Toward a theory of plural business purposes

ABSTRACT

This article examines the current debate advocating ‘business purpose' as an alternative to the common view that business should focus only on profit maximisation. A legal analysis reveals that ‘business purpose’ should be conceived as embracing a plurality of different normative intentions, goals, and objectives. The article provides a theoretical foundation for further development of a normative account of firms that embraces purposes not only of profit-making but also following the law, taking account of ethical duties, and orienting actions to address social, political, and environmental issues. This understanding provides a foundation for future research to engage policy debates through a method of reflective, iterative normative reconstruction of business laws, principles, and practices.

KEYWORDS:

• Theories of the firm
• business purpose
• profit maximisation
• business ethics
• normative reconstruction

Introduction

Business firms serve essential economic roles and functions in our society, but they are created, structured, maintained, and changed through law. A detailed description of firms and how they work demonstrates this ontological truth, which means that economic theories of the firm alone cannot adequately describe the objectives or purposes of the firm.¹ References to other scholarly disciplines, including but not limited to law, are needed.² Only by understanding how business firms are constructed as organisations within normative institutional frameworks can the mystery of their ‘purposes’ be revealed and understood.

In other words, an inquiry into business purposes requires an appreciation of institutional frameworks that include both (1) the legal system, and its establishment of rules and principles that govern the creation and operation of business firms as entities, and (2) moral and ethical understandings that govern the behaviour of people in all walks of life, including within firms.³ Law and ethics are central here in the same sense that they are important in the structuring of many aspects of our modern social life.⁴

This normative background might seem obvious, but this context bears mentioning up front because of the surprising tendency for some still to argue today that business purpose is – or should be – limited only to an economic objective and, more specifically, profit maximisation. This tendency to privilege the perspective of economics rather than other disciplines has heavily influenced academic legal analysis, debates, and discussions.⁵

A theoretical inquiry into the nature of business purposes is also important and timely given recent arguments from practitioners and academics who advocate in favour of ‘purpose-driven’ business firms as an alternative to those that are only ‘profit-driven.’⁶ The conceptual and analytical inquiry offered here shows that business firms in fact have a plurality of normative purposes, which are created both internally through decisions made by the individual participants in firms and externally through laws and social norms.⁷ Given that all firms have what I will call plural purposes, my main claim is to argue that forcing any simple theoretical or practical choice between ‘purpose-driven’ and ‘profit-driven’ firms is radically underspecified.

Some contemporary treatments, though well-meaning, misunderstand or omit important legal, moral, and political dimensions that limit the persuasiveness of their arguments and the effectiveness of their solutions. The movement toward cheering for higher ‘business purpose’ may be normatively good, broadly speaking, because this movement urges business firms, their leaders, their investors, and other participants to focus on issues beyond the purely economic objective of profit-making.⁸ But even though the intentions driving this movement may be good, exhortations to follow ‘purpose’ rather than ‘profits’ are not enough.⁹ More careful thought must be given about what is meant by ‘purpose’ and how different purposes fit with the profit-oriented goals that distinguish a business from other kinds of social organisations. Thinking along these lines also requires a legal perspective, leading to a recognition that legal and political reforms are ultimately needed to reorient normative business purposes to account systemically and routinely for noneconomic or nonfinancial objectives.

The methodology followed here is one of conceptual analysis informed primarily by an interdisciplinary perspective combining law, history, sociology, and philosophy. I do not intend to provide detailed recommendations to business people, legal scholars, or policymakers about how exactly to weigh and balance different business purposes when making decisions, though I will insist that these kinds of decisions are needed. Nor do I make empirical claims about, or provide an assessment of, how these kinds of balancing decisions are being made today in the real world, though I possess some experiential knowledge deriving from teaching business students and executives, as well as law students. My objective is to provide some analytical precision and interdisciplinary understanding to ongoing debates concerning ‘business purpose’ to clear a path toward further productive thinking and, consequently, proposals for social reform in both business practice and law-making.¹⁰

To foreshadow some of my main conclusions, changes to the possible range of purposes of business firms occur on two general levels. First, background legal rules and social norms can impose affirmative requirements or negative constraints on the available choices with respect to a firm’s purposes. An obvious example is that a business firm cannot choose to commit murder as a method of legitimate market expansion. Having an intention or purpose to kill people, at least outside of the context of a just war, as part of a profit-making scheme is impermissible both legally and morally.¹¹ This dimension of legitimate business purposes is normatively mandatory.

Second, background legal rules and moral norms in most modern societies empower the participants in a business firm to select and often change their own collective purposes. This dimension of business purpose is normatively permissive because it leaves open a degree of organisational freedom in the choice or selection of different purposes. For example, a firm may decide to pursue a profit-making purpose and one that advances a purpose such as contributing to environmental protection beyond what is legally required. Or an artist or musician, or group of artists or musicians, may form a business entity to make money, but with the art or music itself as the primary motivation of the enterprise. Such business firms do not intend only to make money or only make art or music; they intend to do both.

Lastly, there is a legal and political punchline. The freedom of business firms and their participants to define their own purposes exists only within a legal framework that empowers this freedom.¹² In addition, the law, as exercised through courts and made through legislatures, sets mandatory rules and norms as well. To achieve some of the more ambitious goals of recent calls for a higher business ‘purpose,’ then, will require systemic change of a kind that only the law can provide.

* * *

Here is a road map for what follows. Part I addresses the claim that business purposes extend beyond profits. This is an old debate, but it is necessary to reengage here because if the purpose of business firms is only to make as much money as possible, then there is no need for further examination. A key witness invoked to support an argument ‘beyond profits’ is, perhaps surprisingly, the influential Nobel-prize winning economist Milton Friedman who is often cited for the principle of profit maximisation. Close analysis reveals that even the strongest arguments made for profit maximisation as the sole business goal make foundational moral claims that are usually based on consequentialist assumptions about the welfare and efficiency effects of profits.

Part II reinforces this argument by providing details about how the law constitutes and structures business firms in a manner to allows for freedom of choice about business purposes. The legal constitution of firms can shift the range of choice about purposes. A history of how legal frameworks for business firms developed is needed to understand current debates about the definition and scope of their purposes and objectives. Because narrow economic views have prevailed as a touchstone for understanding the purpose of firms, the rules for their operation have tilted toward profit maximisation and against the inclusion of other business purposes.

Part III unpacks the question of economic purpose. Specifically, it asks the following question about the assumed purpose of business profits: profits for whom? For some economic models of the firm, profit maximisation refers only to the financial returns for capital providers (including investors in both equity and debt). Other theories of the firm recognise employees as legitimate business ‘participants’ who are owed a degree of moral respect. At a minimum, this means questioning whether employees should be treated as mere ‘inputs’ to business production. Part III shows that treating labour only as a factor of production analogous to material production inputs can be challenged normatively, with legal and political consequences.

Part IV discusses in greater detail the moral and political dimensions of business that go beyond economics. Business firms are set in a larger social context, and moral and political purposes are therefore inescapable. Although focusing business on economic considerations has social value, moral and political values are important too, and they are selected and reinforced legally, externally to the firm, as well as internally within firms.

Part V returns to institutional theory and frames business purposes with a ‘bottom up’ and ‘top down’ understanding of both the self-organisation and outside regulation of business enterprises. It sketches out the role of business in what I call a ‘not-only-for-profit-economy’ and offers a template for possible legal interventions and strategies for normative reform and reconstruction.

A short conclusion returns to the main question of ‘what is a business for?’ and suggests some answers and areas for future research.

I. Beyond profit maximisation

Teaching in law schools and business schools in the United States, I often hear my students say that the purpose of modern business is a given: to ‘maximise shareholder value.’ They recite the view advocated by many contemporary economists (and therefore many of my students’ teachers in fields such as accounting, corporate law, finance, and management) about the ‘objective function’ of the firm.¹³ More specifically, this particular neoclassical economic view of the firm argues that managers must maximise the long-term economic value of the firm as determined by financial measures, thus providing a single objective by which to decide about tradeoffs informing different actions. As a result, the economic value of the firm as measured by financial metrics trumps other potential values such as, according to one proponent, ‘maintaining employment or improving the environment.’¹⁴ In addition, the standard economic view tends to reduce the scope of economic activity to the measure only of profit-making or equity returns, rather than considering more general social goals such as solving coordination problems, reliably providing goods and services, and creating and maintaining at least minimally well-paid jobs.

It is true that some flexibility is built into this economic objective: for example, selecting the time horizon for expected investment returns or adopting strategies that rationalise treating employees better or showing greater respect for the natural environment as part and parcel of an economic value maximising objective. In other words, so-called ‘win-win’ solutions can be accommodated: such as saving jobs or the climate and making money at the same time.¹⁵ This strategic flexibility still takes profit maximisation as the central driver and overriding purpose of business, however, and win-win solutions are not always possible or feasible.

Business students imbibe the assumption of profit maximisation in classes informed by contemporary mainstream financial economics, as well as through surrounding media culture and business practices, especially in the United States. This view derives from a distinctive view of individuals, which has been summarised as ‘[a]n individual’s purpose is to maximize utility, as a company’s purpose is to maximize profits.’¹⁶ As Professor Rebecca Henderson of the Harvard Business School describes the current milieu:

In a majority of our boardrooms and MBA classrooms, the first mission of the firm is to maximize profits. This is regarded as self-evidently true. Many managers are persuaded that to claim any other goal is to risk not only betraying their fiduciary duty but also losing their job.¹⁷

The same message is communicated in top law schools in the United States (and likely elsewhere). One study in 2011 found that the top ten law schools, as well as the top ten business schools, taught a view focused on shareholder primacy as the normative objective of business firms rather than entertaining the possibility of any broader conception of business purposes.¹⁸

Jack Welch, the chief executive of General Electric, epitomised as well as popularised this no-holds-barred approach to shareholder value maximisation.¹⁹ ‘Neutron Jack’ earned his nickname through a long-standing practice of firing hundreds of thousands of employees to boost share price valuations.²⁰ Quite a few CEOs emulated Welch, including many who were trained under him at GE.²¹

From a legal perspective, however, the mantra of maximising shareholder value – or maximising a firm’s profits (to generalise the objective to include all kinds of business firms) – is simply not obvious, not true, and not a given.²² Even when viewed from a strictly economic perspective, the view of ‘shareholder value maximization’ has been challenged because it does not include an adequately broad view of ‘shareholder value’ to embrace the diversity of moral preferences among shareholders themselves.²³ In addition, even if one agrees that firms should follow a purpose of profit maximisation, questions remain open about the economic distribution of profits (and allocations of risks) to the individual participants in firms.²⁴

More fundamentally, no economic theory can give firms a singular ‘purpose’ or ‘objective’ because economic theories do not create the authority and governance needed for people to act together within firms. Even Jack Welch and others who pursue an extreme version of profit maximisation must gain and retain the legal authority to do so.²⁵ Background rules and frameworks must enable this approach in various concrete and changing circumstances as well, such as in mergers and acquisitions, or other major shifts in a firm’s structure or governance.

It is true that a business must make profits over relevant time periods and dimensions of performance including investment, production, sales, and cost-savings to survive and prosper.²⁶ To this extent, ‘profits are primary’ to an understanding of business objectives.²⁷ Profits are a sine qua non for the temporal organisational sustainability of any business.²⁸

However, to say that a business must take profits as a primary and necessary objective is not to say that profits are the only objective. Questions remain, as noted above, concerning the distribution of profits and sharing of risks among business participants over time. For example, should a firm maximise distributions only to equity owners (i.e. shareholders in a corporation) rather than increasing the compensation of other business participants including employees, who also bear the risk of losing their jobs and have contributed to increasing profits? Should a firm reinvest earnings in the ongoing enterprise (including capital equipment, software, and research and development)? Should a firm reduce its risky behaviour for reasons other than risks to profits, such as acting to reduce global environmental risks? The objective of profit maximisation may supply easy or simplifying answers to these questions, but they are not satisfactory answers.

One reason profit maximisation is unsatisfactory as a singular business purpose is that it seems uncontroversial that business firms should act, through their leaders and other people who represent them, in accordance with the universal social and moral norms that govern everyday life.²⁹ One primary purpose of all firms in a society should then be, for example, to follow the law, at least as a general rule.³⁰ If so, then following the law should count as one additional primary normative ‘purpose’ of firms and participants within them.³¹ They should act with an intention to follow the law, even if doing so is not always easy in large, complex organisations. This is at least one reason why legal compliance systems are often put into place in firms and sometimes required by law to be adopted and maintained.³²

In other words, even assuming business firms take profits as a primary objective, this assertion of economic purpose has always been understood to be framed in a legal environment that assumes and imposes other purposes and objectives as well. As an analogy consider the situation of an individual human being making personal career choices. In modern societies we educate our children to acquire the knowledge and skills needed for them to secure employment opportunities for careers as adults. Individuals choose vocational objectives with various kinds of educational training and professional licensing as a part of this process. In modern societies also, individuals have some degree of freedom (at least ideally) in finding jobs and making their career, but their choices must follow mandatory moral and legal constraints (such as provided by criminal law). Market demand and social opportunities also channel these individual career and employment choices. Career choices are often and probably usually made with reference to not only to maximising one’s income but also following individual aptitudes, preferences, and values about work and its role in the construction of a good and meaningful life.³³ The same kind of freedom of constrained choice characterises decisions made within business authority structures.

Answering questions about different business purposes, then, requires an expanded view of both the nature of the firm and the place of firms within the larger society of which they are a part. One may go so far as to say that the question of the relationship between profit-making and other values, purposes, and objectives followed by firms is the master question of business ethics and the related field of corporate governance.³⁴

One can begin a fresh inquiry, then, with the proposition that there is no natural law of profit maximisation given by either science or philosophical principles. Although economics today may often pose as a ‘science,’ it is not a hard science like physics, chemistry, or biology. Economics is a social science like the study of politics, sociology or history.³⁵ Some recent empirically grounded economic studies count as ‘science’ in the same manner as other ‘social sciences.’³⁶ It remains true, however, that contemporary economics, even as it has grown ‘ever stronger in academia,’ is based on a too-narrow conception of ‘an institutional sphere in which all actors pursue self-interested motives and in which only the laws of supply and demand prevail.’³⁷ Lost in the cold-hearted mathematical models of modern economics are older ideas tracing back to Adam Smith, among others, which include conceptions of a ‘moral economy.’³⁸ The ‘invisible hand’ of The Wealth of Nations has been embraced by contemporary economists, while many of them conveniently forget Smith’s Theory of the Moral Sentiments.³⁹

Again, even if a business leader such as Jack Welch endorses and seeks to follow an economic objective of profit maximisation as the only respected value, the authority structures created, maintained, and enforced by law are necessary to translate his objective into practice. More broadly, economic policy recommendations inform political and legal decisions made about how to structure business organisations, and policy recommendations from other sources, including different economic perspectives as well as ethical or environmental considerations, influence how we conceive of business purposes, and how we act to achieve them.

The law – together with the political and constitutional structures that create, enforce, and maintain the law – establishes business firms as legal entities.⁴⁰ It is possible for law to adopt the view that the objective purpose of any business, such as a corporation, is to pursue profits. In Finland, for example, a corporate statute simply provides that ‘the purpose of a company is to generate profits for the shareholders unless otherwise provided in the Articles of Association.’⁴¹ On the surface, this statute seems to allow, if not require, a firm to adopt Jack Welch-style profit maximising strategy. A general admonition setting business purpose, however, cannot be taken at face value for several reasons. First, the Finnish statute allows for a recognised exception to the rule, namely, empowering the adjustment of the ‘purposes’ of the firm through changes in the founding document (here, its articles of association). There are also other laws that Finland and other jurisdictions impose that qualify, limit, and constrain a profit-making objective. Even if a business aims only to generate profits (and then to distribute them to shareholders and other claimants), the management and conduct of its actions must conform to other laws, including criminal laws prohibiting fraud, theft, and murder.⁴² A pirate ship or street gang that acts with criminal intent does not qualify as having a legitimate business purpose.⁴³

Keep in mind that firms, even though they are constituted formally as legal persons, act only through real people. People compose firms, and the people who act as the agents of firms bring with them other motivating norms, including legal and moral principles. People are or at least should be constrained by the institutional normative frameworks of both law and morality – and, therefore, so should firms. Even Milton Friedman, the economist most closely associated today with advocating profit maximisation as an overriding business objective, admitted that a business firm following an economic objective must act within the constraints of two additional normative objectives or principles: following the law and acting in accordance with ‘ethical custom.’⁴⁴ The constraints on the presumptive economic objective are not simply external to the ‘purposes’ of the firm: they are part of its very definition. A business firm intending to make money must also intend, even in Friedman’s view, to do so legally and ethically. A business firm and the people participating in it can and should walk and chew gum at the same time.

Under modern conditions of both legal and moral complexity, these adjustments to the economic objective of making profits are often detailed, as well as quite significant in scope and gravity.⁴⁵ The relevant law includes, without limitation, not only criminal law, which is imposed with the greatest seriousness, but also civil laws governing employment and labour, banking and finance, antitrust, and the legal building blocks of business organisation: agency, contracts, and property.⁴⁶ Liability rules for business ‘persons’ as entities and the real people operating within them, and the exceptions to these rules, apply as well.⁴⁷

In addition to law, moral principles and applied ethics inform the formulation of business purposes. Friedman’s use of ‘ethical custom’ seems to refer to how other professional business people see themselves as behaving responsibly. A better interpretation is that ‘ethical custom’ must refer to moral principles and traditions on which ‘custom’ must be based, including those deriving from philosophy and religion, and thus including principles, rules, or actions following deontological, consequentialist, social contract, or other practical moral reasoning.⁴⁸ Friedman’s conception of ‘ethical custom’ is otherwise conceptually circular and significantly limited in scope and application. If he means by ‘custom’ only the ethical worldview or shared norms of similarly situated managers and investors, then this view is normatively groundless. Most if not all philosophers agree that moral rules or principles cannot derive only from an assessment of ‘what everyone else is doing’ or ‘what everyone else may think is ethical.’⁴⁹ Deeper inquiries are needed to root one’s behaviour in moral principles, rules, and decisions.⁵⁰

The Principles of Corporate Governance, adopted by the American Law Institute (ALI) in 1992, recognised the norms of law and ethics in doing business when it adopted a statement that a corporation ‘should have as its objective the conduct of business activities with a view to enhancing corporate profit and shareholder gain.’⁵¹ According to these Principles:

Even if corporate profits and shareholder gain are not thereby enhanced, the corporation in the conduct of its business … [i]s obliged, the same extent as a natural person, to act within the boundaries of the law … and [m]ay take into account ethical considerations that are reasonably regarded as appropriate to the responsible conduct of business.⁵²

Thus, the ALI’s Principles tracked Friedman’s exceptions to the business objective of profit-making: following the law and ethical considerations.⁵³ In addition, the ALI recognised the power and authority of business corporations in the United States to ‘devote a reasonable amount of resources to public welfare, humanitarian, educational, and philanthropic purposes.’⁵⁴ This power is given by statutes in almost every U.S. state that empower corporations to give a ‘reasonable’ amount of charitable contributions.⁵⁵

The lesson here is that even if one begins with a very strong economic presumption that the only purpose of a business enterprise is to follow a profit-maximising norm, this norm must itself be established upon legal foundations. Legal and social norms are co-generative.⁵⁶ Norms of behaviour derive not only from economic analysis and recommendations, but also from moral norms of philosophical principles, religious traditions, practical reasoning, and an everyday sense of ‘right and wrong.’ The objectives or purposes of firms are therefore contingent on an institutional structure that includes both legal and moral norms.

