What is the issue?
The popular conception is that corporations exist principally to maximize shareholder value (MSV). This idea is taught in business and law schools, and it provides the theoretical basis for corporate governance regulation.
Modern corporate governance – which stipulates how firms organise their internal structures, allocate resources and define the division of value to various stakeholders – is heavily reliant upon a number of misguided assumptions. These include that shareholders own corporations, company directors are their agents, directors are legally obliged to MSV, and that this strategy provides better returns to shareholders, is better for the corporation and is in the best interests of the economy.
These assumptions are not based in law and have many unintended consequences including excessive focus on short-term profits, inequality, and social and environmental externalities (e.g. the global financial crisis and climate change).
What will the project try to achieve?
The strategy of the Purpose of the Corporation Project is to re-open the discussion about the role of business in society. The Project is building a network of academics, business leaders and NGOs, launching conferences in collaboration with these allies, and engaging policy-makers in these discussions. The initial focus is on Brussels and London, the two centres of corporate governance and financial markets regulation in Europe, before linking the discussion to the regional and ultimately global levels.
The Project has three strands of work:
1. Business engagement
The Project is engaging the business community and building a link between long-term business sustainability and a holistic approach to corporate governance through a global roundtable series uniting experts and practitioners.
2. NGO engagement
The Project will develop explanatory notes linking corporate governance to their areas of work, consult with NGOs to obtain feedback regarding the desired outcomes of corporate governance for these specific issues and host workshops to build capacity and coordinate strategy. A group of academics supporting the project will process the inputs and embed them in a theory of corporate governance to produce policy recommendations.
3. Policy engagement
Through its office in Brussels, Frank Bold will engage in EU-level policy discussions on the role of business in society, in response to concrete dossiers as well as engaging with the Commission and Parliament on the future of corporate governance in Europe. The Project will work closely with affiliated organisations in London to encourage this process in the UK.
Who might be interested in this project?
Stakeholder groups interested in the Purpose of the Corporation Project include:
- Civil society activists and change agents
- Policymakers looking to find ways to diversify the finance system, including parliamentarians working on the Banking Reform Bill;
- Alternative financial service innovators, such as peer-to-peer platforms, community banks or impact investment funds;
- Economic and financial press and media; and
- Academics and researchers interested in responsible business.
Please note that this project was funded under our broader Right Use of Money theme rather than as a Resilient Economies project.