January 22, 2010
Corporate Purpose - The Discussion is Not Over Yet*
Posted by Rachel Anderson

In an effort to stop the economic freefall of the most severe financial disaster since the stock market crash of 1929 Great Depression, the United States and governments around the world took action.  Government intervention ran the gamut from conservatorships, partial nationalization, rescue plans, guarantees, and aid requests to the International Monetary Fund.  While these measures may have prevented a total collapse of the global economy, they do not suggest a model for the future.  Two of the many questions one could ask in this situation are:  What can we do differently and who should be doing what?

As corporate law scholars and economists know, the role and responsibilities of public corporations has been the subject of debate since the birth of large public corporations in the late nineteenth century. Corporate responsibility can be categorized as: economic, legal, ethical, and discretionary.  In the United States corporations generally are considered to have a primarily economic function with corresponding economic goals and responsibilities that are then tempered by legal and ethical restraints while still allowing corporations to take on discretionary responsibilities such as philanthropy. However, both practitioners and theorists have questioned the primacy of the economic function.

Generally, when U.S. legal scholars question the primarily economic role of corporations in society, they do so either in the context of Corporate Social Responsibility ("CSR") or Corporate Social Accountability ("CSA") or both.  These theoretical frameworks can be traced back to arguments advanced by E. Merrick Dodd in a debate between Adolph Berle and E. Merrick Dodd in the 1930s.  Berle essentially argued for the primacy of obligations to financial stakeholders. Dodd essentially argued that corporations have responsibilities to both financial and societal stakeholders.  The modern legal discourse on CSR has its roots in Dodd’s position.  In more recent decades the CSA movement has expanded the discourse.

The exact scope and contours of CSR are disputed within the U.S. legal discourse and also varies from country to country.  However, it is fair to say that CSR relates to the scope of ethical obligations that corporations have to stockholders, stakeholders, and society more generally.  In corporate legal theory, CSR generally focuses on economic and governance issues.  The underlying question revolves around the purpose of the corporation.  In the U.S. corporate law context, the rules governing CSR tend to be found in state and federal statutes and these "hard laws" are generally enforceable in a court of law.  In international legal theory, CSR generally focuses on human rights.  The underlying question revolves around what is acceptable conduct from a moral and societal standpoint.  In the international and transnational business arena, the rules governing CSR tend to be found in codes of conduct or documents produced by international organizations.  These types of "soft law" tend to be non-binding and unenforceable in a court of law.  In the U.S. legal discourse, domestic corporate governance and international human rights occasionally have uncomfortable meetings.  However they not yet been integrated into one overarching theoretical framework.

The CSA movement attempts to implement the principles of CSR as legally enforceable "hard law."  Among other things, CSA is an attempt to link human rights, the environment, and other societal issues to the economic and corporate governance concerns of corporations.  This can take the form of disclosure rules, national and international standards, and legal liability for the social and environmental effects of corporate actions.  CSA is a shift from CSR because it moves from a discussion of moral and ethical obligations and responsibilities to a discussion of socially and legally enforceable obligations and responsibilities.  However, CSA is more instrumental than theoretical.  It allows us to link domestic corporate governance with international human rights in an instrumental manner.  However, it does not offer a theoretical framework for bridging the gaps between the interests of financial and societal stakeholders.

From where I sit, the recent financial crises suggest both a need and an opportunity to bring the corporate purpose and corporate social responsibility and accountability discussions to the forefront of legal scholarship.  I plan to continue this discussion in an upcoming post.  

*The main body of this post is excerpted from my article entitled Toward Global Corporate Citizenship: Reframing Foreign Direct Investment Law, 18 Mich. St. J. Int'l L. 1 (2009) (citations omitted), which is available on SSRN here.

Business Organizations, Corporate Governance, Corporate Law, Financial Crisis, Junior Scholars, Law & Society, Legal Theory, Social Responsibility | Bookmark

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