3 - The Purpose of Corporate Purpose Statements

Summary

In critiquing Prosperity, Paul Davies raises five objections. These are: (a) inclusion of social objectives in mandatory business purpose statements; (b) the assertion that the envisaged adoption of purpose statements is “embarrassingly simple”; (c) use of the law to shield directors from adverse reactions from their shareholders; (d) the entity and managerial conception of the company; and (e) regulatory or court approval of corporate purposes. These objections are contrary to what Prosperity is advocating – a strengthening not weakening of board accountability to shareholders; a proprietary not entity view in which firm objectives are aligned with, not divergent from, those of shareholders; and freedom of choice and plurality of purposes unconstrained by regulatory, court or government intervention. Davies erroneously believes that Prosperity seeks to promote communal or social objectives. On the contrary, purpose statements assist companies with making their commitments credible.  They are enabling not prescriptive or restrictive. They apply equally to private as well as communal or social objectives and they are potentially as significant in enhancing value for shareholders as other parties. Davies himself sets out how companies can make their purpose statements legally binding in an “embarrassingly simple” way without requiring any change to company law.