With respect to business purpose, then, a close analysis of any presumed economic objective of profit maximisation reveals that it implicitly includes other normative objectives such as following the law and otherwise acting ethically and morally in one’s business life. In other words, even in the strict case of a firm devoted to a profit-maximising objective (such as Jack Welch’s GE), it cannot follow an objective that removes the firm from society. To even imagine that business behaviour could be removed from the surrounding world of law and ethics explains how some extreme versions of the actual practice of corporate profit maximisation can become ‘pathological’ or at least count as a ‘normative misdevelopment.’⁵⁷

As a conceptual start, then, if one agrees that economic activity, legal obligations, and moral obligations can be differentiated, one can identify at least three dimensions that are needed for an adequately descriptive theory of the purposes of firms: an economic objective, following the law, and acting in an ethical and moral manner.⁵⁸

As the discussion below will further reveal, another important purpose implicit in the work of firms is politics, or perhaps ‘metapolitics,’⁵⁹ though the role of politics too is often subject to an important determination of a social structure in modern capitalist societies of a separation, at least in principle, of business and state, and of private and public interests.⁶⁰

II. The legal constitution of the organisational purposes of firms

From the perspective of an institutional theory, the law creates and maintains business firms as ‘real fictions’ subject to flexible, changing legal rules.⁶¹ Shifting norms affect these rules of construction and maintenance, as well as the selection of collective intentions, purposes, and objectives.⁶² As the legal scholar Lon Fuller emphasised, the use of legal fictions – such as treating corporations as legal persons – is a social convenience or convention.⁶³ Society, acting through government, can change the rules of the game with respect to how the law operates to structure our institutional world.⁶⁴

As an example of this potential change, consider that in the 1980s, when a statement of the corporate ‘objective’ was being debated during the writing of the Principles of Corporate Governance, a prominent federal judge and former law professor, Jack Weinstein, raised the question of whether providing jobs to employees should count as a primary business objective, alongside profits for shareholders. Commenting on Weinstein’s argument that ‘the creation of employment is itself a purpose of corporate activity,’ Professor Donald Schwartz noted that ‘[n]either the Principles nor current law endorses the creation of employment as a corporate purpose.’⁶⁵ However, the law changes! In the U.S. debate over the Principles, a commentator from the United Kingdom was reported to have observed that ‘the object to provide work’ was becoming as central to business purposes there as the objective of profit-making.⁶⁶ In 1985, the U.K. adopted a statute putting employees’ interests on relatively equal footing with shareholders (called ‘members’ of a company in the U.K.).⁶⁷ In 2006, yet another revision of the U.K. statute continued to name employees as important, but shifted primacy back toward shareholders.⁶⁸

This example shows how law – and the politics driving legal change – can shift the normative objectives and purposes of firms. Some historical background is needed, though, to explain how modern legal systems have achieved this kind of constitutional authority over the structure and purposes of organisations, including but not limited to firms.⁶⁹ History matters in this context because without it one cannot understand how normative presuppositions arise and inform institutional structures, including law, business, and the education of those who serve in the social roles of lawyers and business people.⁷⁰

To make a long history short: organisations of people in society have been ubiquitous. As Aristotle observed, human beings are social animals. We organise and associate together to ‘aim at some good.’⁷¹ The original evolutionary purposes of organising in small groups were to hunt and gather, and to raise children and acculturate them. With the rise of agriculture and the establishment of human settlements, collective purposes expanded to include military defense and its corollary. Centuries of conflict and the organisation of political and military power in empires, nation-states, and smaller political units gave rise to the development of government and law. Our cultural history included the development of different religions and philosophies, as well as the rise of modern science and education. Business firms and commercial markets arose as a part of this larger story of human civilisation and cannot be conceptually separated from it.⁷²

Over time, business organisations that focused primarily on the economic provision of goods and services became differentiated, as sociologists say, from other kinds of organisations, such as governments, nonprofits, and religious and educational associations. Market institutions provided the structural framework for the growth of firms as a primary method of organisation.⁷³ These markets are not unitary. They include commercial markets for the sale of goods, services, and information; capital markets for the ownership and sale of organisational ‘shares’ of firms and debt financing; and labour markets for both employees and the recruitment of managers. The law instantiates and reinforces firms as differentiated organisations through their recognition as separate entities and ‘persons.’⁷⁴

One explanation of the historical development of the purposes of firms refers to the ‘concession theory.’ Government created business firms by ‘concession’ of organisational power to specialised legal entities and infused them with purpose.⁷⁵ Both the British and Dutch versions of an East India Company functioned in this fashion as semi-independent arms of their respective sponsoring nation-states, though also providing returns to their private investors⁷⁶ The public-private hybrid colonies of the so-called New World, such as the Massachusetts Bay Company, the Ohio Company, and the Virginia Company, illustrate this phase of development of business purposes too. They were chartered by a sovereign state in part for sovereign purposes.⁷⁷ In the United States soon after its founding, corporations were created and empowered through concessions from state legislatures for such purposes as the construction of bridges, canals, and railroads. In these historical circumstances, the purposes of firms, colonies, or companies are incompletely differentiated from the purposes of nation-states.⁷⁸

As the productive forces and political influence of organised capital gained steam (so to speak, with a nod to the Industrial Revolution), the right to create business corporations and other firms became gradually democratised, or at least broadened.⁷⁹ The need for a specific ‘concession’ from a government was replaced by general incorporation statutes that were broadly enabling and, for individuals with capital, empowering.⁸⁰ As the legal historian James Willard Hurst observed with respect to the United States, corporate law moved from ‘special privilege’ to ‘general utility.’⁸¹ The same movement captured the law of other kinds of business organisations such as general and limited partnerships, as well as new business forms, such as limited liability companies and public benefit corporations. Parallel legal and organisational developments occurred also in other industrialised parts of the world.⁸²

A useful conceptualisation of this historical institutional development makes a distinction between production metamarkets and the consumption markets they serve.⁸³ As citizens (or at least wealthy citizens) became relatively free to self-organise within a stable framework of the enabling statutes of corporate and other kinds of organisational law, production metamarkets arose that allowed for the rise and fall of business firms according to their ability to succeed in expanding commercial markets.⁸⁴ Participants in commercial markets – which might also be called consumption markets – included other business firms (who sourced supplies for their own production), as well as governments and individual people. Economic markets, then, had at least two sides: production metamarkets that were organised mostly by competition among different kinds of firms (providing economic supply) and consumption markets of individuals (as well as other firms and governments) purchasing goods, services, and information (providing demand).⁸⁵

At least since Ronald Coase’s theory of the firm (which is a legal theory as much as an economic one), business firms operating in relatively free societies have been understood to operate within production metamarkets that determine efficient firm structures based (at least in part) on relative organisational costs compared with transaction costs in consumption markets.⁸⁶ Firms that perform well in production metamarkets prosper and grow. Firms that fail to sell their products, services, or information successfully diminish or disappear. Making some level of sustainable profits is an essential condition for business survival.⁸⁷ In this respect, an historical perspective supports the idea that profit-making must have some degree of primacy with respect to business purposes.

In tandem with this economic differentiation of firms and their competition in markets, the legally defined purposes of business firms in many countries became separated, to a greater or lesser extent, from the purposes of government. State-owned firms are a limited exception to this rule – especially in countries such as China which continue to follow a communist-capitalist hybrid model in great swathes of its political economy.⁸⁸ However, even state-owned firms are organised as producers serving larger commercial consumption markets which for the most part have become global. For example, Chinese state-owned oil companies compete and participate in the same commercial markets as private companies such as ExxonMobil and Shell.⁸⁹

The legal purposes of firms in different societies thus depend in part on their organising structure. State-owned firms, for example, may be organised and managed on a relatively free-standing basis – pursuing a profit-oriented objective in global markets, but within a governance structure controlled by the political state. The Communist Party in China often has at least veto power, if not greater authority, over decisions made in state-owned and other large enterprises.⁹⁰ In most parts of the world that follow a European and North American trajectory of social and economic development, business firms evolved to secure an independent institutional footing within the law, at least in principle if not always in practice.⁹¹

From ‘concession’ methods of organisation, business law in most modern jurisdictions evolved to allow for private structuring, that is: bottom-up self-organisation rather than only a top-down approach.⁹² General incorporation statutes and the equivalent for other noncorporate business forms grant individuals the constitutive power to create business enterprises of different kinds and for different purposes. Business firms under these contemporary conditions become complex, interrelated legal structures of people connected by relationships of agency, contracts, and property, usually with a recognised entity or organisational person at the legal centre.⁹³

The legal purposes of business firms in contemporary societies that allow for their free and relatively independent organisation are therefore significantly self-generated. In a very real sense, business firms in free societies write their own constitutions, including their own pledged purposes. For example, the corporate charters or certificates of incorporation filed under general incorporation statutes provide the blueprints for governance, supplemented by bylaws adopted and updated by corporate boards.⁹⁴ Mission statements or ‘business purpose’ declarations may supplement these foundational documents, though they are often not legally enforceable.⁹⁵ Firms organised alternatively as partnerships, limited liability companies, or other variations may also specify different purposes or goals in their founding documents.⁹⁶ In the United Kingdom, the authority of the organisers of business firms is described by reference to a ‘constitution’ adopted by companies in a manner similar to how ‘constitution’ is used to refer to founding documents of political states.⁹⁷

In free-enterprise societies, then, business firms organise themselves to a significant extent independently of government. Friedrich Hayek described this process as ‘spontaneous order’ or a ‘catallaxy,’ that is, ‘the special kind of spontaneous order produced by the market through people acting according to the rules of the law.’⁹⁸ Firms organising themselves in this kind of spontaneous order produce goods, services, and information for consumption markets, and a key feature of this system is that firms are self-constituting and self-governing. In this manner, firms are free to set their own normative purposes, again with their survival depending on their success in economic competition.⁹⁹

The scope of this bottom-up power of organisation of firms and the designation of their purposes is illustrated by the history of the legal doctrine of ultra vires in corporate law in the United States and elsewhere.¹⁰⁰ Under the emerging general incorporation statutes, new firms still followed a pattern of organising for specific business purposes, such as running a railroad. Legal challenges would then sometimes arise – brought by shareholders or third parties – that a corporation entered business transactions ultra vires or ‘beyond the powers’ of its own stated objectives. For example, a railroad might enter financial markets and find this move challenged by its shareholders or third parties on grounds that this activity was ‘beyond the powers’ of the business purpose authorised in its charter. The legal solution adopted and then widely embraced was for corporations to adopt broad ‘any business purpose’ clauses in their charters.¹⁰¹ As a result, the legacy of this historical innovation is that business firms now have accrued substantial discretion to govern themselves and decide on their own strategic direction – and their own defined purposes.¹⁰²

One can imagine a radically decentralised world in which firms could be organised by individual participants without any legal constraints imposed by the government whatsoever.¹⁰³ However, our current legal reality is that business firms set their legal purposes from both top-down and bottom-up perspectives within an institutional framework – hence an institutional theory of the firm.¹⁰⁴

Modern firms operating within this institutional context are empowered to establish their own ‘collective purposes’ or, in philosophical terms, ‘collective intentions.’¹⁰⁵ As the ultra vires cases illustrate, most modern firms today have the power and authority to decide on ‘any business purpose’ – as long as it’s legal.¹⁰⁶

At the same time, it is important to emphasise that choice of business purposes is enabled by legal scaffolding. The evolution of law toward an open structure of freedom of organisation and freedom of choice of organisational purposes also includes ‘mandatory’ components that set the enforceable rules of the game.¹⁰⁷ In other words, there are two social levels governing the purposes of business organisation: (1) a normatively mandatory macro-level of legal rules and moral imperatives, and (2) a normatively permissive micro-level that allows, in relatively free societies, significant leeway in terms of the selection of specific purposes, goals, intentions, and objectives of a particular enterprise.¹⁰⁸

The ‘purposes’ of firms, then, are not unitary, and there are two main levels in modern societies at which these purposes are determined. Some purposes given by the law in a top-down manner are mandatory at the macro level and apply to all firms in the category that is regulated. An assumption in a free-enterprise society is for business firms to seek profits, for example, but this profit-making may not come through committing fraud, insider trading, money laundering, or price fixing with competitors. At a minimum, economic purpose is restricted to being a legitimate or legal purpose.¹⁰⁹

At the same time, the very definition of relatively ‘free’ enterprise is to allow for the selection of purposes extrinsic to profit-making and following the law to be adopted by those who organise and manage firms. To return to the example of employment, it is often possible for a specific firm to choose either to put the chance for higher profits ahead of the interests of long-time employees or to sacrifice some benefit of gain in profits in favour of showing loyalty to long-time employees. Firms might still be forced by competitive markets to follow profits rather than reward employees in specific circumstances. Scenarios in which a firm must outsource labour or go bankrupt in competition with other firms that outsource provide one commonplace example.¹¹⁰ However, many decisions will continue to fall under what corporate law calls ‘the business judgment rule,’ allowing discretion to the managers of firms to follow ethical purposes or goals that do not necessarily track economic purposes and interests.¹¹¹

III. Economic purposes: why profits and for whom?

As discussed above, business firms become differentiated from other kinds of social organisations by their orientation toward economic production and the sale and purchase of goods, services, and information in commercial markets. Business firms are usually for-profit enterprises founded on private property ownership, though there are state-owned and public-private exceptions.¹¹² As Max Weber observed, a business firm understood as an ‘economic organization’ (Unternehmen) engages in ‘autonomous action capable of orientation to capital accounting.’¹¹³ The evolution of capital accounting, including the innovation of double-entry bookkeeping, allowed for and encouraged the development of rational, routine calculation of profits and losses.¹¹⁴

The advent and widespread use of the ‘bottom line’ regarding profit calculation as a primary orientation of autonomous business entities has been powerful. The extraordinary productivity of our contemporary civilisation could not have evolved without the institutional innovations of autonomous business forms, such as business corporations, and their supporting institutional frameworks, including capital markets and banking systems.¹¹⁵ Overall, and on average, great historical gains in standards of living of human beings have resulted, though progress has not been linear, and history over the last several centuries has been punctuated by high levels of economic inequality in many parts of the world, and continuing today.¹¹⁶ We should not forget that the historical gains overall for humankind have been unequally distributed, and a substantial portion of the larger gains were produced under labour regimes based on slavery, the slave trade, and colonial domination of many parts of the world.¹¹⁷ Today, our world faces other massive social challenges too, including not only increasing racial and economic inequality (with historical roots), but also an impending climate catastrophe and threats to the global order posed by the rise of authoritarian governments. How do business firms fit within this diagnosis? In a well-known phrase, they should become part of the solution rather than part of the problem.

To begin again with first principles, the institutional orientation of profit-focused private firms toward an economic objective requires a social and political justification. The justification provided by Adam Smith and other economists relies on a consequentialist moral argument. The privately organised pursuit of profits for firms and their owners is justified because the aggregate outcome of the self-interested economic interactions is expected to yield gains in terms of overall economic productivity and, therefore, increased social wealth and improved social welfare.¹¹⁸ In other words, profits for some will yield net economic gains for all.

Whether the current structure of the global economy organised within private ownership regimes – or what Thomas Piketty has called, somewhat awkwardly, ‘neo-proprietarian’ systems – will continue to deliver economic and social progress is uncertain.¹¹⁹ Natural law theories that purport to justify private ownership systems appear plainly insufficient in themselves to give an adequate defense of free-enterprise business organisations.¹²⁰ This does not mean that some actions by people within firms (or, what is the same thing, firms under the direction of people) cannot violate basic deontological norms. For example, Fox News and its leaders are responsible ethically, if not legally, for reckless manslaughter caused by the firm’s widespread reporting of false medical claims about Covid-19.¹²¹ In a foundational sense, though, a privately organised free-enterprise economy calls for a consequentialist justification for ‘why profits?’ as a primary objective for business firms, especially given that pursuing profits alone can cause other serious, widespread social and environmental harms.

Again, the answer since Adam Smith and his modern interpreters refers to the beneficent consequences of the ‘invisible hand’ of markets and the division of labour in firms. The answer to ‘why profits?’ has traditionally been that the profit motive provides incentives for increasing productivity and efficiency, thus overall making everyone better off.¹²² Owners of capital may reap larger gains, but their unequal gains are justified under theories of justice and the common good if the greater wealth produced lifts all boats – or at least the great majority of the individual boats of people and their families.¹²³ But what if they don’t? What if the very rich are building huge and expensive yachts for themselves while the dinghies holding most people are sinking?¹²⁴

Along this dimension, a normative justification for ‘why profits?’ becomes significantly empirical: is the world (or a particular nation-state) better off continuing to follow an ideal of a free-enterprise political economy (albeit with lots of regulations already), or are adjustments needed? And if adjustments are needed, how should they be made? Current trends of increasing inequality of wealth in the world and within many nation-states weaken the consequentialist argument that privileges profit-making as a universal, singular objective for business firms.¹²⁵

One counterargument favouring the continued large-scale use of private, for-profit business enterprises refers to historical counterexamples of institutional failure in the Marxist-inspired experiments in Stalinist Russia and Maoist China. In the name of increasing economic equality, these regimes made an ideological point of destroying private property and capitalist-oriented business firms based on private property, replacing them (at least in the interim before the onset of an imaginary communist utopia) with state-owned enterprises, and forbidding the formation of any new privately organised businesses.¹²⁶ By almost any measure, the Stalinist and Maoist regimes proved economically ineffective, politically tragic, and environmentally disastrous.¹²⁷

Today, however, the main danger comes instead from the other end of the ideological spectrum, namely, an unrestrained free-market mentality. An ideology that protects private property blindly – and allows some who control business organisations to create and keep more of it than others through the use of privately organised corporations and financial connections¹²⁸ – has become unmoored from effective political regulation.¹²⁹ An ideology of ‘hypercapitalism’ adopts a view that unrestrained economic markets (including the firms acting within them) will inevitably lead to overall economic well-being through an almost mystical and even religious belief in the magic of the market and a valorisation of the selfish individual as an ideal.¹³⁰ At a minimum, this ideology presumes, in its public policy recommendations, that economic as well as financial innovations will redound to the public good, unless proven otherwise.¹³¹

The definition of the economic objective of firms, then, is not sufficiently justified by a simple reference to ‘profit maximisation’ within relatively narrowly defined limits of ‘following the law’ as well as ‘ethical considerations.’¹³² This position assumes also that an unfettered free market of these firms will somehow lead to future progress in terms of overall human welfare – for this generation as well as future ones.¹³³ It simply assumes, without empirical analysis or justification, that the status quo is working – except that it is not!¹³⁴ Immense global inequality of wealth and the global climate emergency are harsh consequences that cannot be wished away.

A significant reason that semi-autonomous markets have become dominant lies precisely in an amoral orientation of relying on abstracted prices for various goods and services, as well as property and internal employment.¹³⁵ ‘From the very beginning’ of this social transformation, as the philosopher Axel Honneth has observed, ‘the unique character of this economic system was seen in the fact that exclusive purposive-rational, self-interested calculations seemed to free this system from any individual considerateness or value-orientations.’ Honneth continues:

[The new economic system of industrial capitalism] was intended to satisfy the various needs of a constantly growing population quicker and more effectively, because sheer self-interest rather than moral attitudes drove all actors to the market to maximum performance in the production and distribution of needed goods.¹³⁶

Profit-oriented motivations extended not only to the ‘capitalist entrepreneurs’ driving history, but also to ‘wage labourers’ and ‘financial speculators.’¹³⁷ This is the historical origin of the proverbial Homo oeconomicus motivated by self-interest alone.¹³⁸

Given this background understanding, one way to conceive of the problem of ‘profits for whom?’ is to see it as a constant struggle between the economic interests of capital and labour – what Honneth calls ‘the Marx Problem.’¹³⁹ To some extent, it is accurate to read the history of labour and employment law in these terms, as well as in terms of foundational fights over whether to adopt a form of government on one extreme or the other – Leninist-Maoist communism versus an Ayn Randian version of hypercapitalism.

There is another more moderate conceptual approach forward, however, that promises to be more sustainable and more humane (in the moral sense) than an unending battle between the forces of capital and labour, bourgeoisie versus proletariat. This more moderate approach begins with what Honneth calls ‘the Adam Smith Problem,’ for it was Smith, the theorist of the social and economic power of the ‘invisible hand’ of radically unleashed markets, who also realised that moral foundations were essential for any healthy as well as productive society. Smith wrote not only The Wealth of Nations but also The Theory of Moral Sentiments,¹⁴⁰ and he joins with other social theorists, as Honneth observes, including Émile Durkheim, Georg Hegel, and Talcott Parsons who see normative development as a necessary foundation for markets and the business firms within them.¹⁴¹

Without pausing to elaborate the complexities of Honneth’s theory here, suffice it to say that I follow him in thinking that bringing normative moral foundations back into social theory is a needed correction to narrow versions of economics that valorise profit maximisation and self-interest über alles. More serious consideration of the normative moral foundations of markets and business enterprises allows for nuanced answers to questions such as ‘profits for whom’? In some real sense, the answer should be ‘profits for all of us’ – and profits should be sought not for only for profits alone, but because profit-seeking yields an economic and political system that provides for many good lives oriented toward meaningful work and fulfilling social connections.

IV. Beyond economics: moral and political purposes

The problem of plural business purposes goes deeper than how to divide the spoils among competing interests within the firm. Time and space here do not allow for a detailed, full inquiry into two other non-economic dimensions of the purposes of firms – morality and politics – but both are important and deserve mention, even if too briefly.

Moral and political values cannot be set aside as separate from the objectives and purposes of business firms. In fact, to say that ethics should only act as a side constraint on the primary business purpose of profits seems at least odd, and on closer analysis it is wrong. This problem is the origin of the common joke that ‘business ethics is an oxymoron.’¹⁴² Profit-seeking is justifiable only if it is, or can be assumed to be, providing net economic welfare gains to society in general, including fair distributions of these gains (and a fair sharing of the costs and risks). Profit-making should not only be ‘legal’ but also ‘good.’¹⁴³ Professor Colin Mayer captures an essential point when he argues that ‘a legitimate source of profits’ can come only from ‘profiting from solving, not creating, problems for people or the natural world.’¹⁴⁴

But who decides what is ‘a legitimate source of profits’? Here again, an institutional theory of the firm is helpful analytically. The answer is not either (1) regulation from the top down or (2) ethical determinations from the bottom up. The answer is both.

Once there is agreement that regulation is needed – and that an unrestrained free market will lead quickly today to apocalyptic consequences, especially with respect to the challenge of the climate emergency – then the question becomes what kind of regulation should be adopted? Answers should be based on the context of a particular problem (e.g. the climate challenge), and an analysis of the legal structure of firms and the incentives provided for business participants. The discussion should include moral imperatives as well as economic analysis. Effectively addressing the climate emergency, for example, requires at least some and maybe most firms to sacrifice some amount of profits (such as making money on the continued production and sale of fossil fuels, as well as the intensive use of them) to preserve climate conditions that are habitable for humanity and other life on Earth.¹⁴⁵ This does not mean abandoning the profit motive. On the contrary, regulation should leverage the profit-oriented motivations of business and markets to help solve the larger social and environmental problem of the climate emergency. But profits cannot be maximised if collective imperatives require at least some businesses (such as the fossil fuel industry) to forego some profit-making opportunities.¹⁴⁶ ‘Profit satisficing’ is one among several alternative goals or objectives that could be adopted instead.¹⁴⁷

When regulating from the top down, one should keep in mind that profit-oriented business firms will have interests that may oppose the public good. Milton Friedman neglects to account fully for this dynamic in his well-known advocacy of a focus on profits.¹⁴⁸ He assumes that legal constraints will arise in a parallel process of government regulation that is not itself subject to decisive influence by profit-seeking firms. Impermissible motives of profit-seeking firms – such as oil companies blocking climate regulation – must be countered, though it is not easy to see how to do so successfully.¹⁴⁹ This problem opens a wide conceptual hole in profit-maximisation theories, including Friedman’s.

