incorporation rights following the enactment of the Joint Stock Companies Act 1856.63 It is commonplace to regard this legislation as a cornerstone in the evolution of business organisation law, because for the first time in history a major economy64 offered the basic anatomy of modern corporate law to private business; corporate law became officially enabling organisation law subject to minimal regulation in favour of private parties rather than the state.

To be sure, business organisation practice was not abruptly altered by legislation which came to seal what to some degree had already been achieved by unincorporated entities through innovative uses of the trust.65 The corporation gained traction quite gradually, so that corporate law was not prevalent until a few decades later, when merger-driven consolidation in the UK led to bigger business organisations,66 similar to those managerial corporations of the early 20th-century United States, studied by Berle and Means and by Chandler in their classic works.67 So, the evolution towards a private corporate purpose has been gradual and is rooted in the pre-privatisation era of corporate law, when industrial relations were already formed within the business partnership. In other words, social critique in the early days of modern corporate law reflected pre-existing conditions pertaining to industrialisation, the profit drive of early industrialists, and the struggle between the latter and their workers. Unionisation and radicalisation began to emerge, while demands for extending political rights beyond the more affluent professional classes were becoming more pressing. However, in a typical double-movement fashion, the industrialist elite, especially in the north of England where it had a more prominent presence, exerted pressure against the adoption of welfare-improving regulation, such as the so-called New Poor Laws.68

It is in this social battleground that the paternalistic employer ethic, like that of Cadbury’s in the late 19th early 20th century, would find its origins, even if that same company still used child labour to increase profit margins.69 So, as suggested in the previous two sections, the social battleground fed the developments in the corporate purpose field. Industrialists’ profit-making drive was gradually moderated as a pragmatic response to the fear of exacerbated worker militancy and social unrest which could destabilise the system. To be sure, this was not merely a British phenomenon, as similar developments were observed in Germany and elsewhere around that time.70 By absorbing egalitarian social critique and struggle, corporate purpose evolved through the hybridisation of industrialists’ pursuit of profit with paternalism, but without losing its privatised nature and, importantly, without reforming the corporate law anatomy.

Voluntary paternalism, however, reached its limits quite soon because it was an inferior answer to what was socially demanded. As Marxist critique and social unrest intensified around World War I, working classes asked for more economic democracy concessions in order to meet increased military demands from industry.71 Moreover, as Chandler and Berle and Means observed, there were also enormous structural changes which had occurred in most major economies by then and affected the organisation of capital itself, namely, the rise of the managerial corporation.72 The historical and theoretical literature on the impact this has had on corporate purpose is vast, and justifiably so.73 A corporation, a legal fiction, controlled for the first time by its agents rather than founding families raised the issue of corporate purpose directly and more vigorously: ‘for whom are corporate managers trustees?’74 However, yet again, the real answer to this classic normative debate on the shareholder–stakeholder spectrum between Berle and Dodd in the Harvard Law Review could not be given by either corporate law doctrine or scholarship, but by double-movement outcomes in the social context.

Thus, in the first decades of the 20th century, the whole capitalist system was in crisis—due to the Gold Standard’s collapse and the Great Depression—and in fragments: capital against labour, industrial capital (managers) against financial capital (banks and shareholders). In continental Europe, the way to rejoin the fragments was regrettably found in fascism and in austerity measures implementing a particular economic orthodoxy.75 In the UK and the United States, similar experiments (without fascism) in the 1920s and early 1930s fortunately failed and led to the adoption of welfare statism and a Keynesian consensus against austere policies.76 Following World War II and the defeat of continental fascism, Anglo-American Keynesianism spread internationally with the Bretton Woods agreement to avert the risk of social unrest caused by war devastation and to promote post-war reconstruction. This is the so-called ‘golden age’ of capitalism, when demand-management, welfare and corporatist policies ensured high output growth and the distribution of corporate profits by managers in a way that the wage share of total income increased to unprecedented levels.77 In short, for about three decades, the purpose of the managerial corporation was able to adapt to social calls for a balancing of wealth distribution between labour and capital. The standard corporate law anatomy could support a corporate purpose which incorporated social forces demanding equality in wealth distribution with little difficulty. Importantly, it posed no obstacles to corporatist policies which brought state, labour and capitalist interests to the negotiating table. Even where legal reform did take place (eg worker board representation in Germany), it was not because of legal necessity but for unrelated historical reasons and aims.78 Variants of corporatism could be implemented mainly as a behavioural or political choice irrespective of whether worker board representation was mandated or not.79

To this point, the historical appraisal of corporate purpose both as a concept and as managerial practice has exposed two things. First, it confirms the proposition in section 2 above that the anatomy of corporate law is essentially purpose-neutral. As such, it can adapt quite well to diverse callings within a capitalist society, whether it be an early or a late industrialised one. Secondly, it reveals that, within the period examined here, the nature of Polanyian double-movements was primarily one of antagonism between capital and labour in respect of the distribution of corporate income. Essentially, we observe how corporate purpose adapts to the gradual increase in the power of working classes to influence politics due to particular historical conditions. By absorbing egalitarian social critique, corporate law has been reassigned a socially adapted use to achieve some sort of balanced purpose without the need for significant reform. Its essence and basic structure have remained largely Victorian, but the managerial autonomy permitted by corporate law doctrine was stirred towards balancing capital and labour interests.

Certainly, thus far, we have only observed an oscillation of purpose in one direction only, that is, from a pure and aggressive capitalist one to a moderated capitalist one in terms of income distribution. In line with Gilson and Milhaupt, the next section will show that a shift of corporate purpose in the opposite direction of the Berle–Dodd spectrum can also be fairly seamless, from the perspective of corporate law doctrine at least.

5. Swinging Back to Uncompromising Shareholder Primacy at All Costs

In spite of the economic success of the post-war compromise between capital, state and labour interests, the debate about corporate purpose symbolised by the Berle and Dodd exchange remained alive at least in academic circles.80 On the one hand, voices eventually symbolised by ‘a Friedman doctrine’81 against managerial autonomy—which came to be seen as a source of inefficiency in the guise of ‘agency costs’82—were never fully silenced. They flourished especially in the traditional theory of the firm pioneered by Alchian, Williamson and others in the 1950s and 1960s,83 who were certainly influenced by Adam Smith’s own aversion to corporate directors.84 As long as the economy grew and the corporatist pact performed its balancing role, such developments in the financial economics literature were ignored in corporate practice. Autonomous managers were incentivised to act as arbiters by pursuing a mixed corporate purpose that allowed a ‘trickle down’ effect for labour through decent salaries and improved employment conditions.