Campaign finance reform may provide a partial solution, but business lobbyists will most likely oppose it, and legally restricting the practice of lobbying itself has proven difficult, in part precisely because of the practice of lobbying!¹⁵⁰ Once lobbyists gain a foothold, it is difficult to dislodge them. In the United States, campaign finance reform faces an additional hurdle set up by the Supreme Court’s expanding view of constitutional free speech rights for firms to engage in politics.¹⁵¹ Intensive lobbying has become prevalent in Europe and elsewhere too.¹⁵² Private interests have developed global scope in international law through such industry groups as the World Coal Association.¹⁵³

Efforts to control the influence of business and wealth in politics are difficult because of the ‘hydraulic’ fluidity of the political influence of money: if blocked through one pipeline of influence (such as political contributions or lobbying), then money will find a path to influence through another pipeline (such as media campaigns or the funding of pseudoscience).¹⁵⁴ As a result, one solution to the problem of ‘too much money in politics’ requires looking at the law of business organisation itself and reconsidering whether it is really a good idea to encourage or even sometimes to require firms to care only about profit-making. For example, one may imagine that business could ‘get political’ in the other direction and advocate in favor of climate regulation, even though it would reduce profits for some businesses, especially those that are most directly contributing to the problem, and even when effective regulation cannot be directly tied to a long-term profit-making rationalisation for the business.¹⁵⁵

Along these lines, recently announced Principles of Corporate Political Responsibility focus on legitimacy, accountability, responsibility, and transparency.¹⁵⁶ One requirement is that firms should report on their political contributions and activities.¹⁵⁷ These approaches encourage business firms to engage in a reflexive examination of their policies and collective beliefs (or, at least, the collective beliefs of the firm’s leadership).¹⁵⁸ Adding in the political dimension opens needed complexity in the business world: moving away from simplistic models that all firms are motivated only by profit maximisation to one in which other moral and political values matter too. For example, one might imagine even big oil and gas companies could begin to bifurcate with respect to climate objectives, dividing between ‘good’ energy companies acting as quickly as possible toward achieving a low-carbon future through the expansion of renewable energy and ‘bad’ ones doubling-down on climate-destroying fossil fuel exploration and production.¹⁵⁹

The problem of incentives here runs deep. Profit maximisation incentives are baked into our legal and social framework. Firms pay lobbyists and make campaign contributions mostly to advance their own self-interests denominated in profit-seeking – and affirmatively not to save the world.¹⁶⁰ The democratic governments on which modern societies depend to make legal changes to address public interests are subject to what Jon Hanson and David Yosifon have called ‘deep capture.’¹⁶¹ This capture runs through to the pinnacles of academia, including business and law schools which educate the leaders of the most powerful political and economic institutions.¹⁶²

The solution to this complex problem of normative structure and influence is similarly complex. To call simply for a ‘revolution’ to overthrow the hypercapitalist order and replace it with a new anti-capitalist one will not work – at least not under contemporary circumstances. In addition to the bracingly persuasive counterexamples of authoritarian communist regimes, as well as even more terrible fascist ones, the global social systems of modernity are too complex and path dependent to expect any radical or violent shift to lead in a positive direction.¹⁶³ As an alternative, Axel Honneth’s recommendation for the ‘normative reconstruction’ of the systemic values underlying government, law, and markets offers a better approach.¹⁶⁴

Honneth centres his analysis and proposals for reform on the moral value of ‘freedom,’ reconstructing it within our modern social system which has become split into at least three different spheres of human activity and communication: (1) personal relationships (including friendships, love, and family), (2) commercial markets (including business), and (3) democratic governments (thus making an exception of some modern authoritarian governments that are radically unfree).¹⁶⁵

There is much to recommend in this approach, beginning with the fact that the value of ‘freedom’ is one emphasised at the roots of opposing influential theories of the moral value of economic markets advocated by the likes of Friedman and Hayek.¹⁶⁶ As Honneth also notes, one may rationalise the traditional normative dichotomy between ‘freedom’ and ‘equality’ through an expansive understanding of freedom to require some minimum equal material entitlement to support the exercise of some measure of substantive freedom.¹⁶⁷

However, it is possible to agree about the need for a normative reconstruction of social systems, including the market economy and political governments, without embracing Honneth’s view that freedom should serve as the only dominant value.¹⁶⁸ From my perspective, additional values should include not only some level of social equality of condition and opportunity for everyone, but also an imperative of environmental preservation, which travels beyond Honneth’s concern about human freedom, at least if one considers the need to preserve other species too.¹⁶⁹

One consequence of Honneth’s view is that a normative, historically informed analysis and reconstruction should follow what he calls the ‘ethical division of labor’ in society.¹⁷⁰ In contrast with Habermas and some other social theorists (including many economists) who see commercial markets and business as amoral, Honneth insists that they are founded on moral norms specific to each social sphere or general area of human activity.¹⁷¹ On Honneth’s view, and consistent with my analysis given above, the market system has experienced some serious ‘misdevelopments’ with respect to its departure from normative understandings that are critical to the health and sustainability of the market system itself. In his words, ‘the removal of barriers to the capitalist market represents a social misdevelopment, one that hollows out and undermines the normative potential of the market.’¹⁷²

Honneth singles out the functional focus on ‘profit maximization,’ as well as capital accumulation, as becoming ‘so strong as to exclude any possibility of inner normativity.’¹⁷³ Instead, Honneth argues that ‘the competition institutionalized by the market must be able to be understood as a form of cooperation in order to count as understandable and legitimate in the eyes of the participants.’¹⁷⁴ Following an institutional theory of the firm, these participants include not only the enterprise organisers and capital providers (both equity and debt owners) but also the employees in firms and consumers of firms’ products. This understanding means that the relevant purposes of firms should extend to all participating people in a market society. Again, in Honneth’s words, ‘the purely individual self-interest constitutive of market behavior must be able to fulfil the normative condition that all participants can understand as a suitable means for the complementary realization of their own respective purposes.’¹⁷⁵ And ‘norms that allow us to view the relations of competition, established for the purpose of increasing economic efficiency,’ should be established ‘in the interest of all involved.’¹⁷⁶

Markets that pursue a social objective of economic efficiency trumping all other values can therefore undermine their own legitimacy.¹⁷⁷ The background democratic rules of the games set by law – to which Milton Friedman gestured and which other economists have argued should be bent only to the will of economic rationality – are in fact central to the normative foundations of markets and the legitimacy of business firms.¹⁷⁸ Given the severe social misdevelopments caused by the expansion of markets over time and encouraged at least in part by policymakers, business leaders, legislators, and judges who have been overly influenced by amoral economic reasoning, a normative reconstruction of economic institutions requires changes both in terms of political and legal reforms from the top down, as well as reforms pressed by people acting as citizens, consumers, and business participants from the bottom up.

V. From the bottom up and the top down: toward a not-only-for-profit economy

From the perspective of an institutional theory of the firm, there are two approaches to take with respect to the social purposes of firms and how to reform them: a top-down view of government and other policymakers who set the legal rules of the game for firms, and a bottom-up view of individual business participants who are exercising their semi-autonomous authority and power with firms to set their own normative objectives and purposes. Intermediate-level organisations can help to organise pressure for change – such as through labour unions and works councils, as well as consumer cooperatives and public interest groups. Journalists, academics, celebrities, and other ‘influencers’ of public opinion may affect social movements that favour both top-down political and legal reform and bottom-up organisational change by grassroots consumer, employment, management, and investor actions within the market system, as well as through politics.¹⁷⁹

From a top-down standpoint, governments set the boundaries for firms by law. Again, even on Milton Friedman’s view favouring the maximum freedom of firms to pursue profits, the law’s limitations apply.¹⁸⁰ These include antitrust, labour, employment, and environmental laws expressed as civil or criminal prohibitions. Specifically, these prohibitions include, for example: no price-fixing; no undue interference with the formation of unions; no discrimination in hiring or promotions based on sex, gender, race, ethnicity, nationality, religion, or other prohibited categories; and no air, water, or ground pollution of specified kinds without a permit or above certain limits. These are all normatively mandatory rules.¹⁸¹

In addition to direct regulation (so-called ‘command-and-control’), the law can channel the power of business organisations.¹⁸² The bottom-up spontaneous organisation of many shapes and sizes of for-profit firms (as well as nonprofit enterprises) allows for significant flexibility, though it is also important to observe that these legal frameworks also constrain the selection of business purposes by its participants. For example, while securities regulation seeks to protect everyday investors, it has also privileged, at least in U.S. law, the very wealthy who get special advantages as ‘accredited’ or ‘sophisticated investors.’¹⁸³ Private equity firms and hedge fund investors play by different rules than those for relatively small investors and small family firms. ‘Securities law’s dirty little secret,’ as Professor Usha Rodriguez writes, ‘is that rich investors have access to special kinds of investments – hedge funds, private equity, private companies – that everyone else does not.’¹⁸⁴ Profit-maximisation norms are built into choice structures for pension fund fiduciaries as well, rather than allowing them to entertain moral considerations that depart from expected pecuniary risk-adjusted returns.¹⁸⁵ Even pension funds for labour unions are often forced under U.S. law to follow profit-maximisation strategies pitting the interests of retired workers against new generations of workers seeking higher wages and benefits or, perhaps more often, to increase pension fund financial valuations through managerial strategies that downsize employees.¹⁸⁶ A related problem arises when public pension funds find themselves forced (or at least highly incentivized) to invest in securities instruments that undermine the public interest in providing high-quality services to local citizens, including their own beneficiaries.¹⁸⁷

With respect to the governance of firms too, the background rules of the game matter. The business judgment rule and the fiduciary duty of care have long protected corporate directors and managers from liability for business decisions that consider a broad range of relevant factors, including ethical considerations that go beyond profits.¹⁸⁸ Enterprise organisers have significant leeway in constructing and adapting the legal structure of firms.¹⁸⁹ These kinds of laws count as normatively permissive rules in the sense that they provide some measure of freedom of action and decision for the managerial leaders of firms. At the same time, decision-making procedures in firms that block employees from providing input – such as through union representation on co-determination boards, works councils, or other informal representation methods – strongly bias the governance of firms toward shareholders and other capital investors, and against labour. Corporate control laws and judicial decisions that privilege shareholders over other participants further bend business firm governance toward profit maximisation.¹⁹⁰ A decades-long trend of tying executive compensation to share price performance has further shifted incentives toward profit maximisation for shareholders (and manager-shareholders) rather than a broader economic objective, including the best interests of employees or nonpecuniary normative values.¹⁹¹

One general prescription for a normative reconstruction of business law, then, would be to return to older conceptions of fiduciary duty and social responsibility that allow managers as well as investors to consider moral principles and consequences, rather than focusing only on the morally destructive ideal of profit maximisation.¹⁹² Enhanced business judgment rule protection and the elimination of restrictions against considering social and environmental responsibility in investments would provide a good start.¹⁹³ Looking forward, one might imagine an extension of fiduciary duties to include a responsibility for climate protection.¹⁹⁴ Broadening (or recovering) expansive business judgment rule and fiduciary duty protection for managers, however, would not alone be sufficient to address imbalances regarding economic inequality and other normative misdevelopments in the economic system. As Professors Matteo Gatti and Chrystin Ondersma point out, this reform strengthens corporate managers and CEOs as against their shareholders, but such a realignment does not guarantee or even do very much to encourage actions that will improve the economic conditions or influence of employees and other business participants.¹⁹⁵ A back-to-the-future enhancement of fiduciary discretion for management would also do little to assure attention to other nonpecuniary values such as making progress on a company’s climate footprint or policies.

New business forms such as public benefit corporations in the U.S. and community interest companies in Europe explicitly expand fiduciary duties to include the pursuit of social and environmental purposes beyond profit maximisation.¹⁹⁶ There is scant evidence to date, however, that these relatively new business forms have been successful in delivering on their nonprofit objectives.¹⁹⁷ A pervasive problem with these new forms has been that it is difficult to measure progress on not-for-profit objectives.¹⁹⁸ In response, Professor Ofer Eldar recommends the establishment of a new legal form of ‘social enterprise’ that includes government-certified standards for nonprofit performance.¹⁹⁹ Under this proposal, third-party beneficiaries could include ‘workers, borrowers, and consumers,’ but Eldar’s proposal would not reach external environmental purposes or objectives, such as addressing the climate emergency.²⁰⁰ There is therefore plenty of room for experimentation to invent or reconstruct legal business forms that counter profit-maximisation values, expectations, and legal rules.

These exercises in normative reconstruction are easier said than done given that ‘the corporate governance machine’ functions as an integrated economic system that will resist any changes that inconvenience established economic interests.²⁰¹ As Professor Lisa Fairfax warns, repeated promises over decades by corporate leaders that they will change their tune and replace profit maximisation with a broadened view of business purposes, including greater concern for other business participants or ‘stakeholders,’ have proven rhetorical, ineffective, and insincere. They lack ‘credible commitment.’²⁰² Nevertheless, it is possible to conceive of other useful reforms from the top down, the bottom up, and intermediate levels of social organisation.

Another approach is to identify problems that have arisen in specific sectors or business practices. Religious bigotry, racism, and sexism are likely to be problems in most business firms today, for example, and should be addressed both through external law and internal policies and process reforms. With respect to business sectors, if one concludes that private equity firms are causing significant problems, and if corporate executive compensation is becoming excessive, then one may propose specific top-down and bottom-up legal reforms in each of these areas.

Regarding private equity, special public concern calls for greater regulation of private equity interventions in health care (especially in nursing homes), prison management, payday financing (often targeting poor and undereducated consumers), and for-profit colleges.²⁰³ The rise of private equity is likely exacerbating current trends toward greater economic inequality, providing higher returns to very wealthy financial entrepreneurs to the detriment of everyone else.²⁰⁴ This normative misdevelopment signals a need for more transparency in the private equity sector, and some modest steps in this direction have recently been taken in the United States.²⁰⁵ The most egregious business strategies, such as immediate dividend recapitalisations, mass layoffs of employees, and raiding pension funds, could be prohibited as well.²⁰⁶ Also in the U.S. context, federal agencies including, among others, the Department of Justice, the Securities and Exchange Commission, the Federal Trade Commission, the Internal Revenue Service, and the Consumer Financial Protection Bureau could ramp up their attention to alleged fraud and antitrust violations by private equity firms, as could state attorneys general.²⁰⁷ Congress could pass legislation, such as the proposed Stop Wall Street Looting Act, which would eliminate the notorious carried interest tax loophole (which allows private equity and other high-rolling investors to pay taxes at much lower rates than everyone else). In addition, this law would elevate workers’ interests in bankruptcies and prohibit dividend recapitalisations within two years of a going private transaction.²⁰⁸ Not surprisingly, this proposed law has so far failed to pass due to intense opposition by financial industry lobbyists.²⁰⁹

From a bottom-up perspective, institutional investors and wealthy private individuals who fuel the private equity industry should rethink their priorities. Public pension funds and university endowments have a particularly important role given the scale of their investments and their organisational values.²¹⁰ It does not make sense that institutional investors who work for social goals of advancing workers’ interests or broad-based educational objectives should prioritise investments that harm workers and undermine social cohesion.²¹¹ Other intermediate-level organisations can have an influence too. A group called Worth Rises, for example, has targeted private equity abuses in the prison telephone business with some success.²¹²

Another area ripe for legal reform is corporate executive compensation, which has led or at least contributed to an ever-increasing distance separating a small number of very rich citizens from everyone else.²¹³ Grossly excessive and inequitable corporate executive compensation has proven resistant to legislative intervention, with indirect methods – such as mandatory disclosure in the securities laws – having little or no effect.²¹⁴ A standard response to address the problem through a return to progressive income taxes has also found little traction, again due largely to corporate lobbying and political contributions.²¹⁵ Shareholder ‘say on pay’ requirements are unlikely to prove effective because of the synergy between outsized stock-based executive pay and shareholders’ own economic interests. Essentially, shareholder votes on compensation amount only to ‘a vote on firm financial performance.’²¹⁶ The narrow financial theory of the firm that purports to justify exorbitant executive compensation, in other words, is working as designed: reducing the so-called ‘agency costs’ between shareholders and top managers. While stock-based incentive pay yokes executives to shareholders, it usually leaves out other business participants, especially employees.²¹⁷ Given the economic incentives for lobbying from both investors and managers to prevent regulatory intervention, it is likely that effective change with respect to executive compensation policy will continue to be difficult to accomplish given the phenomenon of ‘deep capture’ and a world of relatively unrestricted lobbying and campaign contributions.²¹⁸ There is a large feedback loop connecting permissive laws of political finance and ever-increasing aggregation of wealth at the top of the managerial and financial pyramids.

Still, one can imagine a populist political movement arising that could overcome these obstacles and enact some top-down restrictions.²¹⁹ In addition to cracking down on the private equity sector and moderating executive pay practices, these might include closing tax loopholes that allow the very wealthy to lower their tax brackets for income and inheritance tax liability, and also the following ideas: (1) a global wealth tax,²²⁰ (2) a return to meaningful progressive income taxes,²²¹ (3) requirements for shareholders (and perhaps employee representatives) to approve corporate political contributions,²²² and (4) more robust disclosure requirements for corporate political contributions and lobbying.²²³

From the bottom up, workers can unionise and, when unionised, press for greater shares of profits as compared with the top executives. Recent strikes and successful negotiations led by the United Auto Workers may indicate a potential resurgence of labour union power in the United States in the face of overall declines in union membership.²²⁴ Shareholders can also mobilise not only to insist on ‘say on pay’ votes for executive compensation packages, but also to propose internal restrictions on political lobbying and campaign finance.²²⁵ Settlements of shareholder proposals under which firms make ‘voluntary’ disclosures of political expenditures may provide one key pathway toward this kind of transparency.²²⁶ Bottom-up social movements of this kind can meld with political efforts for legal change, giving reason for some pragmatic hope.²²⁷

From a more systemic rather than issue-oriented perspective, Axel Honneth demarcates two important dimensions that deserve attention with respect to a normative reconstruction of the modern market economy: labour markets and ‘the sphere of consumption.’²²⁸ Both are related to definitions of and limitations on the purposes and objectives of business firms.

With respect to labour, a moral expansion should follow an understanding of the economic objective to include all participants within a firm – including employees as well as managers and capital providers.²²⁹ Labour law sets the normative and legal constraints on who can be employed (e.g. not children) and minimum wages and conditions (e.g. safe working environments). Labour law also extends freedom of self-organisation to include rights to unionise and the organisational rights of unions to bargain with employers for collective contracts, as well as the ‘right to work’ in the first place.²³⁰ In addition, labour law can also mandate (or at least permit) works councils in firms to represent employees, separately from the collective bargaining process, and adopt legal reforms to nominate labour representatives to corporate boards.²³¹ Without going into more detail here, the general point is that top-down regulation can condition the structures of governance in firms to better protect employees and their interests.²³² Employees can also gain additional legal rights and shares of economic returns through labour organising and collective bargaining, though the strength of these methods of influence has been declining in many parts of the world.²³³

Another kind of misdevelopment in labour markets relates to the decline and degradation of employment relationships and occupational identity. As law professor (now dean) Sophia Lee observes: ‘The employment relationship is dissolving: temporary, part-time, and contract jobs are on the rise, and new time-management systems allow employers to convert many employees to on-call workers.’²³⁴ Full employment or minimum income legislation may provide partial solutions.²³⁵ New technological challenges involving advances in robotics, artificial intelligence, and other forms of machine learning may also lead to increasing pressure to reduce levels of employment and wages, which may in turn reinvigorate arguments for basic rights to minimum income and other government-provided benefits.²³⁶

The larger normative problem posed by the place of labour in the modern economy today is described by Honneth as follows: ‘The institution of the capitalist labor market is regarded as unjustified or illegitimate as soon as it no longer guarantees participants a living wage, does not adequately honor work in terms of wage levels and social reputation, or no longer offers a sense of being cooperatively involved in the social division of labor.’²³⁷ ‘The freedom to make a million dollars,’ as the law professor Morris Cohen said more colourfully, ‘is not worth a cent to one who is out of work. Nor is the freedom to starve, or to work for wages less than the minimum of subsistence … .’²³⁸ In sum, treating everyday employees only as an economic factor of production in a profit-maximisation game rather than as cooperative participants in meaningful work has led to a host of normative misdevelopments that call for correction.²³⁹

The rise of consumer markets, to turn to another important dimension of the modern economy, has provided another major source of normative legitimation of capitalist production methods, expanding the availability of goods, services, and information to broadening segments of the population in modern societies.²⁴⁰ The expansion of consumer markets has also enabled an expansion of personal freedoms to choose to purchase products, services, and information (or to opt out of purchasing them), which complements the growth of an individual sense of freedom and autonomy – or what Hegel called ‘a system of needs.’²⁴¹

At the same time, the expansion and growing sophistication of these markets has created risks for abuse, deception, and cheating – with unethical profit-making being the main motive. In an example of what Karl Polanyi called a ‘double movement’ in social evolution,²⁴² consumer laws arose in response to protect purchasers and buyers from fraud, exploitation, manipulation, and unfair dealing.²⁴³ Long-standing laws against fraud render firms liable for materially false statements in sales practices, and implied warranties of fitness and merchantability, as well as safe design requirements, enhance consumer protection as well.²⁴⁴ Procedural reforms to allow class actions and mass torts litigation enable groups of consumers to band together to protect themselves by seeking compensation and redress for wrongful harms.²⁴⁵ Labelling laws, though not always effective, aim to promote the reliability and trustworthiness of claims made in advertising and other marketing. For example, requirements to disclose accurate nutrition information about foods (such as ‘gluten free’) fall in this category.²⁴⁶

Labels also illustrate two methods of legal intervention: mandatory labels, such as ‘Cigarette smoking is dangerous to your health’ on every carton or packet, and more general requirements to promote truth in marketing, which assess penalties for lies or misstatements.²⁴⁷ To shape consumer demand and firm supply of products and services that promote values such as those relating to environmental sustainability, legal standards can require disclosures about various features not directly related to price including recycling, materials use, and climate impact – though a long-standing problem has been lax regulation of environmental marketing that means ‘consumers are unable to distinguish substance from hyperbole.’²⁴⁸ Stronger legal prescriptions are also needed to restrict the manipulation of consumers through false, deceptive, or inappropriately persuasive advertising. Law professor Ramsi Woodcock goes so far as to propose the suppression of all marketing and advertising that would go beyond the primary economic function of providing consumers with information relevant to a particular product or service, such as price, quality of the materials, and other needed information to make rational choices.²⁴⁹ At least, ethical consumer markets require legally enforceable standards of truth and guardrails against impermissible manipulation.²⁵⁰

Consumers can also band together to exert influence based on reliable information (or sometimes, unfortunately, based on false information) either through the aggregate influence of many individual purchasing decisions or, at least in theory, through ‘consumer cooperatives.’²⁵¹ Consumer boycotts can exert collective power as well.²⁵²

Overall, however, consumer markets today include many normative misdevelopments. One is the explosion of luxury goods and consumption markets, feeding the tastes and whims of the super-rich.²⁵³ This phenomenon reflects the economic inequality in global societies dividing a class of wealthy consumers, who tend toward ‘pro-material’ and ‘conspicuous’ consumption rather than more modest, sustainable choices, and a great many others who are consuming to keep food on the table and a roof over their heads. As Honneth correctly observes, a ‘sharp opposition between two very different groups of buyers’ has developed. ‘Alongside the social milieus whose members struggle to acquire the bare necessities, there are two further large groups of consumers, one of which is guided strongly by ethical motives, while the second indulges in the purchase of luxury goods [and services] with regained innocence.’²⁵⁴

A normative reconstruction of consumer markets should aim to provide for minimum subsistence for everyone and to empower ethical consumption. One can imagine reforms from the top down through legal reforms that would improve the overall reliability and availability of information to consumers, as well as bottom-up patterns of behaviour by consumers themselves who act on this improved information.²⁵⁵ Intermediate organisations include citizen groups in civil society which can pressure the political and legal system for changes, and consumer groups that can coordinate their purchasing decisions and boycotts. In short, one can imagine a future of consumption markets oriented toward ethical and sustainable meaning rather than just material satisfaction or status signalling.²⁵⁶ ‘People buy things not only for what they do,’ as Professor Sidney Levy adroitly observes, ‘but what they mean.’²⁵⁷

One last important general area of impact of the economic system relates to the natural environment, with particular attention to the climate challenge. Consumer markets and other larger legal changes can provide some good solutions, as discussed above, but other bottom-up initiatives are possible too and can often be driven by business participants themselves. A recent example is the new not-only-for-profit business form invented by Patagonia, which illustrates creativity in the bottom-up reconstruction of a business enterprise using available legal forms.²⁵⁸ Essentially, Yvon Chouinard, the controlling owner of the iconic company known for its pro-environmental stances, charged his board of directors to find a new ownership form that would deliver on three purposes or objectives: (1) apply profits of the ongoing company to address the climate challenge, (2) prevent outside owners in the future from departing from the firm’s pro-environmental and employee protection values, while at the same time avoiding a major tax penalty for the organisational transition, and (3) providing a new example of a business model designed for both profit-making and sustainable production and consumption which other like-minded business people might also adopt.²⁵⁹ The jury of the markets is still out about whether this new business model touting that ‘the Earth is our shareholder’ will work, but the experiment is at least impressive in its ambition.²⁶⁰

Another path that companies can follow from the bottom up is to adopt internal business policies and processes that parallel choices made in government regulations.²⁶¹ For example, a firm could decide to subsidise employees who take public transportation or buy electric cars. A firm could assess internal surcharges for air travel to discourage unnecessary trips that increase greenhouse gas emission. Or a firm could track its own climate footprint and choose to reduce it by energy conservation measures and using more renewable energy. Firms could also adopt some variation of newly proposed ‘green pills’ that would channel its climate-related behaviour and provide credible signals to pro-climate investors (and employees).²⁶² Some of these choices may provide win-win outcomes that are both environmentally friendly and profit maximising, but firms and the business participants within them may also internalise certain values over time – such as the moral imperative to address the climate crisis that affects us all – and make self-conscious and ‘reflexive’ internal decisions that may sacrifice some measure of profits to this imperative.²⁶³ Recent legal changes, especially in Europe and the state of California, that require more verifiable environmental disclosure may also encourage more firms to act reflexively in a positive normative direction as well.²⁶⁴

* * *

As this overview of different areas of legal and normative intervention has shown, the overall purposes and social objectives of business firms cannot be reduced to an idea of profit maximisation for either the firm itself or, more narrowly, for shareholders. To insist on applying this economic principle to business law – or the law more generally – radically undermines other normative values that have been and continue to be essential in a free society. The law mandates other basic purposes and objectives that business firms must observe too.²⁶⁵

In addition, the structuring and channelling features of modern law mean that a great deal of flexibility and permissive normative choice characterises our modern economy.

Taken together, these features of mandatory and permissive normativity release social and legal theory from the straitjacket of simplistic economic models of the business enterprise and reinforce a pragmatic view that reform is possible, even if difficult because of the inertia of path dependence in large social systems.²⁶⁶ The purposes of business can therefore shift when needed by changes in the objectives that the participants in business and citizens in government and civil society decide to pursue.

Conclusion

What is business for? A simple answer to this question about the purpose or purposes of business is not possible.²⁶⁷ Business firms are focused on the production of goods, services, and information to sell for profit in a market economy, but in doing so they do not follow any single purpose or objective. Instead, firms have plural purposes and objectives that derive not only from economics, but also law, morality, and politics. ‘Profits’ or ‘to make money’ is never a complete or adequate answer to the question of business purposes or objectives because even those who champion profit maximisation, such as Milton Friedman and his successors, recognise that for-profit business firms operate within a normative matrix of law and morality.²⁶⁸

Specific answers about business purposes ‘beyond profits’ for any particular firm come both from the top down (mostly through the exercise of law and politics, but also drawing on universal moral principles) and from the bottom up (mostly through self-organised decisions and the self-governance of business participants acting with agency authority within particular firms, as well as the expression of the economic interests and moral values of consumers and others who interact with firms in supply chains and market networks). Intermediate institutions outside of firms that people organise for different economic, moral, and political purposes are important too. A normative theory of the firm with top-down, bottom-up, and intermediate dimensions does not deliver an easy answer to the question of business purposes. However, it respects the complexity and freedom, as well as the many moral, political, and material challenges, that are inherent in our contemporary business civilisation.

In terms of future research, legal and other scholars should engage closely with other disciplines beyond economics, including philosophy, history, business ethics, management, and sociology, to work toward what Axel Honneth calls a normative reconstruction of commercial markets and business enterprises to correct some serious misdevelopments.²⁶⁹ One very large and even overriding normative misdevelopment has been the uncritical and harmful embrace of profit maximisation as a singular objective for businesses to follow. The recognition of plural business purposes and objectives can provide an alternative for a sustainable and moral path forward. This new path should include a return to older views of business, property, and markets that include fundamental values such as individual freedom, autonomy, responsibility, dignity, loyalty, fairness, and equality. Reconstructing institutions, including business firms, should include other essential values such as a need to protect our natural environment and, most pressingly, a viable global climate that is essential for life. Specific legal concepts useful to reconstruct with moral, political, and historical lenses (as opposed to an economic monocle) include old ideas of agency, fiduciary duty, vicarious legal liability, fraud, theft, and manipulation.

In addition, I argue here for action, not just more academic research. Individual people – including global citizens everywhere – must play a critical role in any normative reconstruction of society. The social structures of our modern world consist in both large governments and a global market catallaxy which are bound together in a web of law and shared ethical principles. Individuals act as both political citizens and market participants – and they can and should bring moral perspectives to both roles.²⁷⁰ Although individuals act within a constraining matrix of political, moral, legal, and economic institutions – which limit as well as channel their freedom to choose– they can nevertheless make an appreciable difference in the trajectory of the social world when they act together in groups or through individualised decisions that in the aggregate can have large cumulative consequences.

‘Every great and commanding moment in the annals of the world is the triumph of some enthusiasm,’ wrote Ralph Waldo Emerson.²⁷¹ Perhaps an enthusiasm for a recovery of old and abiding moral values – and their reconstruction in the law and in business – can provide the motivation needed for the large-scale reforms that we need in the world today and for the future.

Acknowledgements

I am grateful for comments received at an interdisciplinary conference held at the London School of Economics and Political Science on institutional theories of the firm, including those specifically from Sandrine Blanc, Rutger Claassen, Simon Deakin, Joshua Getzler, and Isabelle Ferreras, and especially from David Gindis and Eva Micheler who co-organised the conference. I am also grateful for comments provided at a conference held at the University of Toronto in honour of my late colleague Waheed Hussain, who spent the early portion of his illustrious but too-short career at Wharton. Thanks also to colleagues in my department at Penn who provided comments during a presentation there. Specific thanks owe to Brian Berkey, Brookes Brown, Julie Orts, Amy Sepinwall, Richard Shell, Nina Strohminger, and David Zaring. I also very much thank Luca Enriques and two anonymous referees for this journal who made very helpful suggestions for expansion and improvement.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Eric W. Orts

Eric Orts is the Guardsmark Professor at the Wharton School of the University of Pennsylvania. He is tenured member in the Legal Studies & Business Ethics Department with a secondary appointment in the Management Department. He is also currently a Visiting Professor of Law at Columbia Law School (summer 2023 and expected in summer 2024).

Prior to joining Wharton's faculty, he practiced law at Paul Weiss and was a Chemical Bank fellow in corporate social responsibility at Columbia Law School. He has been visiting faculty at Columbia University (law), NYU (law), INSEAD (business), Harvard University (ethics and government), University of Michigan (law), University of Sydney (law), Tsinghua University (economics and management), KU Leuven (law), UC Santa Barbara (environment), and UCLA (law).

He is a graduate of Oberlin College (BA in government and minor in philosophy), the New School for Social Research (MA in political science), the University of Michigan (JD), and Columbia University (JSD).

His primary research interests are in corporate governance, environmental sustainability, business ethics, and business theory. Examples include Business Persons: A Legal Theory of the Firm (Oxford University Press, rev. ed. 2015); The Moral Responsibility of Firms (co-edited with Craig Smith) (Oxford University Press 2017); and ‘The Climate Imperative for Business’ (with Brian Berkey), California Management Review (2021).

His current teaching focuses on a ‘flex-core’ course for Wharton MBAs that he initiated in ‘Business, Social Responsibility, and the Environment’ as well as a course at Columbia Law School on ‘ESG, Social Impact Investing, and Corporate Responsibility.’

Notes

1 I use the word ‘firm’ here to refer to any business organisation, following the usage of economists and most business scholars. ‘Firm’ is therefore interchangeable here with ‘business organisation,’ a term which some other social scientists, including legal academics, may prefer. Cf. Eva Micheler, Company Law: A Real Entity Theory 23 (2022).

2 Other relevant disciplines include philosophy, sociology, anthropology, psychology, and history – as well as economics!

3 With respect to the legal foundations of firms, see, e.g., Eric W. Orts, Business Persons: A Legal Theory of the Firm (rev. ed. 2015); H.L.A. Hart, ‘Definition and Theory in Jurisprudence,’ in Essays in Jurisprudence and Philosophy (1983). Basic courses in corporations and enterprise organisation in law schools introduce the legal normative framework of firms, as well as relevant principles of economics. See, e.g., William A. Klein, John C. Coffee, Jr. and Frank Partnoy, Business Organization and Finance: Legal and Economic Principles (11th ed. 2010). For an example of an ‘old school’ legal text in the United States written prior to the dominant influence of law-and-economics in the field, see Alfred F. Conard, Corporations in Perspective (1976).

Competing normative frameworks for ethics is a vast and complex topic as well, and introductory courses in philosophy and business ethics commonly provide an overview of deontological, consequentialist, virtue ethics, and social contract approaches. For an ambitious effort to provide a unified theory of ethical obligations, see Derek Parfit, On What Matters (2011), vol. 1. For an argument defending the objectivity of moral truths, see James Lenman, ‘Making Sense of Ethics: An Introduction to Metaethics,’ Open Press, Tilburg University, July 7, 2023, https://openpresstiu.pubpub.org/pub/making-sense-of-ethics/release/1.

4 For one recent philosophical account of how and why business leaders retain moral responsibilities when acting within corporate structures, see Alan Strudler, ‘The Contours of Corporate Moral Agency,’ Law and Philosophy (July 8, 2023) (published online), https://link.springer.com/article/10.1007/s10982-023-09477-x. Axel Honneth provides an important account, updating earlier insights particularly in the work of Hegal and Durkheim, of the role of ethical life in the development of market economies and business firms. His critique includes an assessment of social ‘misdevelopments’ by which collective actions have become separated from normative foundations. Axel Honneth, Freedom’s Right: The Social Foundations of Democratic Life (Joseph Ganahl trans. 2014) (2011).

5 For a detailed historical, political, and social psychological account of the influence of economics (particularly of the ‘Chicago School’ variety) on contemporary corporate law, see Ronald Chen and Jon Hanson, ‘The Illusion of Law: The Legitimating Schemas of Modern Policy and Corporate Law,’ 103 Michigan Law Review 1 (2004). For a broader critique of the influence of ‘market fundamentalism,’ see Noami Oreskes and Erik. M. Conway, The Big Myth: How American Business Taught Us to Loathe the Government and Love the Free Market (2023). For a recent example with respect to the development of theories of the firm, assuming economic rationality as the principal method of inquiry, see Dhammika Dharmapala and Vikramaditya S. Khanna, ‘Controlling Externalities: Ownership Structure and Cross-Firm Externalities,’ 23 Journal of Corporate Law Studies 1 (2023). For a very influential theoretical contribution that promoted the ‘Chicago School’ trend in corporate law, see Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of Corporate Law (1996).

6 For an influential example, see Rebecca Henderson, Reimagining Capitalism in a World on Fire: How Capitalism Can Save the World (rev. ed. 2021). See also Colin Mayer, Firm Commitment: Why the Corporation Is Failing Us and How to Restore Trust in It (2013); Colin Mayer, Prosperity: Better Business Makes the Greater Good (2018); Colin Mayer, Capitalism and Crises: How to Fix Them (2024). For a sampling of other works making this general argument, see Alex Edmans, Grow the Pie: How Great Companies Deliver Both Purpose and Profits (2020); Tom C.W. Lin, The Capitalist and the Activist: Corporate Social Activism and the New Business of Change (2022), ch. 1; Judith Rodin and Saadia Madsbjerg, Making Money Moral: How a New Wave of Visionaries Is Linking Purpose with Profit (2021), ch. 1; Judy Samuelson, The Six New Rules of Business: Creating Real Value in a Changing World (2021), ch. 2; Witold J. Henisz, ‘The Value of Organizational Purpose,’ 8 Strategy Science (May 9, 2023) (published online version), https://doi.org/10.1287/stsc.2023.0195.

For recent contributions in the legal literature that take more critical perspectives, see Ofer Eldar, ‘Designing Business Forms to Pursue Social Goals,’ 106 Virginia Law Review 937 (2020); Lisa M. Fairfax, ‘Stakeholderism, Corporate Purpose, and Credible Commitment,’ 108 Virginia Law Review 1163 (2022); Jill E. Fisch and Steven Davidoff Solomon, ‘Should Corporations Have a Purpose?,’ 99 Texas Law Review 1309, 1312 (2021).

The idea of focusing specifically on ‘business purpose’ rather than only profits has been around for at least a decade. See, e.g., Paul Polman, ‘Re-establishing Trust: Making Business with Purpose the Purpose of Business’ in Re-Imagining Capitalism: Building a Responsible Long-Term Model (Dominic Barton et al. eds. 2016), ch. 2. See also Colin Mayer, ‘What Is Wrong with Corporate Law? The Purpose of Law and the Law of Purpose,’ 18 Annual Review of Law and Social Science 283 (2022) (providing historical perspective).

7 A casual empirical survey confirms also that different firms have a plurality of differences purposes, but I do not rely here on formally specified empirical observations. Note, however, many and probably most contemporary economic accounts assume a profit maximisation objective without an empirical basis for this assumption either. For the most part, the profit maximisation assumption is built-in through a priori assumptions in economic and financial models of the firm rather than through observation of managerial behaviour and explanations of actual observed behaviour.

8 See, e.g., Emilie Aguirre, ‘Beyond Profit,’ 54 University of California Davis Law Review 2077, 2081 (2021) (‘Companies with objectives beyond profit offer significant potential for social and economic impact. They can leverage economies of scope to help solve some of society's most pressing problems and address untenable externalities, sometimes even more effectively and efficiently than current approaches by the government or charitable sector, and other times as an important complement to these sectors.’). See also Fisch and Solomon (n 6) at 1312 (noting a focus on corporate purpose can enable ‘corporate participants to formalize their goals and priorities, which can include not just the pursuit of profits, but the incorporation of operational constraints, stakeholder values, and social impact’).

9 Nor are they new. For historical background focusing on the United States, see William C. Frederick, Corporation, Be Good! The Story of Corporate Social Responsibility (2006). Various antecedents include advocates of corporate social responsibility and stakeholder theory. On different versions of stakeholder theory in business ethics (including instrumental and normative theories), see Thomas Donaldson and Lee E. Preston, ‘The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications,’ 20 Academy of Management Review 65 (1995).

10 In this respect, my aim here departs from Professor Witold Henisz’s recommendation that ‘research on organizational purpose should turn its attention from legal and moral foundations to empirical research on externalities, stakeholder opinions, and managers’ self-representations of their organization’s purpose.’ Henisz (n 6). On the contrary, I see research and careful analysis of the legal and moral foundations of the scope of organisational commitment as essential to the very possibility and potential range of the empirical dimensions that Henisz proposes to measure.

Without attention to normative foundations, there is also a danger that major assumptions will be made without sufficient justification. Henisz, for example, seems to adopt long-term profit maximisation as a goal – a version of an instrumental stakeholder theory – but he provides no argument or justification for this normative choice.

11 The just war constraint highlights two dimensions of normative limitations on legitimate purposes: legal and moral. For example, a firm that makes military weapons might legally sell them to a regime that prosecutes an unjust war, but this would be wrong from a moral perspective. Its profit-making would be legally but not morally permissible. For an overview of debates concerning just war theory, see Seth Lazar, ‘War,’ Stanford Encyclopedia of Philosophy (May 3, 2016), https://plato.stanford.edu/entries/war/. For a more recent synthetic deontological account, see also Arthur Ripstein, Kant and the Law of War (2021). For an application specifically to business decision-making, see also Eric W. Orts, ‘War and the Business Corporation,’ 35 Vanderbilt Journal of Transnational Law 549 (2002).

12 For a seminal recent philosophical treatment of the value of ‘freedom’ in our contemporary market economy, including firms, and what this value requires, see Waheed Hussain, Living with the Invisible Hand: Markets, Corporations, and Human Freedom (2023). As Hussain argues, the freedom of business organisations and of the individual participants acting within them is constrained by larger imperatives of economic market systems. These larger systems are empowered by legal structures and therefore can also be conditioned and shaped through the political reform of these legal structures. Similarly, Axel Honneth frames ‘individual freedom’ as a central value in his social theory, which includes a critique of modern markets and their embrace of contemporary economic analysis to the exclusion of normative expectations and ethical foundations. Honneth (n 4).

13 See, e.g., Michael C. Jensen, ‘Value Maximization, Stakeholder Theory, and the Corporate Objective Function,’ 12 Business Ethics Quarterly 235 (2002).

14 Id. at 237

15 For a symposium on the topic of ‘corporate purpose,’ including overviews of evidence of win-win solutions, see IESE ECGI Conference on Corporate Purpose, ‘Can Purpose Deliver Better Corporate Governance?’ 33 Journal of Applied Finance 41 (2021).

16 This quotation comes from a source that reveals the ideological slant of this conviction. The view of an ‘individual’s purpose’ is stated as given. Corporate Finance Institute, ‘Neoclassical Economics,’ https://corporatefinanceinstitute.com/resources/knowledge/economics/neoclassical-economics/ (visited Dec. 10, 2023). Note that there are other competing theories of economics. And the analogy drawn here between an individual’s purpose to maximise ‘utility’ as compared with a firm’s purpose to maximise ‘profits’ omits the fact that ‘utility’ under most philosophical and economic conceptions is much broader than ‘profits.’ For an example of why this matters even in theories of the firm that follow a shareholder-primacy understanding, see Oliver Hart and Luigi Zingales, ‘Companies Should Maximize Shareholder Welfare Not Market Value,’ 2 Journal of Law, Finance, and Accounting 247 (2017).

17 Henderson (n 6) at 9. As discussed in this paper, this view about fiduciary duty is, legally, wrong – or, at a minimum, contested in different circumstances.