However, when the economy deteriorated with the oil crises of the 1970s, the managerial firm was targeted as a source of systemic inefficiency. Balancing capital and labour interests with keeping labour share in profits at decent levels was seen as a source of inflationary pressure. Managerial effort and therefore corporate purpose had to be detached from a balanced distribution of corporate income. The justification for a radical shift had already been prepared by neoliberal economists, who, as mentioned earlier, explained the workings of the corporation in favour of financial interests symbolised by the profit-maximising shareholder.85 A swing of the corporate purpose back to shareholder primacy gained traction as political disillusionment with Keynesian demand-oriented fiscal and monetary policy that favoured wages had to be replaced by deflationary supply-side economics. The dramatic systemic changes that occurred following the collapse of the Bretton Woods monetary system gradually altered investment strategies in favour of financial speculation. The gradual passage from passive, long-term shareholding to a speculative, short-term one has been analytically presented elsewhere.86 What matters for this discussion is that, without any need for substantial corporate law reform, corporate purpose reincarnated as shareholder primacy to fit neoliberalism as a new accumulation regime based on asset speculation. Thus, the current financialised economic order gradually emerged, in which economic value is primarily created by exploiting pricing differentials concerning any type of asset, including corporations themselves.

Ironically, corporate personality has allowed the reification of the corporation and anything or anyone that comes within it.87 Law and economics and Jensen and Meckling’s agency theory provided the perfect reflection and justification of a new version of exploitative capitalism where investor interests enjoy supremacy. What had been lingering in theory and under the surface for years eventually came to the fore to justify financialised corporate practices. With the abandonment of corporatist industrial ‘democracy’ and the marginalisation of labour interests, the corporate purpose battleground inevitably shifted to the shareholder–manager relationship. The egalitarian critique gave way to anti-managerialism in the sense that managerial decision making had to be fully aligned with profit maximisation at the expense of labour or any other non-financial objective. Corporate and regulatory decision making could thus hide behind a facade of a specific type of economic rationalism instrumentalised for the undoing of the corporatist consensus. However, the double irony is that, contrary to what Jensen and Meckling preached, managers did not simply become the loyal agents of shareholders. Instead, they eventually rode and exploited the wave of shareholder-oriented distribution of corporate income against the interests of labour in their own favour too.

Initially, managers feared that the new social consensus would dethrone them from the position of arbiters between capital and labour, but soon they realised the vast opportunity financialisation created for them. Thus, they tied their income to a shareholder primacy purpose by extracting their cut from hostile-takeover premiums in the form of severance and share-based pay.88 The evolution of the Business Roundtable’s view on corporate purpose clearly illustrates this shift. In its 1990 statement, it emphasised the need for managerial protection that would facilitate the necessary risk taking for the purpose of investment in profitable ventures.89 Obviously, this was a defensive response to the junk bond-financed hostile-takeover wave of the 1980s, which caught them off guard. However, as they realised that their own interests could be fully aligned with corporate asset speculation, they changed their tune completely. Instead of being the rational arbiters between capital and labour, they became rational maximisers of their own gains by aligning their pay with share prices. This alliance between shareholders and managers reminds us that social movements do not concern merely the less privileged social strata. To the extent it challenges the status quo, social critique can be elitist too. Thus, it comes as no surprise that by 1997 the Business Roundtable had fully endorsed what it previously despised: ‘In The Business Roundtable’s view, the paramount duty of management and of boards of directors is to the corporation’s stockholders; the interests of other stakeholders are relevant as a derivative of the duty to stockholders.’90

Around the same time, corporate purpose in the UK was also being debated by the Company Law Review Group and in Parliament—along the lines of ‘enlightened shareholder value’—in what eventually became section 172 of the Companies Act 2006. There seems to be a consensus now that, as enacted, this provision did not add much to what was already there as far as legal doctrine is concerned. Even the subsequent introduction of reporting requirements in the directors’ report on the implementation of this provision was considered to have drifted away from its original purpose of disclosing long-term investments in the workforce or productive capabilities and to have become much more generic.91 In fact, the failure of this so-called ‘section 172 statement’ was one of the admittedly many reasons for the proposed replacement of the Financial Reporting Council by a new regulator.92 Overall, the addition of a requirement for a purpose statement in the Companies Act93 could arguably be considered merely as loose guidance with extremely limited enforcement possibility and regulatory value;94 corporate law as a set of organisational rules is and remains as purpose-neutral as ever.

This reformulation of corporate purpose in favour of (managerial and shareholder) financial interests in the UK and the United States should not be attributed to their common law systems and their ‘investor-friendly’ orientation, as the ‘law and finance’ scholarship95 would argue. Indeed, Bruner96 has shown how these generally similar common law systems can lead to different levels of shareholder protection—especially in relation to hostile takeover defences—due to different political economy arrangements, which are also reflected as nuances in substantive corporate law.97 Even so, both US and UK corporate law could equally support versions of corporatist managerialism as well as shareholder (financialised) managerialism. To be sure, the basic structural features of corporate law have remained too stable to explain the dramatic shifts of corporate purpose in either of these jurisdictions. Similarly, even considerably different corporate law systems, like those in France or Germany, have been able to accommodate the move to the financialised corporate purpose in the last few decades whereby corporate profitability increases at the expense of labour share.98 Ironically, labour representation in Germany has not prevented the stronger suppression of real unit labour costs than in the UK, where no such representation is present.99 So, even in the face of particular legal differences, jurisdictional divergence, if any, in relation to corporate purpose is a matter of intensity rather than orientation.

Thus, one could reasonably conclude from the discussion so far that when social conflict remains within the ideological confines of capitalism, corporate law has proven its resilience as the dominant business organisation law by incorporating such conflict and critique through corporate purpose swings. As long as purpose responds to distributional claims concerning the fruits of economic accumulation, the current social position of corporate law may remain unchallenged. The corporation simply constitutes one important medium through which income is distributed between shareholders, managers and workers, depending on the social context each time without reforming the basic corporate law anatomy. The reproduction of a corporate purpose in Gramscian terms remains within the boundaries of a non-radical ‘progressivism’ which retains capitalist accumulation as its standard feature. Corporate law, then, can be seen simply as the implementation structure of a purpose determined outside of it.

Indeed, this conclusion in not too different to that reached by Gilson and Milhaupt.100 However, their account envisions an oscillation of purpose merely on the shareholder–labour axis. This is probably because they cannot contemplate the possibility of double-movement driven by issues beyond a growth-oriented regime and the distributional antagonisms between the main production factors within it; they adopt a partial ‘end of history’ position after all. To the extent there is no ‘end of history’—and there is not—the critical question, then, is whether corporate law (as private business organisation law) could also incorporate a radical alteration of the double-movement agenda beyond the distribution of corporate revenues. This is dealt with below.