18 Lyman Johnson, ‘Unsettledness in Delaware Corporate Law: Business Judgment Rule, Corporate Purpose,’ 38 Delaware Journal of Corporate Law 405, 437–38 (2013) (citing Darrel West, The Purpose of the Corporation in Business and Law School Curricula, Governance Studies at Brookings (July 19, 2011), https://www.brookings.edu/wp-content/uploads/2016/06/0719_corporation_west.pdf).

19 See David Gelles, The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America—and How to Undo His Legacy (2022). Welch followed the ideology of Milton Friedman and others who argued that ‘companies should maximize profits for shareholders,’ and he accomplished this objective through managerial methods including downsizing employees, corporate deals through mergers and acquisitions, and conversion of GE to a mostly financial firm from a mostly manufacturing one. Id. at 3–4.

20 Id. at 5, 41–50. Welch even referred to his downsizing strategy as a ‘campaign against loyalty.’ Id. The nickname compared Welch’s strategy to a neutron bomb which destroys people but leaves buildings and other infrastructure standing. See also Oreskes and Conway (n 5) at 362.

21 Gelles (n 19) at 9 (including CEOs at well-known companies such as AlliedSignal, Boeing, Chrysler, Fiat, 3M, Goodyear, Home Depot, Honeywell, Nielson, Owens Corning, Rubbermaid, Stanley, and TiVo). At the end of his career, Fortune went so far as to name Welch ‘Manager of the Century.’ Id. at 7, 91.

22 For an influential view that spells out how and why the law does not necessarily support shareholder value as the ultimate objective of firms, see Lynn Stout, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public (2012). There is legal authority in the U.S. to the contrary, holding that shareholder profit maximisation is legally required at least in some circumstances, but these mostly arise in the context of corporate control cases. See, e.g., eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1 (Del. Ch. 2010) (holding that a shareholder wealth maximisation norm applies in a close corporation control context); Revlon, Inc. v. MacAndrews and Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986) (applying shareholder wealth maximisation standard in ‘sale of control’ hostile takeover context). However, it is nevertheless becoming standard to recognise the decline and fall of shareholder wealth maximisation as a mandatory corporate objective even in the context of strongly market-oriented laws in the United States. See Lynn M. LoPucki, ‘The End of Shareholder Wealth Maximization’, 56 University of California Davis Law Review 2017 (2023) (laying out how scholars have debunked six main arguments in favour of shareholder wealth maximisation). For a critique specifically of the eBay case, see also David A. Wishnick, Comment, ‘Corporate Purposes in a Free Enterprise System: A Comment on Ebay v. Newmark,’ 121 Yale Law Journal 2405 (2012).

23 See Hart and Zingales (n 16).

24 For a legal theory of the firm that adopts a broad view of business participants to include, in particular, employees and other internal agents, see Orts (n 3) at 3–27, 43, 54–62, 133–37. For a normative argument that modern market economies and business firms within them owe ethical duties of fairness and mutual recognition particularly to employees, see Honneth (n 4) at 178–98, 223–53.

25 Even Welch followed some basic ethical principles as well, perhaps foremost among them ‘candor’ and the need to establish ‘trust’ within a business organisation, though he may have seen these principles as instrumental to his overarching goal of profit maximisation. Claudio Fernández-Aráoz, ‘Jack Welch’s Approach to Leadership,’ Harvard Business Review (Mar. 3, 2020), https://hbr.org/2020/03/jack-welchs-approach-to-leadership; Dana Severson, ‘The 8 Rules of Leadership by Jack Welch,’ Inc. [undated], https://www.inc.com/dana-severson/these-8-simple-rules-of-leadership-from-jack-welch-are-more-important-now-than-ever-before.html.

26 On the importance of relatively short time horizons and payback periods necessary to sustain private business enterprises, see Avner Offer, Understanding the Public-Private Divide: Markets, Governments, and Time Horizons (2022). It is also true that many nonprofit organisations depend on this requirement of not spending more than one has in order to remain viable over time. When costs exceed revenues these organisations also effectively ‘go out of business.’ The received conceptual separation between ‘for-profit’ and ‘not-for-profit’ enterprises is traditionally focused on the distribution of earnings (especially in tax law). However, this traditional understanding might be usefully questioned, though this inquiry lies outside the scope of this paper. For an argument challenging the received wisdom on the lines separating for-profit and nonprofit enterprise, particularly with respect to tax law, see Anup Malani and Eric A. Posner, ‘The Case for for-Profit Charities,’ 93 Virginia Law Review 2017 (2007).

In this connection, it is interesting to note that the formal legal split between ‘profit’ and ‘nonprofit’ corporations in the United States appeared only around 1873, when the state of Pennsylvania decided to adopt separate legal codes for ‘corporations for profit’ and ‘corporations not for profit.’ Jonathan Levy, Ages of American Capitalism: A History of the United States 293 (2021). The advent of ‘hybrid forms’ known as ‘social enterprises’ that are explicitly both ‘for profit’ and ‘not-only-for-profit’ also deserve attention and may further blur any hard legal lines separating for-profit and not-for-profit organisations. See, e.g., Dana Brakman Reiser and Steven A. Dean, Social Enterprise Law: Trust, Public Benefit and Capital Markets (2017); Eldar (n 6).

27 Again, this is also true of nonprofit enterprises, which have costs as well as income streams, and income must exceed or at least balance costs over time for an enterprise to remain viable. The line traditionally drawn between ‘profit’ and ‘nonprofit’ enterprises is one that would benefit from further scrutiny.

28 For an early and still persuasive account, see Max Weber, Economy and Society: An Outline of Interpretive Sociology (Guenther Roth and Claus Wittich eds. 1978), vol. 1, 91. See also Joseph A. Schumpeter, Capitalism, Socialism and Democracy (1976) (1942), 123 (defining ‘rational cost-profit calculations’ as ‘the logic of the business enterprise’).

29 See, e.g., Lenman (n 3); Strudler (n 4).

30 See Eric W. Orts and Alan Strudler, ‘The Ethical and Environmental Limits of Stakeholder Theory,’ 12 Business Ethics Quarterly 215, 221 (2002). There are, however, exceptions to the rule. Sometimes business firms as well as everyday people may have a moral obligation to disobey the law. Corporate disobedience may be justified in the pursuit of a higher moral purpose, including a business innovation that would increase social welfare. See, e.g., Elizabeth Pollman, ‘Corporate Disobedience,’ 68 Duke Law Journal 709 (2019).

31 Someone may object that following the law is not a ‘purpose’ or ‘objective’ but rather a normative ‘constraint’ imposed on businesses. Relatedly, one might say that following the law is a necessary part of ‘managing’ a business, but not directly relevant to setting its objective. Or someone may object that following the law is at most a secondary purpose or objective to the primary one of the pursuit of profits. These objections, though, parse words and the idea of ‘purpose’ too grudgingly. All purposeful activities take place within a social setting of background assumptions of following the law or not (with occasional departures both large and small), and this means that a number of different normative systems are at work in the formation of our everyday purposes and intentions. Phenomenologically speaking, in other words, all decisions and actions often involve at least several different intentions and background assumptions. This sociological and philosophical recognition supports my overall argument that reductionist economic versions of business purpose or objective are too narrow, too abstract, and too unrealistic.

32 In fact, the law has become so complex in many modern societies that always following the law in every respect and all circumstances is impossible for any large organisation. This means trade-offs must be made internally, for example, between expenditures on legal compliance and profitable operations. This difficulty, however, does not obviate the normative imperative that it’s important to try to follow the law. There is reason also to believe that compliance systems can be very effective. See, e.g., Stavros Gadinis and Amelia Miazad, ‘The Hidden Power of Compliance,’ 103 Minnesota Law Review 2135 (2019).

33 I recognise that this is an ideal account that omits the fact that many people in almost all societies today struggle to find any job that will provide themselves or their families with basic subsistence (i.e., food, water, housing, etc.). In these circumstances, employment options are minimal and work choices become socially forced.

34 This formulation borrows from, but contrasts with, the view of Professor Roberta Romano that the ‘master problem’ in corporate law relates instead to the separation between ownership and control. Roberta Romano, ‘Metapolitics and Corporate Law Reform,’ 36 Stanford Law Review 923, 923, 929 (1984). Although very influential, Romano’s formulation adopts an overly narrow view of the economic agency costs internal to business firms organised as corporations, where the objective of the law (as well as internal organisation) is assumed to be the reduction of the organisational costs to individual residual equity owners of assets of the firm. My argument tracks Romano’s broader theme, however, in opening up what she calls the ‘metapolitics’ of the debate about how we conceive of business and its purposes in relation to other institutional structures in society, including law and government. An alternative subtitle of this article might even be ‘The Metapolitics of the Firm Revisited.’

35 For an account of how modern economic methods follow, and often refuse to depart from, nineteenth century mathematical models in physics, see Philip Mirowski, More Heat Than Light: Economics as Social Physics, Physics as Nature’s Economy (1989), especially chs. 5 and 6. See also Robert Heilbroner and William Milberg, The Crisis of Vision in Modern Economic Thought (1995), 102–05.

36 See Rej Chetty, ‘Yes, Economics Is a Science,’ New York Times (Oct. 20, 2013), https://www.nytimes.com/2013/10/21/opinion/yes-economics-is-a-science.html.

37 Honneth (n 4) at 184–85. See also Amartya Sen, Rationality and Freedom (2002), 22–26 (discussing how ‘self-interest maximization’ is ‘dominant in contemporary economics’).

38 Honneth (n 4) at 177, 180–82, 185.

39 Adam Smith, An Inquiry into the Causes of the Wealth of Nations (Edwin Cannan ed. 1977) (1776); Adam Smith, The Theory of Moral Sentiments (D.D. Raphael and A.L. Macfie eds. 1976) (1759). On the resurgence of interest in Smith’s moral philosophy and its relation to economics, see Stephen Darwall, ‘Sympathetic Liberalism: Recent Work on Adam Smith,’ 28 Philosophy & Public Affairs 139 (1999).

40 Orts (n 3) (drawing mostly on U.S. sources). See also Micheler (n 1) (using mostly U.K. legal materials); Simon Deakin et al., ‘Legal Institutionalism: Capitalism and the Constitutive Role of Law,’ 45 Journal of Comparative Economics 188 (2017) (arguing also for the institutional importance of law, particularly regarding ‘contracts,’ ‘property,’ and ‘firms’). See also Part II below.

41 Leena Lankoski and N. Craig Smith, ‘Alternative Objective Functions for Firms,’ 31 Organization and Environment 242, 259 and n. 2 (2018) (quoting Limited Liability Companies Act, ch. 1, §5).

42 Some commentators refer only to corporations and their equity holders, namely shareholders, when discussing theories of the firm. It is important to recognise the existence of many other business forms, including sole proprietorships, general and limited partnerships, limited liability companies, business trusts, complex relational firms that combine different forms, and relatively new social hybrid business forms such as benefit corporations. See Orts (n 3), ch. 5. Variations appear also in different countries, though there are lots of legal ‘transplants’ resulting in more similarities of business structure in the world than one might think at first. Cf. Alan Watson, Legal Transplants: An Approach to Comparative Law (2d ed. 1993) (on the interpenetrating influence of different legal systems and ideas). Perhaps the largest divide is the extent to which a particular society encourages free-enterprise structures (e.g. the UK or US) or state-owned firms (e.g. China).

43 Differences in definition may emerge in borderline cases such as pirates and gangs in economic or sociological understandings of ‘firms’ as group entities or collectives engaged in economic practices, even if they are pursuing illegitimate objectives. The law may also treat these entities as organisations for purposes of imposing criminal liability for ‘conspiracies’ or ‘organized crime,’ but it does not recognise them as having legal powers to hold property, make contracts, or otherwise engage in legitimate business activities. Another kind of borderline cases arise when otherwise legitimate firms act illegitimately. See, e.g., Katharina Pistor, The Code of Capital: How the Law Creates Wealth and Inequality (2019).

44 Milton Friedman, ‘A Friedman Doctrine – The Social Responsibility of Business Is to Increase Its Profits,’ New York Times, Sept. 13, 1970, https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html. See also Henderson (n 6) at 12 (describing Friedman as ‘perhaps the most influential intellectual force in popularizing this idea … that ‘there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits’’). The idea of profit maximisation in economics preceded Friedman, though early debates on this topic in the 1930s through the 1960s revolved around whether profit maximisation descriptively fit the actual behaviour of firms, which could then be modelled accordingly. For accounts of the influence of Friedman, see, e.g., Hussain (n 12) at 4–5, 51–52, 188; Oreskes and Conway (n 5) at 4–9, 259–83.

45 For a more extended argument along these lines focusing on corporate law, but applicable to the law of business organisation more generally, see Eric W. Orts, ‘The Complexity and Legitimacy of Corporate Law,’ 50 Washington and Lee Law Review 1565 (1993).

46 Orts (n 3), chs. 1 and 2. On the importance of law in the construction of capital, including in trusts, corporate enterprises, securities, and various intangible assets, see also Pistor (n 43).

47 Orts (n 3), ch. 4.

48 Consider, for example, Derek Parfit’s ‘triple theory’ that includes deontology, consequentialism, and social contract principles under one rubric. Parfit (n 3) at 412–13. As a neoclassical liberal economist, Friedman embraces at least implicitly some version of consequentialism.

49 In fact, this kind of reasoning often gets many business people into trouble. It’s a lesson perhaps most effectively taught in kindergarten, but bears reinforcing for most of us throughout our lives. See Robert Fulghum, All I Really Need to Know I Learned in Kindergarten: Uncommon Thoughts on Common Things (1993).

50 This is a primary justification for why business ethics should be taught as a serious subject in business schools, and not just as a course in which practitioners are invited to lecture and share their own views of their own moral virtues (though these stories can nevertheless be quite useful to tell). The teaching of professional ethics in law schools is similarly justified – and not only as an exercise in following codes of professional practice.

51 American Law Institute, Principles of Corporate Governance: Analysis and Recommendations § 2.01(a) (1994).

52 Id. § 2.01(b)(1) and (2) (emphasis added).

53 There is a disjunction in the language that the ALI’s statement in its description of following the law as mandatory (‘[i]s obliged’) and only making room for ethical considerations as permissive (‘may take into account’). Id. One can make a strong case that following basic moral principles should take precedence over legal requirements when they conflict. For example, should a social media company based in a democratic country follow a law in China that requires the identification of possible political dissidents who would then be severely punished? Most ethics professors would answer ‘no’ because following Chinese law in this circumstance seems to conflict with a basic moral principle not to act in a manner that is complicit with human rights violations. At least in some cases like these, a form of corporate civil disobedience following moral principles seems to be called for. Cf. Pollman (n 30). In the terms used here, moral and legal normative requirements may sometimes conflict.

54 ALI, Principles of Corporate Governance, § 2.01(b)(3).

55 The American Law Institute has launched a new project for a Restatement of the Law of Corporate Governance which appears to be aimed at least in part at weakening or at least narrowing the purpose of business corporations to focus only on a more or less broadly defined ‘economic objective.’ American Law Institute, Restatement of the Law of Corporate Governance § 2.01 (Tentative Draft No. 1, April 2022). ‘In very general terms,’ as the reporters note, the revised statement of the corporate objective ‘may be thought of as a broad exhortation to enhance economic returns within the bounds of the law.’ Id. cmt. E. For a critique of this approach, see Eric W. Orts, ‘The ALI’s Restatement of the Corporate Objective Is Flawed,’ Columbia Law School, CLS Blue Sky Blog on Corporations and the Capital Markets (June 6, 2022), https://clsbluesky.law.columbia.edu/2022/06/06/the-alis-restatement-of-the-corporate-objective-is-seriously-flawed/.

56 What I mean by co-generation here is that law originates at least historically through the development of moral systems, and moral norms in turn can be influenced by the law. The details of the relationship between law and morality are of course deep and complex. See, e.g., Kent Greenawalt, Conflicts of Law and Morality (1987). This jurisprudential literature is vast. My point here is only to say that law and morality are related with respect to providing two sources of normative obligations in society that are different from some other motivations and objectives such as in economic endeavors that aim toward making profits or other self-interested gain.

57 Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power (2004). See also Orts (n 3) at 47–48. Cf. Mayer, ‘What Is Wrong with Corporate Law?’ (n 6) at 291 n.6 (collecting additional sources). Axel Honneth diplomatically describes the departures of market systems from their internal ethical foundations as ‘normative misdevelopments.’ Honneth (n 4) at 177, 198, 246.

58 As discussed above in the introduction and elaborated below in Parts III and IV, this argument relies implicitly on a sociological or epistemological view of differentiation of systems or spheres of human knowledge and action. For competing explanations and perspectives, see, e.g., Jürgen Habermas, The Theory of Communicative Action (Thomas McCarthy trans.) (1984); Honneth (n 4); Niklas Luhmann, Introduction to System Theory (Peter Gilgen trans., Dirk Baecker ed.) (2013); Michael Walzer, Spheres of Justice: A Defense of Plurality and Equality (1983).

59 See Romano (n 34).

60 On the public/private distinction and business enterprises, see Orts (n 3) at 109–31. Cf. also David Ciepley, ‘Beyond Public and Private: Toward a Political Theory of the Corporation,’ 107 American Political Science Review 139 (2013) (recognizing this distinction but arguing for eliminating it with respect to corporations).

61 Orts (n 3) at 33 (comparing the creation of firms to the creation of ‘real fictions’ such as our names as individuals). See also Lon L. Fuller, Legal Fictions (1967). Cf. Micheler (n 1) (setting forth a ‘real entity theory’ of the firm grounded in legal recognition).

As an institutional theory, I follow here in a tradition and with a background understanding deriving from both what has been called ‘old’ and ‘new’ institutional theory, deriving originally from foundational works in sociology of Emile Durkheim, Max Weber, and many others. The relevance for this kind of approach in the context here is well described by Philip Selznick, a leading representative of the ‘new’ institutional theorists:

The tension between law and organizational reality is sharply revealed in unresolved issues regarding the modern corporation. To see the corporation ‘as an institution’ is to view the enterprise as a going concern, taking account of relevant stakeholders, attending to long-run interests, being sensitive to the operative structure of authority. All this is in conflict with the still-dominant view that the corporation is a voluntary association of shareholders who own the enterprise and are the only members who really count. This doctrine obscures the realities of power, subordination, and responsibility. … 

An institutional theory of the firm is a voice of resistance to this culture of shortsightedness, offers guides to thinking about corporate responsibility, and brings into question the goal of maximizing profits or returns on capital.

Philip Selznick, ‘Institutionalism ‘Old’ and ‘New,’’ 41 Administrative Science Quarterly 270, 272 (1996). See also Orts (n 3) at 9–20.

62 One commentator on an early draft questioned the wisdom of using ‘purposes’ rather than some other term to describe the normative choices governing firms and their participants. It is true the one can use synonyms, such as intentions, goals, or objectives as substitutes in various contexts. Although I prefer ‘purposes’ as a catchall category, it is also correct to clarify that the collective ‘purposes’ of firms are constructed at two distinct levels: a macro-level of legal and moral norms applicable universally, and a micro-level of normative choices made by governing participants in firms themselves. My distinction between normatively mandatory and normatively permissive purposes aims to capture this difference. For greater precision in terminology, ‘objectives’ tend to refer to higher-order, longer-term purposes and intentions, while ‘imperatives’ import a strong sense of moral responsibility. ‘Intentions’ can refer to both individual participants and organisational entities (though with complications regarding entities, such as those surrounding ‘legislative intent’). In the final analysis, however, I do not believe that the substantive arguments made in this article depend on these kinds of semantic choices or usages. I refer to ‘purposes’ as a catchall category to include intentions, objectives, and the normative imperatives that may govern or constrain them in practice.

63 Fuller (n 61) at 20–23 (observing that legal fictions should be either rejected or redefined when they are not proving to be useful).

64 Cf. Pistor (n 43) at 231–34 (observing, following the German philosopher Christoph Menke, that it is possible to rewrite the codes of law to redefine rights and property in a manner oriented toward socially beneficial ends, rather the ends of individual aggrandizement).

65 Donald E. Schwartz, ‘Defining the Corporate Objective: Section 2.01 of the ALI’s Principles,’ 52 George Washington Law Review 511, 517 (1984) (citing Judge Weinstein).

66 Id. at 517 n.30 (quoting Phillip A. R. Brown, Deputy Secretary of the Department of Trade for the United Kingdom).

67 Companies Act, 1985, c. 6, s 309(1); see also Mark T. Moore and Martin Petrin, Corporate Governance: Law, Regulation and Theory (2019), 145–47.

68 Companies Act, 2006, c. 46, § 172(1) (U.K.) (instructing the director of a company to promote the interests of various constituencies of the corporation, including the interests of its employees). See also Micheler (n 1) at 6, 132–33 (noting the change).

69 My account here of the origins of business purposes differs from the theory of business purpose proposed by Professors Tom Donaldson and James Walsh. They argue correctly that theories of business purpose are highly contested and inadequate. However, their own proposal, after examining a number of alternatives to economic theories recommending profit maximisation, is to claim the ultimate business purpose should be ‘to optimize collective value.’ Thomas Donaldson and James P. Walsh, ‘Toward a Theory of Business,’ 35 Research in Organizational Behavior 181, 195–98 (2015). One initial problem with this normative proposal is that a vagueness regarding ‘purpose’ is replaced with a similar vagueness regarding ‘value’ and, for that matter, ‘collective value.’ In addition, Donaldson and Walsh appear to place the burden here on business firms themselves to determine how their plans and actions will work out to ‘optimize collective value.’ Instead, my argument here places the burden not only on firms to determine their own purposes, which are or should be guided by values (or, more precisely, the values of business participants), but also on governments and legal structures which determine the basic ‘rules of the game’ and guidelines for business firms to follow. In addition, my view of the possibility (and today at least the reality) of plural business purposes is proposed not only descriptively but also normatively. My normative prescription follows from a recognition of contemporary complexity, institutional as well as temporal. For example, conceptions of business purposes – both externally imposed and internally determined – should evolve to include environmental values and duties as well as those of business participants or even humanity taken as a collective whole. See, e.g., Brian Berkey and Eric W. Orts, ‘The Climate Imperative for Business,’ California Management Review, (Insight/Frontier, Apr. 2021), https://cmr.berkeley.edu/2021/04/climate-imperative/. This value of climate protection may fit into a general objective to ‘optimize collective value,’ but if so then Donaldson and Walsh should make this explicit.