6. Sustainability Calls and the Limits of ‘Progressive’ Corporate Purpose

So far, we have seen how corporate purpose has been going through its own Gramscian passive revolution by incorporating wider social antagonisms concerning the issue of wealth distribution. However, with the pendulum oscillating between capital and labour interests, a new type of critique has began to emerge mainly from the 1970s onwards. This critique reflects environmentalist concerns which, as shown below, cannot easily fit within the previous pattern of double-movement and thus cannot really feature as independent ones in relation to corporate purpose. So, for as long as the latter was primarily used to determine the level of wealth distribution among directly involved parties (capital, managers, and labour), the environment had been relegated either as a matter for environmental law, which is external to corporate purpose (mainstream agency theory) or as one of the many factors that managers ought to balance while pursuing economic growth (stakeholder theory). Thus, at best, the environmental impact of corporate activity has been overshadowed by economic and distributional concerns; it was a cost to be minimised rather than an independent objective. The explanation for this is deeply rooted in the capitalist worldview.

Undoubtedly, the relation between humans and nature has been a major ontological endeavour throughout history. Such a philosophical issue is beyond the scope of this discussion. What is relevant here is that at the level of social practice there has been a break with past understandings about nature since the beginning of industrialisation. As materialist ‘progress’ became the dominant social endeavour, nature has been transformed into a resource to be used for serving materialist needs through the medium of technology. This is what Castoriadis calls the social imaginary of human ‘pseudorational pseudomastery’ over nature.101 Indeed, the environmental impact of such practice and the fallacy of this worldview became obvious to some early on. Counter-movements against industrialisation appeared in the 19th century ‘romantic naturalism’ or activist efforts like the Commons Preservation Society, which opposed industrial expansion in northern England, the epicentre of early industrialisation.102 Nevertheless, the impetus of capitalist forces was such that those reactions to it could not evolve into a substantial fully fledged double-movement antagonism. Thus, environmental concerns remained outside of any debate about corporate purpose until almost a century later.

A turning point was initially the publication of the Limits to Growth report commissioned by the Club of Rome in 1972.103 The importance of this work lies in the change of tune regarding the conceptualisation of nature as an exploitable resource. For the first time, an influential body acknowledged that economic growth and therefore capitalism has planetary limitations that could not be exceeded but at some point would be reached. It is no coincidence that the Limits to Growth appeared one year after Georgescu-Roegen published his magnus opus The Entropy Law and the Economic Process,104 the seminal work introducing the field of environmental economics. Georgescu-Roegen argued that natural resource depletion will inexorably lead to existential problems for humankind. Simultaneously, ‘green’ political parties began to form, which offered the political platform for such ideas and eventually gained parliamentary representation in Europe.105 In short, as environmental degradation by economic activity became more obvious to the average person, environmentalist critique began to infiltrate double-movement processes. More relevantly for this discussion, this perspective fully entered the debates on corporate purpose too.

As mentioned above, the obvious corporate law theory platform that offered itself to accommodate environmental concerns was stakeholderism;106 environmental protection was introduced as part of corporate social responsibility (CSR). So, environmentalist critique was initially a factor to be accounted for in the balancing of various interests when distributional decisions were made. This essentially positioned the environment against primary corporate stakeholders—managers, shareholders, workers and, to some extent, the state—who were more interested in economic growth and, as described above, have so far dominated double-movement dynamics. In this way, environmentalism remained theoretically inside and practically outside the formulation of corporate purpose for a long time. Thus, even though, over the years, the environment has tended to feature more and more in policy making,107 as far as corporate decision making is concerned, such concerns have remained piecemeal or disingenuous. Indicatively, the Business Roundtable has yet again ‘reversed’ its corporate purpose statement, without law reform being necessary, by endorsing stakeholderism and including the commitment to ‘protect the environment by embracing sustainable practices’ as part of CSR.108 However, no real environmental shift in corporate purpose can be observed. Therefore, the contention by Bebchuck and Bainbridge109 that this is mere window dressing and an effort to dilute board responsibility to shareholders is probably correct, though for additional reasons to the managerial greed that these two scholars submit.

More specifically, as the European Environment Agency, the EU’s main information provider on environmental policy, has now accepted, there is an unresolvable conflict between economic accumulation and environmental sustainability.110 Environmentalism seems to antagonise the very core of capitalism by calling for the sacrifice of (at least some) economic activity in terms of output growth to the extent it impacts on the environment. In other words, it signifies an insurmountable trade-off between economic growth based on resource extraction and the environment conditions required for humanity’s (and other life forms’) well-being. An attack on growth is too radical to be accommodated by capitalism to the extent the latter represents endless accumulation and therefore unlimited resource extraction and consumption. Thus, corporate business has only been able to adapt its purpose in a way that pays lip service to environmentalism through ‘greenwashing’ practices, but that also exploits the public subsidisation of the ‘green’ economy as a unique business opportunity for more growth and material extraction. The clearest illustration of this government-sponsored pretence is the International Energy Agency’s ‘electric vehicles initiative’, which, instead of advocating for expanding public transport, aims for the replacement of conventional cars with electric ones. This will at best have a questionable effect on emission reduction and a certain negative impact if materials extraction is also accounted for.111

Thus, it is difficult to imagine how a board of a business corporation would ever make a decision to resolve the ‘growth versus environment’ trade-off in favour of the latter. Directors are not environmental activists who should sacrifice legitimate profit to prioritise the environment. The boundaries of profit legitimacy are indeed extremely broad. They are defined by regulatory rules which merely prohibit specific and exceptional environmentally harmful conduct. As a crude example, an oil corporation’s liability costs following an accidental oil spill may be severe, but its more harmful daily extraction activity is still legitimate. The recent rulings in ClientEarth and McGaughey112 confirm that environmentally harmful but legal business cannot be challenged on environmental grounds. As long as corporate purpose is a business purpose, the ‘growth versus environment’ trade-off is unresolvable and subjugates the environment to the economic objectives.