70 Axel Honneth aptly refers to this historical method of analysis in social theory as the ‘normative reconstruction’ of different ‘social spheres’ of collective action. Honneth (n 4) at viii, 1–11, 197–98. At the same time, it is also important to note that ‘the future matters’ as much if not more than history does. A virtue of the economic perspective is that is oriented primarily toward the future rather than the past. For an account of this important distinction – and utilizing it as a conceptual method of understanding – see Jens Beckert, Imagined Futures: Fictional Expectations and Capitalist Dynamics (2016).

71 Aristotle, Politics 1252a (Ernest Barker trans., rev. ed. 1958).

72 For accounts supporting this historical summary, see Fernand Braudel, Civilization and Capitalism, 15th-18th Century, three volumes (trans. Siân Reynolds) (1992); Stewart Bruchey, Enterprise: The Dynamic Economy of a Free People (1990); Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business (1977); Alfred D. Chandler, Jr., Scale and Scope: The Dynamics of Industrial Capitalism (1990); John Hendry, Between Enterprise and Ethics (2004) ch. 1; Richard N. Langlois, The Corporation and the Twentieth Century: The History of American Business Enterprise (2023); Levy (n 26).; Charles Perrow, Organizing America: Wealth, Power, and the Origins of Corporate Capitalism (2002); William G. Roy, Socializing Capital: The Rise of the Large Industrial Corporation in America (1997); Richard S. Tedlow, The Rise of the American Business Corporation (1991); Charles Tilly, Coercion, Capital, and European States, A.D. 990–1992 (rev. ed. 1992).

73 For an account integrating classical social theoretical insights from the likes of Èmile Durkheim, Georg W.F. Hegel, Talcott Parson, Karl Polanyi, and Adam Smith, see Honneth (n 4) at 176–98.

74 There is a difference between (1) theories that see groups of people acting cooperatively as primary, which the law then ‘recognizes’ as having organisational ‘personality’ with legal rights and duties, and (2) theories that give the law primacy in recognizing business entities as persons. Although I emphasise the power of law as primary in previous work, it’s true that the law can only ‘recognize’ something that already exists or has existed in some sense in the world. As Amitav Ghosh writes,

Recognition is famously a passage from ignorance to knowledge. To recognize, then, is not the same as an initial introduction. … The most important element of the word recognition thus lies in its first syllable, which harks back to some prior, an already existing awareness that makes possible the passage from ignorance to knowledge. …

Amitav Ghosh, The Great Derangement: Climate Change and the Unthinkable (2016), 4–5. Cf. also Micheler (n 1) at 18–31; David Gindis, ‘From Fictions and Aggregates to Real Entities in the Theory of the Firm,’ 5 Journal of Institutional Economics 25 (2009). As indicated in the text, however, I don’t believe there is a huge difference between theories that emphasise ‘real fictions’ created by law and those that focus on ‘real entities’ that law recognises. Both are versions of institutional theories that describe firms as collective organisations greater than the sum of the individual participants who compose them.

75 See Orts (n 3) at 12–13 (describing concession theory as a top-down theory of business enterprise); cf. Micheler (n 1) at 12 (‘Concession theory puts the state in the driver’s seat.’).

76 On the British East India Company, see, e.g., John Keay, The Honourable Company: A History of the English East India Company (1991); Philip Lawson, The East India Company: A History (1993); Nick Robins, The Corporation That Changed the World: How the East India Company Shaped the Modern Multinational (2012). On the Dutch version, see relevant portions of Jonathan I. Israel, The Dutch Republic: Its Rise, Greatness and Fall, 1477–1806 (reprint ed. 1998). See also Larry Neal, ‘Venture Shares of the Dutch East India Company,’ in Origins of Value: Innovations in the History of Finance (William N. Goetzmann and K. Geert Rouwenhorst eds. 2005), at 165–76. For a concise history of European colonialism, including the role of colonial companies of different kinds, see David B. Abernethy, The Dynamics of Global Dominance: European Overseas Empires, 1415–1980 (2000).

77 For a general history, see Alan Taylor, American Colonies: The Settling of North America (2001). See also Abernethy (n 76) at 55–56 (discussing different kinds of European colonies).

78 For a history of these developments, showing also that the idea of profit maximisation as a corporate purpose originated relatively recently and ‘the corporation as such has no intrinsic purpose,’ see David B. Guenther, ‘Of Bodies Politic and Pecuniary: A Brief History of Corporate Purpose,’ 9 Michigan Business and Entrepreneurial Law Review 1, 7 (2019). For an historical and legal account of ‘the death of concession,’ see Liam Séamus O'Melinn, ‘Neither Contract Nor Concession: The Public Personality of the Corporation,’ 74 George Washington Law Review 201 (2006). This is not to say that nation-states do not still compete today using differing legal rules and frameworks, but the geopolitical competition has become more complex given the rise of organised private firms which exercise power independently of nation-states within global trading and investment networks.

79 In the United States, this shift occurred most decisively during the populist Jacksonian era. See Levy (n 26) at 123–25. By ‘democratised,’ I do not mean that this right of self-organisation was widely used and shared. Only a relatively small subset of wealthy property owners could contemplate founding and managing business firms. The important point remains that these citizens with capital could create their own business firms without specific permission or ‘concession’ from the state.

80 Levy (n 26) at 124–25; Orts (n 3) at 12–13.

81 James Willard Hurst, The Legitimacy of the Business Corporation in the United States, 1780–1970 (1970), 13–57.

82 For an historical account of the ‘company’ or ‘corporation’ as an innovative social construction, see John Micklethwait and Adian Wooldridge, The Company: A Short History of a Revolutionary Idea (2003). See also A History of Corporate Governance Around the World (Randall K. Morck ed.) (2005).

83 For further description of production metamarkets and consumption markets, see Orts (n 3) at 176 and fig. 5.1. Cf. also Adolf A. Berle and Gardiner C. Means, The Corporation and Private Property (1932) (rev. ed. 1968), xxiii (distinguishing between ‘consumption property’ and ‘productive property’); Honneth (n 4) at 198–253 (distinguishing between ‘a sphere of consumption’ and ‘the labour market’ of production).

84 Of course, business success depends on many elements including technological and organisational innovation, education, political influence, hard work, business-relevant aptitudes, and good luck.

85 Notice that this division ‘production’ and ‘consumption’ markets means that a generalised abstract ‘market’ consisting only of a mass of interacting individual people does not work because it leaves out the ubiquitous and powerful presence of business organisations. A widespread problem in contemporary economic thinking is a failure to consider the complicating feature of organisational structures in markets, which makes untenable many abstract models based on methodological individualism. For a critique of contemporary economic theories, including its ‘assumption that actors act egoistically (strive to maximize expected utility),’ see Beckert (n 70) at 250, ch. 10.

86 R.H. Coase, ‘The Nature of the Firm,’ 4 Economica (n.s.) 386 (1937). See also R.H. Coase, ‘The Institutional Structure of Production,’ 82 American Economic Review 713 (1992); Orts (n 3) at 171–72 (describing a dynamic of organisational or intrafirm costs, on one level, and transaction or interfirm costs, on another, that occurs within an overall gravitational field of law). On ‘transaction costs,’ see The Economics of Transaction Costs (Oliver E. Williamson and Scott E. Masten eds. 1999); Oliver E. Williamson, ‘Transaction Cost Economics: The Natural Progression,’ 100 American Economic Review 673 (2010).

87 An exception to this rule might be found in corporate groups that organise many subsidiaries in a venture capital kind of structure, which assumes that many of the parent’s subsidiary corporations will fail, but betting that at least a few will overperform for the overall benefit of the parent. See Pistor (n 43) (discussing Lehman Brothers corporate structure and business strategy, which was successful, but only for a limited period of time).

88 See Orts (n 3) at 194–200 (describing government and state-owned firms). For an account of large Chinese firms and their relationship to the authoritarian state in China, see Tamar Groswald Ozery, ‘Illiberal Governance and the Rise of China's Public Firms: An Oxymoron or China's Greatest Triumph?’ 42 University of Pennsylvania Journal of International Law 921 (2021).

89 One major problem of international legal organisation is therefore how to square government subsidies supporting state-owned enterprises (or government subsidies granted to private firms) with principles of free and fair economic competition. The role of public and private finance is particularly salient in this connection. See Ozery (n 88) (discussing details in the Chinese situation).

90 For details, see Ozery (n 88).

91 In practice, there are still close connections between government and private enterprise. Consider, for example, the dependence of the defense industry in the United States on foreign policy, or the influence of agricultural policies in the European Union which work to benefit its farmers. Business firms today operate within a web of complex laws and political relationships, and yet tend to retain a significant structural organisational independence in negotiating and acting within this web.

92 Again, this describes ‘liberal’ regimes in the free-market use of the word ‘liberal,’ as opposed to the ‘illiberal’ authoritarian regimes such as China, Russia, and a few others. See Ozery (n 88).

93 On the recognition of organisational persons and the relationships of agency, contracts, and property within them as the foundations of the firm, see Orts (n 3) at 1–108. Although some organisational structures, such as corporate franchises, appear have no single organisational person at the centre, closer analysis usually reveals some kinds of organisational structure that gives one entity priority with respect to others. On ‘complex relational firms,’ see id, at 191–94. It is also true that contemporary corporate networks have become increasingly complex and opaque, often to evade taxes or other liability. See Levy (n 26) at 647–52. But this does not mean that firms no longer exist within this complexity.

94 American Law Institute, Principles of Corporate Governance, § 1.05 (defining charter documents).

95 For an historical account of business purposes clauses and the suggestion that they may experience a ‘renaissance’ through fiduciary duties of good faith and in the context of public benefit corporations, see Elizabeth Pollman, ‘The History and Revival of the Corporate Purpose Clause,’ 99 Texas Law Review 1423 (2021). For a critique of contemporary free-standing statements of corporate purpose, which are not rooted in any legal obligation, as amounting to ‘twaddle’ or mere ‘verbiage,’ see Colin Mayer, ‘Are Corporate Statements More than Verbiage?’ 33 Journal of Applied Finance 44 (2021).

96 See Orts (n 3), ch. 5 (providing a taxonomy of modern types of firms).

97 Micheler (n 1) at 34, 128–30.

98 See Friedrich A. Hayek, Law, Legislation, and Liberty: Volume 1, Rules and Order (1973) at 35–54. See also John Gray, Hayek on Liberty (1998), 25–55, 118–25 (describing elements of Hayek’s ideas of spontaneous order through rule-based markets); Peter A. Boettke, ‘The Theory of Spontaneous Order and Cultural Evolution in the Social Theory of F.A. Hayek,’ 3 Cultural Dynamics 61 (1990).

99 As Waheed Hussain has argued, Hayek’s optimistic view that the spread of global markets would represent an upward road away from ‘serfdom’ and toward widespread individual freedom and well-being was overstated. Hussain warns that ubiquitous, omnipresent markets can become ‘authoritarian’ if they rely on ‘judgment-bypassing coordination mechanisms.’ Hussain (n 12) at 82–99, 112–16. For Hayek’s most influential statement focusing instead on the threat of authoritarian government, see F.A. Hayek, The Road to Serfdom (Bruce Caldwell ed., 2007) (1944).

100 See Stephen J. Leacock, ‘The Rise and Fall of the Ultra Vires Doctrine in United States, United Kingdom, and Commonwealth Caribbean Corporate Common Law: A Triumph of Experience over Logic,’ 5 DePaul Business and Commercial Law Journal 67 (2006) (providing an historical overview).

101 See, e.g., Fisch and Solomon (n 6) at 1316.

102 For a history of the ultra vires doctrine, with a proposal that at least a ‘lawful’ condition remains with respect to ‘any’ business purpose, see Kent Greenfield, ‘Ultra Vires Lives! A Stakeholder Analysis of Corporate Illegality (With Notes on How Corporate Law Could Reinforce International Law Norms),’ 87 Virginia Law Review 1279 (2001). For a similar story in the in the U.K., see Micheler (n 1) at 48–53.

From a theoretical perspective, Waheed Hussain draws the correct lesson from this legal analysis:

When theorists talk about the purpose of the corporation, they often come to the conclusion that the purpose of the corporation is to make money for shareholders. … [I]t is hard to see what the rationale for this claim could be. People establish corporations for all sorts of reasons: sometimes they are interested in a money-making venture, sometimes they are interested in providing a public service, and sometimes they are interested in some combination of the two. There is no more reason to think that every corporation is established to pursue the same end than there is to think that every contract is entered into to further the same goal . … 

The point of these observation is that if you want to know what the purpose of some corporation is, you cannot simply contemplate ‘the nature of the corporation.’ Corporations have no intrinsic goals, any more than contracts do. To see what the goal of a corporation is, you have to look at that particular corporation and examine its stated objectives.

Hussain (n 12) at 182.

103 See Eric A. Posner and Glen Weyl, Radical Markets (2018) (recommending pushing these boundaries).

104 Orts (n 3) at 9–32.

105 See Michael E. Bratman, ‘The Intentions of a Group,’ in The Moral Responsibility of Firms (Eric W. Orts and N. Craig Smith eds. 2017), 36–52.

106 Kent Greenfield persuasively argues that modern firms should at least in some circumstances be held accountable for violating fundamental legal norms such as respect for human rights. Greenfield (n 102).

107 See, e.g., John C. Coffee, Jr., ‘The Mandatory/Enabling Balance in Corporate Law: An Essay on the Judicial Role,’ 89 Columbia Law Review 1618 (1989); Jeffrey N. Gordon, ‘The Mandatory Structure of Corporate Law,’ 89 Columbia Law Review 1549 (1989).

108 Given this normative structure, it is a mistake to insist on a terminological and semantic distinction between ‘objectives’ that are set in a mandatory fashion at the macro-level and ‘purposes’ that refer to permissible variations adopted by business participants in specific firms. Professor Edward Rock, for example, makes this distinction and argues for the opposite proposition: that it is ‘a category mistake to identify ‘business purpose’ with ‘corporate objective.’’ Edward Rock, ‘Business Purpose and the Objective of the Corporation,’ NYU Law and Economic Research Paper Series (Oct. 2020), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3724710. He would prefer to reserve the choice of ‘business purpose’ to a choice of business forms (e.g. a corporation versus a benefit corporation) and impose a mandatory shareholder value maximisation norm at the level of the ‘corporate objective.’ (Professor Rock is also, and quite influentially, the Reporter for the new Restatement of the Law of Corporate Governance project in the United States.) Unfortunately, Rock’s view is conceptually confused. Contrary to his understanding, a business ‘purpose,’ ‘objective,’ ‘intention,’ ‘goal,’ or other orienting motivation can derive from a number of different sources, most saliently, as argued here, from the top-down level of mandatory laws or ethical imperatives and from the bottom-up level of choices made by business participants. To give one example: if one takes the climate emergency seriously (as many believe we should), then the ‘purpose’ of business should shift to address the problem at both the macro-level of law (such as increasing requirements for mandatory reporting of greenhouse gas emissions by all large companies) and at the micro-level of business policy (such as choosing projects to reduce internal energy consumption or to shift to renewable energy sources as quickly as possible). In a corporation, pursuing these purposes should not depend only on whether they will also maximise economic value.

109 Cf. Greenfield (n 102).

110 See Margaret M. Blair, Erin O'Hara O'Connor and Gregg Kirchhoefer, ‘Outsourcing, Modularity, and the Theory of the Firm,’ 2011 Brigham Young University Law Review 263 (2011) (providing a theoretical examination, along with an empirical study, of outsourcing in the context of modularity theories of internal ‘transfers’ as well as ‘transactions’ defining the boundaries of firms).

111 Orts (n 3) at 41, 99–102, 213–14. The business judgment rule is a judicial version of the fiduciary duty of care, which provides a broad scope of authority to corporate managers and directors. See Carsten Gerner-Beuerle, ‘The Duty of Care and the Business Judgment Rule: A Case Study in Legal Transplants and Local Narratives,’ in Comparative Corporate Governance (Afra Afsharipour and Martin Gelter eds. 2021), ch. 11 (‘The duty of care and, increasingly, the business judgment rule are common features of any developed system of corporate law. … It is also a near-universal rule; it exists in one form or another in virtually every jurisdiction.’).

112 See Orts (n 3) at 109–17, 194–200. By one estimate, state-owned enterprises of one kind or another constitute about ten percent of global gross domestic product. Garry D. Bruton, et al., ‘State-owned Enterprises Around the World as Hybrid Organizations,’ Academic of Management Perspectives (online publication, Dec. 10, 2014), https://doi.org/10.5465/amp.2013.0069.

The integration of large state-owned enterprises into a generally liberal global market economy poses significant challenges because of the different purposes, objectives, and motivations of state-owned enterprises. See, e.g., Mitsuo Matsushita, ‘Interplay of Competition Law and Free Trade Agreements in Regulating State-Owned Enterprises,’ 24 German Law Journal 243 (2023) (discussing difficulties of handling state-owned enterprises under global trade rules because their decisions often follow political considerations that are disruptive to the global market order).

113 Max Weber, Economy and Society: An Outline of Interpretative Sociology (Guenther Roth and Claus Wittich eds., Ephraim Fischoff et al. trans. 1968), vol. 1, 91. See also note 28 above.

114 See Richard Brown, A History of Accounting and Accountants (T.C. and E.C. Jack 1905) (reprint ed., 2003); James O. Winjum, ‘Accounting and the Rise of Capitalism: An Accountant’s View,’ 9 Journal of Accounting Research 333 (1971). The advent of double-entry methods can be traced to the late thirteenth century. Fernand Braudel, The Wheels of Commerce: Civilization and Capitalism, 15th-18th Century, vol. II (trans. Siân Reynolds) (1992), 555.

115 For a classic description of the power of markets as an alternative to governmental organisation, see Charles A. Lindblom, The Market System: What It Is, How It Works, and What To Make of It (2001).

116 See, e.g., Thomas Piketty, Capital and Ideology (Arthur Goldhammer trans. 2020), 16–23. Economic returns for capital have also greatly exceeded returns for labour, which has contributed to expanding and deepening economic inequality. See Thomas Piketty, Capital in the Twenty-First Century (Arthur Goldhammer trans., 2014) [hereinafter Capital]. On the role of slavery and colonialism in the economic growth of the world economy, see also Olúfẹ́mi O. Táíwò, Reconsidering Reparations, ch. 2 (2022).

117 Piketty, Capital and Ideology (n 116), part 2, at 201–412. The continuing nefarious effects of slavery inheres in the world still. As one scholar has written, many people are ‘no longer enslaved, but not yet free.’ Saidiya Hartman, Scenes of Subjection: Terror, Slavery, and Self-Making in Nineteenth-Century America (rev. ed. 2022), 363. Modern slavery – whether in forced work or forced marriages – is rising in recent years, oppressing by one estimate approximately 50 million people worldwide. International Labour Organization, ‘50 million people worldwide in modern slavery’ (press release, Sept. 12, 2022), https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_855019/lang--en/index.htm.

118 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (n 39). For the argument that Smith’s views have been oversold by his successors, with evidence that his views about ‘profit’ were ‘ambivalent,’ see Mayer, ‘What Is Wrong with Corporate Law?’ (n 6) at 290. See also Nathan Rosenberg, ‘Adam Smith on Profits – Paradox Lost and Regained,’ 82 Journal of Political Economy 1177 (1974) (examining why Smith opposed ‘high profits’ for capitalists because they were likely antithetical to promoting the wealth of a nation).

119 Piketty, Capital and Ideology (n 116) at 27, 705–16.

120 For a critique of private property as a central argument for the justification of markets, see also Hussain (n 12) at 23–24, 31–32, 208–09. Cf. John Finnis, ‘Natural Law Theories,’ Stanford Encyclopedia of Philosophy (rev. 2020), https://plato.stanford.edu/entries/natural-law-theories/.

121 See, e.g., Caleb Ecarma, ‘Fox News Is Preparing to Be Sued Over Coronavirus Misinformation,’ Vanity Fair (Apr. 6, 2020), https://www.vanityfair.com/news/2020/04/fox-news-prepares-coronavirus-misinformation-lawsuits. For a skeptical view of the merits of a lawsuit brought on these grounds, see Erin Carroll, ‘Lawsuit Against Fox News Over Coronavirus Coverage: Can It Succeed? Should It?’ Just Security (Apr. 10, 2020), https://www.justsecurity.org/69556/lawsuit-against-fox-news-over-coronavirus-coverage-can-it-succeed-should-it/. The same argument for moral liability applies to ‘covid deniers’ in government, though of course governments usually enjoy sovereign immunity.

122 Or, under an assumption of Pareto efficiency, nobody is made worse off. Sean Ingham, Pareto-optimality, Britannica (Oct 6, 2023), https://www.britannica.com/money/topic/Pareto-optimality.