Consequently, for the first time in the history of privatised corporate law, corporate purpose is struggling to adapt to current social and natural realities, and corporate practice has to resort to masquerading business opportunism by resorting to concepts such as ‘sustainable growth’, ‘green growth’, ‘Green New Deal’ and ‘green tech’. Compelling arguments are emerging against those as they are unlikely to achieve sustainable equilibrium in an intensifying ‘growth versus environment’ double-movement.113 Certainly, such largely government-subsidised opportunities have not remained unnoticed by investors either, who also seek to get their share of the profits to be made in those initiatives for ‘greening’ the economy. This move is symbolised by the gradual shift in corporate purpose implementation from voluntary CSR by managers to shareholder-‘imposed’ ESG (environmental, social, governance) reporting, which is as voluntary as its predecessor but may still offer a passport to subsidised ‘green’ projects.114 Such initiatives not only promote the marketisation of environmentalism, but can also use ‘green’ technology to undermine social justice and democratic politics.115 This type of ‘environmental’ critique can indeed fit hand in glove with a corporate purpose geared around economic accumulation, and it is no coincidence the corporate sector has fully endorsed it.

However, largely in response to the ongoing mismatch between corporate purpose and sincere environmental protection, related critique is also taking a more radical turn. It is intensifying its stance by specifically targeting the core of capitalism, namely the desirability of economic growth per se. On the one hand, there is an expanding literature exploring the theoretical, practical and institutional requirements for a radical reorientation of society. Emerging perspectives, like those put forward by the degrowth programme and Raworth’s ‘doughnut economics’,116 propose a conscious distancing from economic accumulation and a focus on genuine sustainability combined with enhanced democratic politics which aims at curbing corporate power itself. On the other hand, at the level of social practice, radical social experiments along these lines are already underway with considerable success.117 In other words, we are beginning to see a fully fledged double-movement process emerging between wider society and what is regarded as the corporate economy. For the first time, this constitutes a radical post-capitalist shift of social critique from mere distributional issues to non-economic, existential and fundamentally political ones.118 We may, therefore, be witnessing the first glimpses of a passage from a Gramscian ‘passive revolution’ to a ‘war of position’ which should undoubtfully intensify the pressure on the corporate purpose front.

Certainly, as mentioned earlier, there are also initiatives such as the B-Lab certification and the adoption of Benefit Corporation statutes or even social enterprise vehicles such as the low-profit limited liability company (L3C) in the United States and the community interest company (CIC) in the UK, which are hoped to internalise and reconcile the trade-off between profit and non-economic social goals. However, it has been documented that following B-Lab certification, corporate purpose tends to fall back to business as usual and the benefit corporation has had little traction.119 Similarly, the L3C has proven unable to reconcile the economy versus society trade-off and the CIC was used to dismantle and privatise welfare state services under David Cameron’s failed ‘Big Society’ programme.120 All this is not surprising, because these ‘new’ structures either are not business vehicles (in the case of L3C and the CIC) or, as mentioned at the beginning of this article, do not offer anything radically different to what was already possible under standard corporate law.

To remedy this, as mentioned in section 2, proposals for balancing facilitative organisation law with corporate accountability diverge from the enabling or market-based templates mentioned above. In doing so, they have taken a more radical perspective which dares to interfere with core elements of the corporate law anatomy. For instance, they seek to expand shareholder liability to recalibrate the tripartite relationship between risk, externality and liability.121 Indeed, such reforms could help moderate the trade-off between output growth and the environment in favour of the latter. However, they are also likely to be stifled because of a design flaw. On the one hand, interfering with the essential elements of corporate law may reduce the corporation into a legal structure which is as unattractive (for business) as the L3C. This would result at best in ‘killing’ the corporation by reform or, worse, in killing the reform due to the possibility of regulatory arbitrage. More likely, though, is that such radical reform would not reach the legislative stage in the first place for the same reasons that large corporations can still neutralise inconvenient (to them) regulation outside corporate law, as discussed in section 3. Regulatory law is also a social fact, and radical social change does not seem to have yet materialised; we are in the interregnum, which still allows a misguided corporate purpose to persist in the short-term.

The impossibility of formulating a private corporate purpose which can genuinely incorporate sustainability may have enormous consequences for the business corporation. Its environmental constraints are more likely to intensify than not, and its misaligned purpose may therefore emerge as a political problem. The politics of corporate purpose are also likely to be aggravated by additional challenges indicating a fully fledged systemic crisis, as discussed below.

7. Conclusion: Purpose on Multiple Axes, Its Broken Pendulum and the Future

Up to this point, this discussion has shown how, within a growth-oriented social context, corporate purpose has been able to oscillate quite seamlessly from shareholder primacy to corporatist stakeholderism and back to shareholder primacy. This has been possible because corporate purpose has been able to ‘slide’ as a social fact on a largely purpose-neutral corporate law doctrine, the latter being legitimised by purpose oscillations. Certainly, the recent emergence of radical, post-capitalist critique would mean little if the emerging double-movement process was resolved in favour of disingenuous ‘sustainability’ green growth-style. However, as discussed above, there is already evidence that this prospect is unlikely since environmental constraints are too rigid to be patched up with pretences. This engenders a legitimacy crisis for corporate law in business organisation.

Nonetheless, the environment is not the only source of delegitimation. The past couple of decades have also revealed that there may be an additional threat, namely the lack of growth irrespective of environmentalism. By all measures, world output growth rates have been steadily declining122 without any signs of reversal in sight, in spite of the ‘creative’ accounting used to inflate GDP growth by altering the method of calculating economic output and the inclusion of phony profits in the financial sector.123 This trend has persisted even in the face of huge public stimuli offered in the guise of quantitative easing, ‘green’ subsidies or COVID-19 recovery funding. This means that capitalism may be facing the double whammy of environmentally unsustainable output levels and of not delivering on its narrow economic promises.

In such a context where the prime objective of capitalism not only is under attack, but also does not seem to materialise, it may prove impossible for corporate purpose to reincarnate into something socially useful or even desirable. It matters little if this is because it cannot accommodate environmentalism or because insufficient wealth is produced. Even if degrowth movements were eventually marginalised in favour of the economy, in the absence of growth, what used to be an egalitarian struggle may simply morph into a power game for appropriating existing wealth. That would be a shift from wealth creation to mere expropriation with no ‘trickle-down’ for the average person, if that ever happened.124 Under such conditions, governments would struggle to restore some viable social balance. As Zigmunt Baumann observed a decade ago, the typical ‘morbid symptoms’ of a degenerate society in ‘interregnum’ are manifested when ‘rulers no longer can rule and the ruled no longer wish to be ruled’;125 in fact, this article was written while French people were violently protesting on the streets, and had been for several months, against their government’s coercive use of otherwise constitutional powers.126