123 One standard fudge in justifications based on Kaldor-Hicks economic efficiency as an overall social objective is that Pareto constraints are ignored under the questionable empirical assumption that unequal economic gains can be redistributed by governments. Kaldor-Hicks Efficiency, Oxford Reference (2023), https://www.oxfordreference.com/display/10.1093/oi/authority.20110803100028833. Governments are notoriously reluctant, however, to redistribute wealth from the rich and powerful to everyone else.

124 For an argument that autonomy should count as strongly as welfare calculations in the justification of markets, see Hanoch Dagan, ‘Why Markets? Welfare, Autonomy, and the Just Society,’ 117 Michigan Law Review 1289 (2019).

125 For empirical evidence of increasing economic wealth distributions in the world, particularly along the lines of divergent returns to capital and labour, see Piketty, Capital (n 116). But cf. Glenn Firebaugh, The New Geography of Global Income Inequality (2006) (finding that global income inequality among nations has been declining, though inequality within nations is increasing). It is likely also that global climate disruption is increasing economic inequality—having stronger negative effects on poor countries as compared to rich ones. Noah S. Diffenbaugh and Marshall Burke, ‘Global Warming Has Increased Global Economic Inequality, PNAS (2019), https://doi.org/10.1073/pnas.1816020116.

126 For a recent critical account of these disasters and what has followed in Russia and China, see Piketty, Capital and Ideology (n 116) at 578–636. Ironically, as Professor Piketty argues, both contemporary Russia and China have veered into becoming authoritarian plutocracies (or are at least coming close), and thus are now reinforcing rather than reducing global economic inequality.

127 Id. at 8 (‘So great was the communist disaster that it overshadowed even the damage done by the ideologies of slavery, colonialism, and racialism and obscured strong ties between those ideologies and the ideologies of ownership and hypercapitalism – no mean feat.’). See also Lucien Bianco, Stalin and Mao: A Comparison of the Russian and Chinese Revolutions (Krystyna Horko trans. 2018) (providing detailed assessments of the regimes, including their responsibility for the two worst famines of the twentieth century).

128 See, e.g., Pistor (n 43) (detailing some legally arcane methods by which these conversions are accomplished).

129 One main reason for this failure of regulation has been the influence of business interests on political processes of democratic government through lobbying, campaign contributions, and other methods. See Honneth (n 4) at 325 (decrying ‘the widespread system of lobbying’). For example, business interests have effectively stymied climate regulation. See Michael E. Mann, The New Climate War: The Fight to Take Back Our Planet (2021). For a general account of the ideological assault on government based on pro-market views advanced primarily in the interests of some large businesses and wealthy individuals, see Oreskes and Conway (n 5). See also Kim Philips-Fein, Invisible Hands: The Businessmen’s Crusade Against the New Deal (2010). On difficulties in regulating campaign finance and other modes of political influence in the U.S. context, see also Samuel Issacharoff, ‘Political Corruption,’ 124 Harvard Law Review 118 (2010).

130 Piketty, Capital and Ideology (n 116) at 648–716. See also Phil Graham, Hypercapitalism: New Media, Language, and Social Perceptions of Value (2006); Jeremy Rifkin, The Age of Access: The New Culture of Hypercapitalism Where All of Life Is a Paid-for Experience (2001). On the quasi-religious arguments of some economists, see Robert H. Nelson, Economics as Religion: From Samuelson to Chicago and Beyond (2002); Robert H. Nelson, The New Holy Wars: Economic Religion Versus Environmental Religion in Contemporary America (2010); John Rapley, ‘How Economics Became a Religion,’ Guardian, July 11, 2017, https://www.theguardian.com/news/2017/jul/11/how-economics-became-a-religion.

131 An example of the influence of this pro-market view (or bias) is that a default position for policy analysis holds that markets should govern social organisation unless some kind of ‘market failure’ can be proven. On the other side of this ledger, ‘government failure’ is often presumed. See, e.g., Joseph Heath, Morality, Competition, and the Firm: The Market Failures Approach to Business Ethics (2014); Joseph Heath, ‘Market Failure or Government Failure? A Response to Jaworski,’ 1 Business Ethics Journal Review 50 (2013).

132 See discussion in Part I above recounting the approach of Milton Friedman and the American Law Institute’s Principles of Corporate Governance.

133 As discussed in Part I above, this assumption about profit maximisation is taught as an objective truth in many courses in law and business schools and intrudes into the general culture. The profit-maximising ideology is thus largely a result of ‘situational’ learning. Jon Hanson and David Yosifon, ‘The Situation: An Introduction to the Situational Character, Critical Realism, Power Economics, and Deep Capture,’ 152 University of Pennsylvania Law Review 129, 139, 199 n.254 (2003).

134 See also id. at 200–30 (advancing a ‘deep capture’ explanation).

135 For a classic source on the historical formation of capital and labour markets, see Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (2d ed. 2001) (1944). See also Honneth (n 4) at 178–79, 185–87, 190 (discussing Polanyi’s account in a social theory of norms).

136 Honneth (n 4) at 179.

137 Id.

138 Id. at (describing ‘homo oeconomicus’ as ‘the self-interested businessman’). In partial testimony to the influence of this idea, an academic journal, founded in 1983 and still going strong, is titled Homo Oeconomicus, https://link.springer.com/article/10.1007/s41412-016-0026-z. John Hendry also provides an account of how ‘businesses have successfully imposed their own values on the world’ and established ‘the legitimacy of self-interest’ as a sufficient guide for social behaviour. Hendry (n 72) at 9–14. This development occurred contemporaneously with a weakening of moral constraints. Id. at 14–22.

For a critique of the rational actor model used by most contemporary economists, see Jon Hanson and David Yosifon, ‘The Situational Character: A Critical Realist Perspective on the Human Animal,’ 93 Georgetown Law Journal 1 (2004).

139 Honneth (n 4) at 180–81.

140 See notes 39 and 118 above.

141 Honneth refers to Talcott Parsons and his arguments that employers and employees owe each other mutual obligations and professional duties, and the employer’s responsibility includes not only ‘job security, health and safety precautions, and meaningful work, but also the guarantee of a stable family income.’ Honneth (n 4) at 189. He refers to Èmile Durkheim and Georg Hegel for their insights that ‘the market can only fulfill its function of harmoniously integrating individual economic activities in an unforced manner and by means of contractual relations if it is embedded in feelings of solidarity that precede all contracts and obligate economic actors to treat each other fairly and justly.’ Id. at 181.

142 See, e.g. Allan Cooke, ‘Is ‘Business Ethics’ an Oxymoron?’ 58 Business and Society Review 68 (1986) (offering a somewhat sanguine view that business leaders are not less ethical than others); Ronald Duska, ‘Business Ethics: Oxymoron or Good Business?’ 10 Business Ethics Quarterly 111 (2000) (arguing that this cynical view of business follows from a strict view of the profit maximisation norm).

143 See discussion in Parts I and III above.

144 Mayer, ‘What Is Wrong with Corporate Law?’ (n 6) at 291. In a new book, Mayer argues for a recovery of a conception of ‘just profits’ in the moral sense of the adjective. Mayer, Capitalism and Crises (n 6).

145 Berkey and Orts (n 69). Cf. Einer Elhauge, ‘Sacrificing Corporate Profits in the Public Interest,’ 80 N.Y.U. Law Review 733 (2005). Unfortunately, the current trend is in the wrong direction with the largest oil companies registering record profits and reinvesting in more fossil fuel production rather than a hard and serious transition toward renewable zero-carbon energy. See Hanna Ziady, ‘Big Oil Faces Scrutiny After Huge Jump in Profits,’ CNN, Feb. 8, 2023, https://edition.cnn.com/2023/02/08/energy/big-oil-profits/index.html.

A new climate history illustrates the stakes involved and points out many instances in human history during which societies did not make the necessary changes before it was too late. Peter Frankopan, The Earth Transformed: An Untold History (2023). One can only hope that we can collectively succeed in shifting large-scaled global incentives fast enough to avoid the worst climate consequences this time. For a theoretical grounding of hope as a principle for political action, see Loren Goldman, The Principle of Political Hope: Progress, Action, and Democracy in Modern Thought (2022).

146 Estimates of stranded assets in the oil and gas industry if discovered resources are ‘left in the ground’ to mitigate climate damage exceed one trillion dollars. See, e.g., Gregor Semieniuk, et al., ‘Stranded Fossil-Fuel Assets Translate to Major Losses for Investors in Advanced Economies,’ 12 Nature Climate Change 532 (2022). For signs that an energy transition away from fossil fuels has begun, but not going nearly fast enough to avoid significant negative consequences, see Adam Tooze, Chartbook Carbon Notes 8: Betting on climate disaster. The possible futures of the (US) oil and gas industry, Chartbook, Substack, Nov. 26, 2023, https://adamtooze.substack.com/p/chartbook-carbon-notes-8-betting.

147 As one economist notes:

Through the 1960s, there was an active debate about whether the ‘profit maximization’ assumption was a useful way of modeling firms. Alternatives such as sales maximization, profit satisficing, and increasing market share were all proposed as alternative descriptors of firm behavior. The primary justification for modeling firms as profit maximizers in the 1950s was that even though it clearly was not a good description of what firms actually do, it was still useful to analyze them as if they did that. … In the neoclassical debate about how best to model firms, there was never a scientific belief that firms should maximize profit. That would have been a normative argument that neoclassical economists avoided – they did positive economics.

David Colander, ‘How to Market the Market: The Trouble with Profit Maximization,’ 43 Eastern Economic Journal 362, 364 (2017).

148 Friedman (n 44). See Ed Dolan, ‘How – and When – Should Companies Engage in the Political Process?’ Harvard Business Review, May 26, 2023, https://hbr.org/2023/05/how-and-when-should-companies-engage-in-the-political-process (observing that Friedman neglects ‘who makes the rules’).

149 For a diagnosis and some recommendations, see Mann (n 129). For the idea that changing global trading rules to combat fossil fuel use (similarly to the slave trade was opposed and halted), see Leif Wenar, Blood Oil: Tyrants, Violence, and the Rules that Run the World (2017).

150 On the legal history of lobbying in the United States, from presumptive illegality of most lobbying to a protected constitutional right, see Zephyr Teachout, ‘The Forgotten Law of Lobbying,’ 13 Election Law Journal 4 (2014). In the early case of Marshall v. Baltimore Ohio Railroad Co., 57 U.S. 314, 355 (1853), the Supreme court described secret lobbying contracts as ‘a direct fraud against the public.’ The Court warned that a free market in lobbying would allow ‘the combined capital of wealthy corporations’ to ‘produce universal corruption.’ Id. As late as 1894, the general rule was that lobbying contracts, unless conducted in accordance with professional legal ethical rules, were illegal. William L. Clark, Jr., The Handbook of the Law of Contracts 285, 356 (1894). More recently, the Supreme Court shifted gears, and cases such as United States v. Harriss, 347 U.S. 612 (1954), indicate that lobbyists now enjoy a large measure of protection under the First Amendment. See Richard Briffault, ‘The Anxiety of Influence: The Evolving Regulation of Lobbying,’ 13 Election Law Journal 160 (2014).

151 Citizens United v. Federal Election Comm’n, 558 U.S. 310 (2010). See also Eric W. Orts and Amy J. Sepinwall, ‘Collective Goods and the Court: A Theory of Constitutional Commodification,’ 97 Washington University Law Review 637 (2020) (arguing against the current constitutional course of the Supreme Court with respect to the regulation of campaign finance).

152 See, e.g., David Coen, Alexander Katsaitis and Matia Vannoni, Business Lobbying in the European Union (2021); Suzanne Mulcahy, Lobbying in Europe: Hidden Influence, Privileged Access (2015); Lobbying the European Union: Institutions, Actors, and Issues (David Coen and Jeremy Richardson eds.) (2009). See also ‘The Power of Lobbyists Is Growing in Brussels and Berlin,’ Economist (May 15, 2021), https://www.economist.com/business/2021/05/15/the-power-of-lobbyists-is-growing-in-brussels-and-berlin.

153 Melissa, J. Durkee, ‘International Lobbying Law,’ 127 Yale Law Journal 1742, 1747 (2018).

154 Samuel Issacharoff and Pamela S. Karlan, ‘The Hydraulics of Campaign Finance Reform,’ 77 Texas Law Review 1705, 1708 (1999) (observing that ‘political money, like water, has to go somewhere,’ and ‘political money, like water, is part of a broader ecosystem’). For the particularly egregious example of Exxon’s denial of climate science, even after its own scientists had confirmed the problem, see, e.g., ‘Exxon Knew About Climate Change Almost 40 Years Ago,’ Scientific American (Oct. 26, 2015), https://www.scientificamerican.com/article/exxon-knew-about-climate-change-almost-40-years-ago/.

155 Eric W. Orts, ‘Business Must Get Political – For Climate Sustainability,’ Wharton Risk Center series, Idea #27, (Aug. 23, 2019), https://riskcenter.wharton.upenn.edu/climate-risk-solutions-2/business-must-get-political-for-climate-sustainability/. See also short video version: Eric Orts, ‘Businesses That ‘Get It’ on Climate Change Must Also Get Political, 1.5 min Climate Lectures, University of Pennsylvania (Sept. 11, 2019), https://www.sas.upenn.edu/events/businesses-get-it-climate-change-must-also-get-political.

156 Thomas P. Lyon and Elizabeth Doty, ‘The Erb Principles for Corporate Political Responsibility,’ Harvard Law School Forum on Corporate Governance (Apr. 4, 2023), https://corpgov.law.harvard.edu/2023/04/04/the-erb-principles-for-corporate-political-responsibility/.

157 The CPA-Zicklin standard for reporting on corporate political spending is one leading approach. Center for Political Accountability, CPA-Zicklin Model Code of Conduct for Corporate Political Spending (Oct. 13, 2020), https://www.politicalaccountability.net/wp-content/uploads/2022/06/CPA-Zicklin-Model-Code-of-Conduct-for-Corporate-Political-Spending.pdf.

158 See, e.g., Nina K. Cankar, Simon Deakin and Marko Simoneti, ‘The Reflexive Properties of Corporate Governance Codes: The Reception of the 'Comply-or-Explain' Approach in Slovenia,’ 37 Journal of Law and Society 501, 510 (2010) (describing ‘corporate governance codes’ as ‘an example of regulatory instruments which are explicitly designed to be ‘reflexive,’ that is, ‘to trigger a learning process which over time will enable them to incorporate developments from practice’). ‘Reflexivity’ can by defined as ‘the fact that social practices are constantly examined and reformed in the light of incoming information about those very practices.’ Anthony Giddens, The Consequences of Modernity 38 (1990), 38. It was originally connected with concerns especially about increasing levels of systemic risk. See Ulrich Beck, Risk Society: Towards a New Modernity (1992). The idea of reflexive law has roots in the social theory of Gunther Teubner. See Gunther Teubner, ‘Substantive and Reflexive Elements in Modern Law,’ 17 Law & Society Review 239 (1983).

159 At present, however, all large oil and gas companies appear to be greenwashing about their long-term climate commitments. See Damian Carrington, ‘Oil Firms’ Climate Claims Are Greenwashing, Study Concludes,’ Guardian (Feb. 16, 2022), https://www.theguardian.com/environment/2022/feb/16/oil-firms-climate-claims-are-greenwashing-study-concludes, citing Mei Li, Gregory Trencher and Jusen Asuka, ‘The Clean Energy Claims of BP, Chevron, Exxonmobil and Shell: A Mismatch Between Discourse, Actions and Investments,’ PLOS One (Feb. 16, 2022), https://doi.org/10.1371/journal.pone.0263596. Note also that the three largest oil companies in the world today are state-owned enterprises: Saudi Aramco, Sinopec, and PetroChina. Tooze (n 146) (citing Statista data reported May 2023).

160 Again, one option here would be to recover and enforce legal rules that would restrict lobbying to providing information and arguments based in ‘public reason.’ See Teachout (n 150). On the general concept of public reason and its implications, see John Rawls, ‘The Idea of Public Reason Revisited,’ 64 University of Chicago Law Review 765 (1997). See also John Rawls, Political Liberalism (rev. ed. 2005) (incorporating and refining his views on ‘public reason’).

161 Hanson and Yosifon (n 133) at 200–30.

162 For a measure of the influence of law-and-economics in law schools by proponents of the movement, see Joni Hersch and W. Kip Viscusi, ‘Law and Economics as a Pillar of Legal Education’, 8 Review of Law and Economics 487 (2012). For a critique with respect to the private law topics of contracts, property, and torts, see Shawn Bayern, The Analytical Failures of Law and Economics (2023). The influence of law-and-economics follows a more general trend in academia that privileges contemporary economics as a discipline that is seen as more ‘scientific’ and ‘superior’ to other academic disciplines. See Marion Fourcade, Etienne Ollion and Yann Algan, ‘The Superiority of Economists,’ 29 Journal of Economic Perspectives 89 (2015). For further critique of contemporary economic theories, and their failure to appreciate their ‘fictional’ and contingent foundations, see also Beckert (n 70) at 9–14, 245–68.

163 This is not to say that serious risks of violence do not remain salient as a major worry in our world today. However, an appropriate conception of outbreaks of terrorism and violent political instability is to read them as symptoms of underlying social problems rather than as motivated by potential solutions.

164 Honneth (n 4) at viii, 1–11, 62–67, 197–98.

165 Id. at 3–7, 15–19, 59–62, 131–304. Honneth’s precursors in taking this approach include Hegal (‘ethical spheres’) and Parsons (‘relationship institutions’). Id. at 125 (citing Hegel and Parsons).

Note that Honneth also distinguishes between ‘legal freedom’ and ‘moral freedom.’ Id. at 163–20. He warns against a modern tendency to reduce discussions of the normative value of freedom in general to ‘legal freedom’ associated only with legally denominated ‘rights.’ In his words:

Nothing has been more fatal to the formulation of a concept of social justice than the recent tendency to dissolve all social relations into legal relationships, in order to make it all the easier to regulate these relationships through formal rules. This one-sided approach has caused us to lose sight of the fact the conditions of justice are not only given in the form of positive rights, but also in the shape of appropriate attitudes, modes of comportment and behavioral routines.

Id. at 67. He characterises these mistaken approaches as ‘pathologies of legal freedom.’ Id. at 86–94.

166 See Milton Friedman, Capitalism and Freedom (2020 ed.) (1962); Hayek, Road to Serfdom (n 99) (both emphasising freedom as essential). As mentioned above, Waheed Hussain has recently followed a parallel course to Honneth’s in emphasising the value of freedom as opposing, rather than supporting, the expansion of market structure and organisational logic in modern societies. For Hussain, a primary problem is how a world dominated by market rationality can become authoritarian. Hussain (n 12).

167 Honneth (n 4) at 337 n.1. One may also interpret the value of ‘freedom’ here as equivalent to the value of ‘liberty’ employed in some other social and political theories.

168 Honneth also offers a complex view of ‘the right of ‘freedom’ to include interrelated dimensions of ‘negative freedom,’ ‘reflexive freedom,’ and ‘social freedom.’ Id. at 13–62. Without providing a full explanation here, these dimensions include (1) dedicated social space for individuals (and perhaps freely created organisations) to exercise freedom of choice in particular areas of life preserved and protected by law against the political state and other institutional interference (negative freedom), (2) the ability of individuals (and perhaps organisations) to exercise capacities of self-reflection an at least to some extent to exercise free will with respect to chosen actions (reflexive freedom), and (3) the potential to act with volition and moral purpose in social systems, including both economic markets (and various roles within them) and democratic governments (social freedom). See also Rutger Claassen, ‘Social Freedom and the Demands of Justice: A Study of Honneth's Recht Der Freiheit,’ 21 Constellations 67 (2014).

Others have also questioned whether ‘only freedom’ should serve as an ultimate value in social theory as Honneth seems to maintain. See, e.g., Christopher F. Zurn, Axel Honneth: A Critical Theory of the Social (2015) at 192–93.

169 For criticism that Honneth’s social theory as expressed in Freedom’s Right does not sufficiently include an ‘environmental sensibility,’ see Odin Lysaker, ‘Ecological Sensibility: Recovering Axel Honneth’s Philosophy of Nature in the Age of Climate Crisis,’ 21 Critical Horizons 205 (2020).

170 Honneth (n 4) at 5.

171 In this respect, Honneth follows Durkheim, Hegel, and Parsons. See notes 141 and 165 above.

172 Id. at 177. As one of his interpreters also observes, ‘Honneth does not reject capitalism wholesale, seeing market relations rather as structured by inherent moral content and as potential spheres for the realization of individuals’ social freedom when properly institutionalized.’ Zurn (n 168) at 21.

173 Honneth (n 4) at 198.

174 Id. at 191.

175 Id. at 192.

176 Id.

177 Id. at 198.

178 Id. (noting ‘normative misdevelopments’ must be ‘measured against presupposed principles of legitimacy’ which will often include a focus on ‘legal reforms’).

179 For an account of the rise of individual ‘influencers’ especially in marketing on social media, and some suggestions for regulating deceptive influencers and their sponsors, see Alexandra J. Roberts, ‘False Influencing,’ 109 Georgetown Law Journal 81 (2020). See also Hannibal Travis, ‘The Freedom of Influencing,’ 77 University of Miami Law Review 388 (2023) (recounting regulation of influencers by the Federal Trade Commission and push-back that such regulation may violate freedom of speech rights).