Writing in the 1930s while imprisoned by the Italian fascists, Gramsci diagnosed that in this type of situation, when social hegemony is impossible by way of wider ideological consent, ruling classes tend to resort to domination by coercion alone.127 Evidence of such an ugly turn is already apparent today. Zuboff, for instance, has very accurately illustrated how corporate business models have been changing towards oligarchic wealth accumulation (by a tiny minority) in her excellent work on profiteering through personal data expropriation; she calls this ‘surveillance capitalism’, as a successor of industrial and then financial capitalism.128 Dignam’s assessment of governance arrangements in the few primary owners of artificial intelligence—a basic tool in surveillance capitalism—also points towards the same direction of autocratic predispositions.129 As mentioned above, ‘green tech’ can be instrumentalised to undermine politics in order to facilitate wealth capture. To the extent that democratic politics is an obstacle to expropriation by the few, it seems that neoliberal society is now crossing its own Rubicon towards an increasingly totalitarian type of social organisation. As Gallo observes, this new type of ‘totalitarian neoliberalism’ is already penetrating even the ‘capitalist core’ of what are regarded as developed democratic states.130 A corporate purpose formulated along totalitarian lines would not be a unique incident. The ‘robber barons’ in the United States and the short interwar experience with fascism in Europe demonstrate the sheer possibility of this.131

However, this account cannot end with such a bleak prognosis for the future for two reasons. First, totalitarianism, whether corporate or both, can never survive for very long, due to its harmful impact on societies which cannot remain permanently suppressed. As Gramsci observes, social hegemony by coercion rather than by legitimacy based on social consent is inherently unstable.132 So, even if corporate purpose continues to endorse and promote authoritarianism for some time, a new type of socially viable compromise may well be found this time too, just like the post-war era led to an admittedly painful exit from totalitarianism. This clash of social movements is likely to be a competition between authoritarian, oligarchic forces and a call for democracy. Such a call would undermine the social legitimacy not only of corporate purpose, but also of corporate law itself as a vehicle for private business. While the corporation, as argued here, is essentially a purpose-neutral structure, the choice of allowing its use by private interests has consequences which do not easily fit with democracy, just as the United States’ founding fathers feared. In other words, a private purpose for the otherwise neutral corporation undermines democratic politics. This deduction unavoidably leads one to recall John Parkinson’s own disillusionment in his classic Corporate Power and Responsibility, which closes with a forceful though desperate critique of corporate law as an essentially undemocratic structure for business. In the end, Parkinson had to look for organisational solutions outside of corporate law.133 It would not be unreasonable, therefore, to expect the corporation to become unavailable for private business if democratic politics do prevail.

Secondly, environmental critique will continue pushing on a different axis between a ‘business as usual’ greenwashing and a post-growth order, so that the corporate purpose pendulum would be pulled from four directions. If radical environmentalism prevailed, as argued above, a social equilibrium and corporate purpose might not be of a capitalist nature geared around the pursuit of material accumulation or expropriation. Certainly, even environmental objectives may be imposed both democratically and undemocratically, so the two double-movement sets are interlinked. One could reasonably expect that no pendulum could easily withstand such a combination of forces. In other words, the triple axis of social forces produces an irreconcilable trade-off that a privatised corporate purpose, however ‘progressive’, is unlikely to absorb to re-establish a grounding corporate legitimacy.

Thus, a truly progressive corporate purpose may not be a private business purpose at all. Due to the centrality of privatised corporate law as a contributing institutional element to the current social collapse, it is likely that a post-interregnum compromise will include its marginalisation by repurposing the corporation towards a limited range of large-scale public and democratically controlled uses once again. Undeniably, corporate law has always been very effective in organising such ventures, but its assignment to private business has had some disastrous consequences. Reversing corporate law’s privatisation and subjecting the corporation to democratic control seems increasingly imperative, even if restoring corporate legitimacy via such a limited use would signify the extinction of corporate law as we now understand it, as private business organisation law. Indeed, the views of Smith, Jefferson and Madison remain as relevant as ever.

1

A Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (first published 1776, E Cannan ed, University of Chicago Press 1976) Book I, 144.

2

P Kurland and R Lerner (eds), The Founders’ Constitution (University of Chicago Press 2000) vol 1, ch 14, doc 47.

5

The Code is indeed such a reflexive regulatory instrument because it is implemented on a ‘comply or explain’ basis.

6

S Williston, ‘History of the Law of Business Corporations Before 1800’ (1888) 2(3) Harv L Rev 105.

7

JA Burkhardt, ‘History of the Development of the Law of Corporations’ (1929) 4(4) Notre Dame L Rev 221, 223–7.

8

S Gramitto Ricci, ‘Archaeology, Language, and Nature of Business Corporations’ (2019) 89(1) Miss LJ 43.

9

This comprises corporate personality, shareholders’ limited liability, the delegated management and corporate securities as transferable stand-alone assets.

10

L Davoudi, C McKenna and R Olegario, ‘The Historical Role of the Corporation in Society’ (2018) 6(s1) Journal of the British Academy 17.

11

Nonetheless, corporate law is not socially neutral; see n 35 below and text.

12

eBay Domestic Holdings, Inc v Newmark 16 A.3d 1 (Del Ch 2010). The case involved a dispute among Craiglist’s majority shareholders and eBay as a minority shareholder about the possibility of diverging from a shareholder primacy strategy and a number of anti-takeover defences implemented by the majority.

13

ibid 34 (emphasis added).

14

See nn 119–20 below and text.

15

ibid.

16

Peskin v Anderson [2000] EWCA Civ 326.

17

See eg Hutton v West Cork Railway Co (1883) 23 Ch D 654.

18

19

See L Bebchuk and S Hirst, ‘Big Three Power, and Why It Matters’ (2022) 102(5) BU L Rev 1547.

20

W Allen, ‘Our Schizophrenic Conception of the Business Corporation’ (1992) 14 Cardozo L Rev 261; M Galanis, ‘Growth and the Lost Legitimacy of Business Organisation: Time to Abandon Corporate Law Reform’ (2020) 20(2) JCLS 291.

21

For a review of the arguments, see M Moore, ‘Shareholder Primacy, Labour and the Historic Ambivalence of UK Company Law’ in H Wells (ed), Research Handbook on the History of Corporate and Company Law (Edward Elgar 2018) 142.

24

J Baker, The Oxford History of the Laws of England, vol 6 (OUP 2004) 709–17.

25

H Hansmann and R Kraakman, ‘The End of History for Corporate Law’ (2001) 89 Geo LJ 439. See also those authors’ partial retraction of their strongest statements in H Hansmann and R Kraakman, ‘Reflections on the End of History for Corporate Law’ in A Rasheed and T Yoshikawa (eds), Convergence of Corporate Governance: Promise and Prospects (Palgrave-MacMillan 2012) 32–48.

26

K Polanyi, The Great Transformation (Beacon Press 1957).

27

R Gilson and C Milhaupt, ‘Shifting Influences on Corporate Governance: Capital Market Completeness and Policy Channeling’ (2022) 12(1) Harvard Business Law Review 1.

28

A Hirschman, Shifting Involvements: Private Interest and Public Action (Robertson 1982).

29

eg N-H Hsieh and others, ‘The Social Purpose of Corporations’ (2018) 6(s1) Journal of the British Academy 49.

30

P DiMaggio and W Powell, ‘The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields’ (1983) 48(2) American Sociological Review 147; M Granovetter, ‘Economic Action and Social Structure: The Problem of Embeddedness’ (1985) 91(3) American Journal of Sociology 481.

31

E Durkheim, The Rules of the Sociological Method and Selected Texts on Sociology and Its Method (S Lukes, ed, Macmillan 1982) 50–9.

32

Granovetter (n 30) 483.

33

A Gramsci, Prison Notebooks (J Buttigieg ed, Columbia UP 2011). On passive revolution, see First Notebook, para 44 and Tenth Notebook, para 9; on ‘war of position’, see Sixth Notebook, para 138 and Fifteenth Notebook, para 9.

34

ibid Notebook 3, para 34.

35

M Galanis, ‘Corporate Law Versus Social Autonomy: Law as Social Hazard’ (2021) 32(1) Law and Critique 1.

36

C Bruner, Corporate Governance in the Common-Law World: The Political Foundations of Shareholder Power (CUP 2013) 25–6; C Bruner, The Corporation as Technology: Re-Calibrating Corporate Governance for a Sustainable Future (CUP 2022).

37

For this point, I am grateful to one of the anonymous referees. See also n 121 below and text.

38

This discussion is only focused on the potential influence theoretical models may have on corporate purpose, so any normative evaluation of those is beyond its scope.

39

B Kus, ‘Financialisation and Income Inequality in OECD Nations: 1995–2007’ (2012) 43(4) Economic and Social Review 477. Financialisation describes the mode of capitalist accumulation whereby profit making is by way of asset-price speculation rather than investment in production.

40

B Cheffins, ‘Using Theory to Study Law: A Company Law Perspective’ (1999) 58(1) CLJ 197, 215 et seq.

41

T Kuhn, The Structure of Scientific Revolutions, 50th Anniversary Edition (University of Chicago Press 2012).

42

For instance, numerous empirical studies on the economic value of hostile takeovers have produced widely divergent results depending on the variety of samples and methodologies employed each time; see M Martynova and L Renneboog, ‘A Century of Corporate Takeovers: What Have We Learned and Where Do We Stand?’ (2008) 32(10) Journal of Banking & Finance 2148.

43

B Cheffins, ‘The Trajectory of (Corporate Law) Scholarship’ (2004) 63(2) CLJ 456, 493–4.

44

M Jensen and W Meckling, ‘Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure’ (1976) 3(4) Journal of Financial Economics 305; R Coase, ‘The Nature of the Firm’ (1937) 4(16) Economica 386; O Williamson, ‘The Modern Corporation: Origins, Evolution, Attributes’ (1981) 19(4) Journal of Economic Literature 1537; A Alchian and H Demsetz, ‘Production, Information Costs, and Economic Organization’ (1972) 62(5) American Economic Review 777; H Manne, ‘Mergers and the Market for Corporate Control’ (1965) 73(2) Journal of Political Economy 110.

45

F Easterbrook and D Fischel, ‘Contractual Freedom in Corporate Law’ (1989) 89(7) Colum L Rev 1416.

46

Special issue ‘Contractual Freedom in Corporate Law’ (1989) 89(7) Colum L Rev.

47

C Hill and T Jones, ‘Stakeholder-Agency Theory’ (1992) 29(2) Journal of Management Studies 131; M Blair and L Stout, ‘A Team Production Theory of Corporate law’ (19999) 85(2) Va L Rev 247.

48

See J Parkinson, Corporate Power and Responsibility—Issues in the Theory of Company Law (OUP 1994); J Charkham, Keeping Good Company: A Study of Corporate Governance in Five Countries (Clarendon Press 1994); G Kelly, D Kelly and A Gamble (eds), Stakeholder Capitalism (Macmillan 1997).

49

In the late 1970s the Bullock Committee issued its report A Language for Life—The Report of the Committee of Inquiry on Industrial Democracy (Cmnd 6706, 1977), which recommended board representation for employees—the business representatives issued a dissenting version. Later in the 1990s, the UK Labour government endorsed the phraseology of ‘stakeholder capitalism’, but did not act upon it.

50

Even Raz, a positivist, would object to this kind of scholarship: ‘Because legal theory attempts to capture the essential features of law, as encapsulated in the self-understanding of a culture, it has a built-in obsolescence, since the self-understanding of cultures is forever changing.’ J Raz, ‘On the Nature of Law’ (1996) 82 ARSP 1, 6.

51

Cheffins, ‘The Trajectory of (Corporate Law) Scholarship’ (n 43).

52

Gilson and Milhaupt (n 27).

53

Williston (n 6).

54

Exceptional in this regard are V Bavoso, ‘The Corporate Law Dilemma and the Enlightened Sovereign Control Paradigm: In Search of a New Legal Framework’ (2018) 12(2) Brooklyn Journal of Corporate, Financial and Commercial Law 241; A Keay, ‘The Public Enforcement of Directors’ Duties: A Normative Inquiry’ (2014) 43 Common Law World Review 89, 92–6; M Moore, Corporate Governance in the Shadow of the State (Hart Publishing 2013).

55

eg P Weingart, ‘Scientific Expertise and Political Accountability: Paradoxes of Science in Politics’ (1999) 26(3) Science and Public Policy 151.

56

B Resnik, Playing Politics with Science: Balancing Scientific Independence and Government Oversight (OUP 2009) 94 et seq.

57

See Annex A in the Company Law Review Steering Group, Modern Company Law for a Competitive Economy: The Strategic Framework (February 1999).

58

Committee on the Financial Aspects of Corporate Governance (‘Cadbury Committee’) Report on the Financial Aspects of Corporate Governance.

60

Indicatively, since its introduction in 1986, s 102 of the Delaware General Corporation Law has rendered the duty of care optional when the ALI’s had actually favoured its strengthening; see ALI, Principles of Corporate Governance and Structure: Restatement and Recommendations (1982) para 4.01(a).

61

Bericht der Regierungskommission Corporate Governance Unternehmensführung, Unternehmenskontrolle, Modernisierung des Aktienrechts.

62

See ‘Reforming German Corporate Governance: Inside a Law Making Process of a Very New Nature: Interview with Professor Dr. Theodor Baums’ (2001) 2(12) German Law Journal E3.

63

That Act consolidated the Joint Stock Companies Registration Act 1844 and the Limited Liability Act 1855.

64

The United States was an earlier adopter of free incorporation rights but was not yet a major economic power.

65

See J Morley, ‘The Common Law Corporation: The Power of the Trust in Anglo-American Business History’ (2016) 116(6) Colum L Rev 2145.

66

L Hannah, ‘The “Divorce” of Ownership from Control from 1900 Onwards: Re-calibrating Imagined Global Trends’ (2007) 49(4) Business History 404.

67

A Berle and G Means, The Modern Corporation and Private Property (Macmillan 1932); A Chandler, The Visible Hand: The Managerial Revolution in American Business (Belknap Press 1977).

68

NC Edsall, The Anti-Poor Law Movement 1834–1844 (Manchester UP 1971).

69

C Dellheim, ‘The Creation of a Company Culture: Cadburys, 1861–1931’ (1987) 92(1) American Historical Review 13.

70

RM Glassman, The Origins of Democracy in Tribes, City-States and Nation-States (Springer 2017) 1705 et seq; E McGaughey, ‘The Codetermination Bargains: The History of German Corporate and Labor Law’ (2016) 23 Columbia Journal of European Law 135, 149. The US is a latecomer to all this, as unions were not legitimised until the National Labor Relations Act of 1935.

71

CE Mattei, ‘The Guardians of Capitalism: International Consensus and the Technocratic Implementation of Austerity’ (2017) 44(1) Journal of Law and Society 10, 12.

72

See n 67 above; A Chandler, Scale and Scope: The Dynamics of Industrial Capitalism (Belknap Press 1990).

73

For seminal works on the topic, see ET Penrose, The Theory of the Growth of the Firm (John Wiley 1959); R Marris, The Economic Theory of Managerial Capitalism (Lapthorn 1964).

74

M Dodd, ‘For Whom Are Corporate Managers Trustees?’ (1932) 45(7) Harv L Rev 1145; A Berle, ‘For Whom Corporate Managers Are Trustees: A Note’ (1932) 45(8) Harv L Rev 1365.

75

Mattei (n 71).

76

S Konzelmann, ‘The Political Economics of Austerity’ (2014) 38(4) Cambridge Journal of Economics 701.

77

OECD/ILO, ‘The Labour Share in G20 Economies’, International Labour Organization Report prepared for the G20 Employment Working Group Antalya, Turkey, 26–27 February 2015; A Dignam and M Galanis, ‘Corporate Governance and the Importance of Macroeconomic Context’ (2008) 28(2) OJLS 201, 211–14.

78

Board-level labour co-determination was introduced in German coal and steel companies after WWII under the British ‘Operation Severance’ to dilute power constellations which had collaborated with the Nazis. As Beal reports, these reforms essentially ‘did not turn management over to the union, but rather absorbed the union into management’: E Beal, ‘Origins of Codetermination’ (1955) 8(4) ILR Review 483, 495.

79

A Siaroff, ‘Corporatism in 24 Industrial Democracies: Meaning and Measurement’ (1999) 36(2) European Journal of Political Research 175.

80

Though Berle had already been converted to some type of stakeholderism; see A Berle, ‘Modern Functions of the Corporate System’ (1962) 62(3) Colum L Rev 433; A Berle, ‘Property, Production and, Revolution’ (1965) 65(1) Colum L Rev 1.

81

M Friedman, ‘A Friedman Doctrine: The Social Responsibility of Business Is to Increase Its Profits’ The New York Times (13 September 1970) 17.

82

Jensen and Meckling (n 44); Easterbrook and Fischel (n 45). This rejection of managerial autonomy probably reflects the role of managers in corporatism as arbiters who used their discretion to tilt corporate income distribution from shareholders to labour. The discussion here shows that this seems to have changed now.

83

eg A Alchian, ‘Evolution, Uncertainty, and Economic Theory’ (1950) 58 Journal of Political Economy 211; O Williamson, The Economics of Discretionary Behavior: Managerial Objectives in a Theory of the Firm (Prentice Hall 1964).

84

Indeed, Jensen and Meckling (n 44) start their highly cited article with Smith’s own words.

85

ibid.

86

Dignam and Galanis (n 77).

87

P Ireland, ‘Corporate Schizophrenia: The Corporation as a Separate Legal Person and an Object of Property’ in N Boeger and C Villiers (eds), Shaping the Corporate Landscape: Towards Corporate Reform and Enterprise Diversity (Hart Publishing 2018) 13–40.

88

W Lazonick, ‘Controlling the Market for Corporate Control: The Historical Significance of Managerial Capitalism’ (1992) 1(3) Industrial and Corporate Change 445. Indeed, a recent US study has shown that the CEO-to-worker pay ratio, which was at 15-to-1 in 1965, has risen exponentially since 1978 to reach 399-to-1 in 2021; Economic Policy Institute, ‘CEO Pay Has Skyrocketed 1,460% since 1978’ (2022) <https://files.epi.org/uploads/255893.pdf> accessed 22 April 2024.

89

Business Roundtable, ‘Corporate Governance and American Competitiveness’ (1990) 46(1) The Business Lawyer 241.

90

Business Roundtable, ‘Statement on Corporate Governance’ (September 1997).

91

A Johnston, ‘After the OFR: Can UK Shareholder Value Still Be Enlightened?’ (2006) 7 EBOR 817

92

See Recommendation 47 of the Independent Review of the Financial Reporting Council (‘Kingman Review’) 2018.

93

Companies Act 2006, s 414CZA.

94

A Keay, ‘The Duty to Promote the Success of the Company: Is It Fit for Purpose?’ (2011) 32 The Company Lawyer 1.

95

R La Porta and others, ‘Legal Determinants of External Finance’ (1997) 52(3) Journal of Finance 1131.

96

C Bruner, ‘Power and Purpose in the ‘Anglo-American’ Corporation’ (2010) 50 Va J Int’l Law 579.

97

D Kershaw, ‘The Illusion of Importance: Reconsidering the UK’s Takeover Defence Prohibition’ (2007) 56(2) ICLQ 267.

98

H Coutant and S Viallet-Thévenin, ‘The State as an Eager Shareholder: The Financialization of the Shareholding State in France’ (Spring 2021) 30 Revue De La Régulation. Capitalisme, Institutions, Pouvoirs; I Gehrke and P Zarlowski, ‘The Spread of Shareholder Values in France: A Neo-institutionalist Reading’ (2003) 9(3) Accounting Auditing Control 189; B Cheffins, ‘The Metamorphosis of ‘Germany Inc.’: The Case of Executive Pay’ (2001) 49(3) Am J Comp L 497.

99

R Bourgeot, ‘abour Costs and Crisis Management in the Euro Zone: A Reinterpretation of Divergences in Competitiveness’ (24 September 2013) Fondation Robert Schuman, Policy Paper—European Issues No 289.

100

Gilson and Milhaupt (n 27).

101

C Castoriadis, Figures of the Thinkable (Stanford UP 2007) 138.

102

B Cowell, The Commons Preservation Society and the Campaign for Berkhamsted Common, 1866–70 (CUP 2002).

103

DH Meadows and others, The Limits to Growth; A Report for the Club of Rome’s Project on the Predicament of Mankind (Universe Books 1972).

104

N Georgescu-Roegen, The Entropy Law and the Economic Process (Harvard UP 1971).

105

Notably, following the 2021 general elections in Germany, the Greens gained third place with 14.8% and joined a federal coalition government.

106

RE Freedman, Strategic Management: A Stakeholder Approach (Pitman 1984).

109

L Bebchuck and S Bainbridge, ‘Making Sense of the Business Roundtable’s Reversal on Corporate Purpose’ (2021) 46(2) J Corp L 285.

111

TR Hawkins, OM Gausen and AH Strømman, ‘Environmental Impacts of Hybrid and Electric Vehicles: a Review’ (2012) 17 International Journal of Life Cycle Assessment 997.

112

ClientEarth v Shell plc [2023] EWHC 1897 (Ch); McGaughey v USS [2023] EWCA Civ 873.

113

See S Lorek and JH Spangenberg, ‘Sustainable Consumption within a Sustainable Economy—Beyond Green Growth and Green Economies’ (2014) 63 Journal of Cleaner Production 33.

114

See a more optimistic account in I MacNeil and I Esser, ‘From a Financial to an Entity Model of ESG’ (2022) 23 EBOR 9.

115

J Viitanen and R Kingston, ‘Smart Cities and Green Growth: Outsourcing Democratic and Environmental Resilience to the Global Technology Sector’ (2014) 46(4) Environment and Planning 803.

116

G Kallis and others, ‘Research on Degrowth’ (2018) 43 Annual Review of Environment and Resources 291–316; K Raworth, Doughnut Economics: Seven Ways to Think Like a 21st-century Economist (Random House Business 2017).

117

eg on agricultural models implementing degrowth narratives see R S S Rocha, ‘Degrowth in Practice: Developing an Ecological Habitus within Permaculture Entrepreneurship’ (2022) 14(14) Sustainability 8938; on post-growth business models see C Dietsche, A Liesen, and J Gebauer, ‘Successful Non-Growing Companies’ (2015), Humanistic Management Network, Research Paper Series No. 25/15. Also, worker buyouts of distressed corporations are a notable alternative to traditional finance-led corporate insolvency proceedings; see M Vieta, ‘The Italian Road to Creating Worker Cooperatives from Worker Buyouts: Italy’s Worker‐Recuperated Enterprises and the Legge Marcora Framework’ (2015) EURICSE Working Paper 78|15.

118

W Boonstra and S Joosse, ‘The Social Dynamics of Degrowth’ (2013) 22 Environmental Values 171.

119

V Paelman, P Van Cauwenberge and H Vander Bauwhede, ‘Effect of BCorp Certification on Short-Term Growth: European Evidence’ (2020) 12 Sustainability 8459.

121

C Bruner, ‘Corporate Governance Reform and the Sustainability Imperative’ (2022) 131 Yale LJ 1217; I Anabtawi and L Stout, ‘Fiduciary Duties for Activist Shareholders’ (2008) 60 Stan L Rev 1255.

122

On US growth, see R Gordon, ‘Why Has Economic Growth Slowed When Innovation Appears To Be Accelerating?’ (2018) NBER Working Paper 24554/2018.

123

J Assa and I Kvangraven, ‘Imputing Away the Ladder: Implications of Changes in GDP Measurement for Convergence Debates and the Political Economy of Development’ (2021) 26(6) New Political Economy 985; J Stiglitz, ‘GDP Is the Wrong Tool for Measuring What Matters’ (2020) 323(2) Scientific American 24.

124

Indeed, Piketty has shown that trickle-down economics never materialised: T Piketty, Capital in the Twenty-First Century (Belknap Press 2014).

125

Z Baumman, ‘Times of Interregnum’ (2012) 5(1) Ethics & Global Politics 49, 51.

127

Gramsci (n 34).

128

S Zuboff, The Age of Surveillance Capitalism: The Fight for a Human Future at the New Frontier of Power (Profile Books 2019).

129

A Dignam, ‘Artificial Intelligence, Tech Corporate Governance and the Public Interest Regulatory Response’ (2020) 13(1) Cambridge Journal of Regions, Economy and Society 37.

130

E Gallo, ‘Three Varieties of Authoritarian Neoliberalism: Rule by the Experts, the People, the Leader’ (2021) 26(5) Competition & Change 1.

131

Even the most moderate historical accounts of inter-war Germany recognise the support of large capital for totalitarianism, whether that was under von Hindenburg, Brüning or eventually Adolph Hitler himself; see eg H Turner Jr, German Big Business and the Rise of Hitler (OUP 1985). Since the late 1800s, the United States had already experienced the oligarchic tendencies of the so-called ‘robber barons’ in control of industry who used their economic power and ‘extra-legal’ methods to influence politics and prevent antitrust regulation; M Josephson, The Robber Barons (Harcourt 1962).

132

Gramsci (n 34).

133

See Parkinson (n 48) ch 12, where, disillusioned with corporate law, Parkinson eventually abandons it altogether and searches for a democratic alternative in the workers’ cooperative.

Author notes

Senior Lecturer in Company Law, Centre for Law and Business, University of Manchester Law School. Special gratitude for their insightful comments on previous versions and drafts is owed to Vincenzo Bavoso, Christopher Bruner, Nicolette Butler, Athena Chatzi, Marc Moore, and Jasem Tarawneh, as well as to the editors and the two anonymous referees. All errors are of the author.

© The Author(s) 2024. Published by Oxford University Press.