In the political realm, influencers on social media, sometimes coordinated by nation-states or political campaigns, play a significant role in purveying ‘fake news’ and other propaganda or digital disruption designed to enflame public opinion. On the problem of ‘fake news’ and recommended steps to respond to it, see, e.g., Mark Verstraete, Jane R. Bambauer and Derek E. Bambauer, ‘Identifying and Countering Fake News,’ 73 Hastings Law Journal 821 (2022). See also Andrew Selbst, ‘The Journalism Ratings Board: An Incentive-Based Approach to Cable News Accountability,’ 44 University Michigan Journal of Law Reform 467 (2011) (recommending formation of a new administrative subagency under the Federal Communications Commission to rate television news programs for accuracy, which could be extended to internet sources). For an argument favouring the development of human rights norms from the bottom up rather than through top-down state and international action, see Adnan A. Zulfiqar, ‘Human Rights Norms from Below, ‘48 Yale Journal of International Law 55 (2023).

180 See discussion above in Part I.

181 These rules are generally negative ‘prescriptions,’ but prescriptive laws can also be framed as affirmative duties – such as a requirement to provides specific information (such as annual financial or other performance reports) – with penalties attached for a failure to act in the prescribed manner.

182 For a critique of ‘command-and-control’ as a rhetorical device invented and promulgated to oppose effective governmental regulation, see Jodi L. Short, ‘The Paranoid Style in Regulatory Reform,’ 63 Hastings Law Journal 633 (2012). Professor Short nevertheless recognizes a number of different approaches to regulation to have developed, including (1) deregulation (or no regulation), (2) liability-based regulation (relying on background tort, property, and contract private law), (3) market-based regulation (using, for example, tradeable pollution permits or taxation schemes), and (4) self-regulation (including voluntary or mandatory informational regulation). Id. at 664–68. For a similar menu of regulatory options, see Sarah E. Light and Eric W. Orts, ‘Parallels in Public and Private Environmental Governance,’ 5 Michigan Journal of Environmental and Administrative Law 1, 23–53 (2015) (including ‘prescription’ as a more neutral description than ‘command-and-control,’ as well as options of property, market-leveraging, tradeable permits, information, procurement, and insurance); Carol M. Rose, ‘Rethinking Environmental Controls: Management Strategies for Common Resources,’ 1991 Duke Law Journal 1, 9–10 (1991) (providing an easy-to-remember set of options for commons problems including ‘do nothing,’ ‘keepout,’ ‘right way,’ and ‘property’). For an argument for public-private cooperative or ‘modular’ regulation, see Jody Freeman and Daniel A. Farber, ‘Modular Environmental Regulation,’ 54 Duke Law Journal 795 (2005). And for a critique of focusing too much on instrument choice rather than the specific problems at hand, specifically the climate emergency, see William Boyd, ‘The Poverty of Theory: Public Problems, Instrument Choice, and the Climate Emergency,’ 46 Columbia Journal of Environmental Law 399 (2021).

183 See C. Edward Fletcher, III, ‘Sophisticated Investors Under the Federal Securities Laws,’ 1988 Duke Law Journal 1081, 1133–34 (1988) (discussing the historical origin of the primary federal securities laws in the United States as focused on protecting ‘the average investor,’ assuring confidence in the capital markets, and addressing a concern that financial markets were leeching capital away from productive uses in the real economy).

184 Usha Rodrigues, ‘Securities Law's Dirty Little Secret,’ 81 Fordham Law Review 3389, 3389 (2013). As Rodriguez explains: ‘the rich not only have more money – they also have access to types of wealth-generating investments not available, by law, to the average investor. An investor with enough income or a high enough net worth (an accredited investor) can invest in a private equity fund, for example, or in still-private companies before they go public. The rest of us cannot.’ Id. at 3390–91. See also Christina Parajon Skinner, ‘Private Equity for the People’, 171 University of Pennsylvania Law Review 2059, 2063–67 (2023) (observing that legal restrictions for investing in private equity markets exacerbate wealth inequality). For an argument that the accredited investor requirement for private equity is also racially discriminatory, see Grier E. Barnes, Note, ‘Racial Exclusion in Private Markets: How the New Accredited Investor Standard Is Arbitrary and Capricious,’ 96 N.Y.U. Law Review 1966 (2021). For an account of how a ‘club-like approach’ characterises hiring within many financial firms ‘based on metrics such as ethnic or racial groups, gender, geographic location, or schools attended,’ see Olufunmilayo B. Arewa, ‘Investment Funds, Inequality, and Scarcity of Opportunity,’ 99 Boston University Law Review 1023, 1053–54 (2019). For recent critiques of the private equity business as engaged in the ‘plundering’ of other interests in society in the name of profit maximisation for investors, see Brendan Ballou, Plunder: Private Equity’s Plan to Pillage America (2023); Gretchen Morgenstern and Joshua Rosner, These Are the Plunderers: How Private Equity Runs – and Wrecks – America (2023).

185 Max M. Schanzenbach and Robert H. Sitkoff, ‘Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee,’ 72 Stanford Law Review 381, 385–86 (2020). See also Stéphanie Lachance and Judith C. Stroehle, ‘The Origins of ESG in Pensions,’ in Pension Funds and Sustainable Investment: Challenges and Opportunities (P. Brett Hammond, Raimond Mauer and Olivia S. Mitchell eds. 2023), 58–81 (emphasizing importance of various factors, including legal fiduciary duties, with respect to pursuing non-fiduciary objectives within pension funds in international context).

186 For accounts of this dilemma for the interests of labour and their pension funds, see, e.g., David H. Webber, ‘The Use and Abuse of Labor’s Capital,’ 89 N.Y.U. Law Review 2106 (2014); Stewart J. Schwab and Randall S. Thomas, ‘Realigning Corporate Governance: Shareholder Activism by Labor Unions,’ 96 Michigan Law Review 1018 (1998). For a recent account of use of corporate financial techniques by labour unions and pension funds, see Sanford M. Jacoby, Labor in the Age of Finance: Pensions, Politics, and Corporations from Deindustrialization to Dodd-Frank (2022).

187 See Abbye Atkinson, ‘Commodifying Marginalization,’ 71 Duke Law Journal 773 (2022) (arguing that public pension funds find themselves investing in marginalized debt and the companies purveying it while that these investments are at the same time doing harm to the citizens whom the government works to assist).

188 See discussion above in Part I.

189 See discussion above in Part II.

190 See note 22 above (citing, e.g., the Revlon and eBay cases in the United States). For a defense of shareholder value maximisation referring to the leading cases in the U.S. context, see also Stephen M. Bainbridge, The Profit Motive: Defending Shareholder Wealth Maximization (2023).

191 For an influential account critical of managerial dysfunction in the implementation of the economic theory in practice, see Lucian Bebchuk and Jesse Fried, Pay without Performance: The Unfulfilled Promise of Executive Compensation (2006). For criticism of the economic and legal theory itself, see, e.g., Orts (n 3) at 231–39. One recent critique goes so far as to suggest that tying executive pay to shareholder price performance incentivises fraud and corporate criminality. William K. Black and June Carbone, ‘Economic Ideology and the Rise of the Firm as a Criminal Enterprise,’ 49 Akron Law Review 371 (2016). For an historical account in the U.S. context emphasising the role of labour unions and social norms in providing a check on exorbitant executive compensation, see Steven A. Bank, Brian R. Cheffins and Harwell Wells, ‘Executive Pay: What Worked?’ 42 Journal of Corporation Law 59 (2016).

192 On fiduciary principles, their history, and contemporary scope see Tamar Frankel, Fiduciary Law (2011); Tamar Frankel, ‘Towards Universal Fiduciary Principles,’ 39 Queen's Law Journal 391 (2014).

193 It would also be good to recover an understanding of basic principles of agency law rather than the more modern economic gloss of agency costs. Eric W. Orts, ‘Shirking and Sharking: A Legal Theory of the Firm,’ 16 Yale Law & Policy Review 265, 270–82 (1998). Agency law reinforces some basic truths about how firms are constructed with fiduciary duties owed to others as a primary responsibility of business leaders. See Orts (n 3) at 54–62 (discussing legal agency as a key building block of firms); see also American Law Institute, Restatement of Law of Agency (Third) (2006), especially introduction and ch. 1 (setting forth the basics, including applications to organisations).

194 See Cynthia A. Williams, ‘Fiduciary Duties and Corporate Climate Responsibility,’ 74 Vanderbilt Law Review 1875 (2021). Corporate compliance regimes may serve as a method of instantiating this interpretation of fiduciary duty. For this argument, see Susan S. Kuo and Benjamin Means, ‘Climate Change Compliance,’ 107 Iowa Law Review 2135 (2022).

195 Matteo Gatti and Chrystin Ondersma, ‘Can A Broader Corporate Purpose Redress Inequality? The Stakeholder Approach Chimera,’ 46 Journal of Corporate Law 1 (2020); Matteo Gatti and Chrystin Ondersma, ‘Stakeholder Syndrome: Does Stakeholderism Derail Effective Protections for Weaker Constituencies?’ 100 North Carolina Law Review 167 (2021).

196 For an overview, see Reiser and Dean, Social Enterprise Law (n 26) 52–76; Orts (n 3) at 206–15; Eldar (n 6) at 964–73. See also Restatement of the Law of Corporate Governance, § 2.01, reporter’s note 7 (Tentative Draft No. 1, April 2022) (counting 34 states now authorizing public benefit corporations). Other new business forms organised along similar lines include low-profit limited liability companies (L3Cs) and work integration social enterprises (WISEs). See Orts (n 3) at 207–10; Eldar (n 6) at 949, 963, 973–74. Some of these business forms are specifically designed to attract tax-exempt ‘program-related investments’ (PRIs) from nonprofit foundations seeking to ‘do good’ while reducing their costs. See, e.g., Eldar (n 6) at 944, 958–63.

197 Eldar (n 6) at 940–41, 964–68.

198 Ofer Eldar, ‘The Role of Social Enterprise and Hybrid Organizations,’ 2017 Columbia Business Law Review 92, 98 (2017) (noting that the problem ‘in most cases’ of hybrid organisations that ‘it is practically impossible to measure and verify the accomplishment of altruistic goals’). For reflections on ‘metrics’ and why they matter and are difficult to specify, see also Reiser and Dean, Social Enterprise Law (n 26) at 124–42.

199 Eldar (n 6) at 943, 989–99. The proposal derives from what Eldar sees as successful WISE firms in Europe and community development financial institutions in the United States. Id. at 973–85.

200 Id. at 943–44, 999–1000.

201 Dorothy S. Lund and Elizabeth Pollman, ‘The Corporate Governance Machine,’ 121 Columbia Law Review 2563 (2021) (describing the systemic nature of corporate governance in the United States as favouring and entrenching the norm of shareholder value maximisation). On lobbying, see also notes 129, 150, 152, and 153 above.

202 Fairfax (n 6). Business leaders recently made a series of high-profile announcements of a turn away from profit maximisation toward a broader ‘stakeholder’ view of corporate purpose. The most prominent of these were a public statement made favouring this approach by the Business Roundtable of CEOs in 2019 and repeated statements by Larry Fink, the head of Blackrock, the large asset managing firm. Id. at 1165–66 (citing sources). However, as Fairfax points out, ‘we have been here before,’ and ‘there are reasons to be skeptical.’ Id. at 1167. The academic discussion in the United States stretches back at least to a famous 1932 debate between Adolf Berle and Merrick Dodd. See A. A. Berle, Jr., ‘For Whom Corporate Managers Are Trustees: A Note,’ 45 Harvard Law Review 1365 (1932); E. Merrick Dodd, Jr., ‘For Whom Are Corporate Managers Trustees?, 45 Harvard Law Review 1145 (1932).

As Fairfax notes, this debate periodically recurs, such as in the discussion about corporate constituency statutes enacted in the late 1980s and early 1990s in many U.S. states when an increasing number of hostile takeovers threatened to overrun the business judgment rule and fiduciary duty of care protections for corporate managers and directors. Historically, though, the corporate responsibility debate has deeper roots outside of the United States, mostly notably perhaps in the Weimar Republic in Germany in the important (though now mostly forgotten or ignored) work of Walther Rathenau, a prominent industrialist and politician who was assassinated by the far right in 1922. For a recovery Rathenau’s ideas on firms and corporate purpose, see Blanche Segrestin, ‘When Innovation Implied Corporate Reform: A Historical Perspective Through the Writings of Walther Rathenau,’ Gérer et Comprendre, Annales des Mines (2017), https://shs.hal.science/halshs-01736509/document.

203 See Ballou (n 184) at 226–34. See also Morgenson and Rosner (n 184) at 175–212, 258–78 (discussing private equity deals in the healthcare industry). One recent study finds that healthcare prices increased by an average of 11% in companies after private equity buyouts from 2006 to 2019 caused in large part by financial engineering and bargaining techniques used in the private equity deals. Tong Liu, ‘Bargaining with Private Equity: Implications for Hospital Prices and Patient Welfare,’ MIT Sloan School working paper (last revised Nov. 30, 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3896410. See also Edward Hoffer, ‘Private Equity and Medicine: A Marriage Made in Hell,’ 137 American Journal of Medicine 5, commentary (Jan. 2024), https://www.amjmed.com/article/S0002-9343(23)00589-2/pdf (decrying the pernicious effects on health care costs and quality through private equity deals).

204 See note 184 above.

205 The U.S. Securities and Exchange Commission recently enhanced reporting requirements, though the new regulation did not go as far as expected. See Ropes and Gray, SEC Adopts New Private Fund Adviser Rules (Aug. 29, 2023), https://www.theregreview.org/2022/11/10/tunney-sec-proposes-private-fund-reform-to-protect-investors/; William Tunney, ‘SEC Proposes Private Fund Reform to Protect Investors,’ Regulatory Review (Nov. 10, 2022), https://www.theregreview.org/2022/11/10/tunney-sec-proposes-private-fund-reform-to-protect-investors/.

206 Ballou (n 184) at 234–42. Note that calls for increased transparency in the private equity have, at least to some extent, been bipartisan. See Morgenson and Rosner (n 184) at 318–19 (discussing Trump-appointed SEC Commissioner Allison Herron Lee’s call for more disclosure in the securities industry).

207 Ballou (n 184) at 234–43. See also Morgenson and Rosner (n 184) at 314–24. Unfortunately, trends in the United States with respect to the promiscuity and underenforcement of corporate fraud appear to be going in the wrong direction. See Ankush Khardori, ‘Financial Fraudsters Have Escaped Justice for Far Too Long,’ New York Times (Nov. 14, 2023), https://www.nytimes.com/2023/11/13/opinion/financial-fraud-justice-department.html (citing FBI statistics estimating financial fraud in the tens of billions of dollars and recounting views from experts that anti-fraud enforcement is much too weak).

208 Ballou (n 184) at 243–44. See also Rosemary Batt, ‘The Stop Wall Street Looting Act,’ Cornell University ILR School (Nov. 4, 2021), https://www.ilr.cornell.edu/news/faculty/batt-offers-reflections-stop-wall-street-looting-act.

209 Morgenson and Rosner (n 184) at 315–16 (noting the bill ‘died under intense lobbying pressure’).

210 Id. at 314 (describing ‘the billions of dollars flowing from these funds’ to be an ‘enabler’ and ‘the oxygen’ of the private equity business). For an account of the role of labour unions in both participating in and criticizing private equity deals, see Jacoby (n 186) at 167–93.

211 It is also not clear that private equity continues to be a good investment for institutional investors on economic grounds. See Jeffrey C. Hooke, The Myth of Private Equity: An Inside Look at Wall Street’s Transformative Investments (2021) (warning that the private equity business model has been oversold).

212 See Ballou (n 184) at 140–42, 221, 244. Other groups include the Private Equity Stakeholder Project, Americans for Financial Reform, and the Open Markets Network. Id. at 223.

213 Since 1980, economic inequality has been rising almost everywhere in the world. The top decile of citizens in the United States, Europe, China, India, and Russia have all seen their share of income rise from around 25–35 percent in 1980–35 to 55 percent in 2018. Piketty, Capital and Ideology (n 116) at 20–21 and fig. 1.3. Economic inequality in the U.S. and Russia is much higher than in Europe, and inequality in India has grown much higher than in China. Id. A significant reason for the increasing inequality in the U.S. is ‘the explosion of high salaries for executives since 1980.’ Id. at 421. See also Emily Barreca, Note, ‘Accountable Compensation: The Progressive Case for Stakeholder-Focused, Board-Empowering Executive Compensation Laws,’ 37 Yale Journal on Regulation 338, 346–48 (2020) (reviewing evidence for the connection between increasing wealth inequality and rising executive pay in the United States); Elizabeth Warren, ‘Companies Shouldn’t Be Accountable Only to Shareholders,’ Wall Street Journal (Aug. 14, 2018), https://www.wsj.com/articles/companies-shouldnt-be-accountable-only-to-shareholders-1534287687 (‘Because the wealthiest 10% of U.S. households own 84% of American-held shares, the obsession with maximizing shareholder returns effectively means America’s biggest companies have dedicated themselves to making the rich even richer.’).

214 Barreca (n 213) at 348–51 (summarizing the interventions and evidence of scant effect).

215 The repeal of progressive income tax rates on the wealthy has been a major contributing factor to increasing economic inequality, as well as a spur to increasing executive pay. See Piketty, Capital and Ideology (n 116) at 495–96, 532–33 (noting top marginal rates in the United Kingdom and U.S. were 70% to 90% between 1930 and 1980).

216 Barreca (n 213) at 351–54 (reviewing this approach in the U.S. context).

217 See, e.g., Orts (n 3) at 231–39. Incentive pay has also been used for non-executive level employees in certain industries, notably in some so-called high-technology firms. See, e.g., Yoshio Yanadori and Janet H. Marler, ‘Compensation strategy: does business strategy influence compensation in high-technology firms?’ 27 Strategic Management Journal 559 (2006). However, evidence is mixed on whether incentive compensation for employees will prove to be a long-term trend and, if so, in which business sectors. See, e.g., Sanjib Chowdhury and Eric Schulz, ‘The levels of base pay and incentive pay used by small firms to compensate professional employees with general and specific human capital.’ 60 Journal of Small Business Management 1 (2022).

218 See Hanson and Yosifon (n 133) at 200–30 (on ‘deep capture’). For an overview of the current legal landscape in the United States, which appears at the Supreme Court level to be now moving against even required disclosures as a regulatory option, see Amanda Shanor, Mary-Hunter McDonnell and Timothy Werner, ‘Corporate Political Power: The Politics of Reputation and Traceability,’ 71 Emory Law Journal 153, 156–69, 173–75, 193–99 (2021).

219 Despite the recent increase in measures of economic inequality, long-term historical trends provide reason for hope. See Piketty, Capital and Ideology (n 116) at 7, 16–20. See also Goldman (n 145) at 149–53 (reconstructing a view of ‘working hope’ as a pragmatic ‘practical orientation’ embracing both ‘institutional reconstruction’ and experimentation).

220 See, e.g., Piketty, Capital (n 116) at 515–39 (describing a ‘global tax on capital’ as an ideal); Piketty, Capital and Ideology (n 116) at 565–77 (describing historical experience and proposals for various kinds of wealth taxes). Enhancement of inheritance taxes would also be an option. A related idea with respect to inheritances would be to use increased wealth-based taxes as a means to provide every person with a ‘minimal inheritance’ when they reach a mature age (say 25). See Thomas Piketty, A Brief History of Equality (Steven Rendall trans.) (2022), 159–63 (introducing this basic idea). See also Bruce Ackerman and Anne Alstott, The Stakeholder Society (2000) (proposing a similar idea granting each citizen an $80,000 stake when they reach the age of majority).

A global wealth tax to address the problem of climate adaptation might also be a good place to start. A treaty or international agreement for a small percentage tax on global citizens owning more than $100 million could help to finance climate adaptation in poorer countries: ‘1.5% for 1.5°’ is a possible catchphrase. See Gabrielle See, ‘Modest tax rates on the global elite could close huge climate finance gap: UN-backed report,’ Eco-Business (Feb. 3, 2023), https://www.eco-business.com/news/modest-tax-rates-on-the-global-elite-could-close-huge-climate-finance-gap-un-backed-report/. For precedents in international law, see also Vanessa Fetter, ‘A Global Climate Wealth Tax to Fund a Worldwide, Just Transition,’ in Ecological Transition and Environmental Taxation (forthcoming), SSRN working draft (Aug. 15, 2022), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4404926.

221 See, e.g., Piketty, Capital (n 116) at 493–514 (providing historical background on progressive income taxes and recommending a return to high marginal rates on the highest incomes as a partial response to widening wealth inequality); Piketty, Capital and Ideology (n 116) at 151, 387, 558–59 (noting origins of progressive income taxes in various countries beginning at the cusp of the twentieth century). See also Emmaneul Saez and Gabriel Zucman, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay (2019), 115 (noting that ‘the progressive income tax has historically been the most potent tool to curb the concentration of riches’).

222 For example, a bill for a Shareholder Protection Act was introduced in 2010 to mandate binding shareholder votes on political campaign spending by corporations. Barreca (n 213) at 342. Employees who are also shareholders can exercise influence on executive pay too. See Jacoby (n 186) at 127–51 (discussing activism by unions); Gretchen Morgenson, ‘Employees, Too, Want a Say on the Boss’s Pay,’ New York Times (Apr. 21, 2012), https://www.nytimes.com/2012/04/22/business/employees-too-want-a-say-on-the-bosss-pay.html (same).

223 For a proposal along these lines, noting that the U.S. Supreme Court has been generally favorably inclined more toward disclosure requirements rather than substantive limitations on amounts of political spending, see Shanor, McDonnell and Werner (n 218) at 161–63. See also notes 156 and 157 above.

224 See Olivia Olander and Nick Niedzwiadek, ‘What the pending UAW-Big 3 deals mean for workers, Biden and the economy,’ Politico (Oct. 30, 2023), https://www.politico.com/news/2023/10/30/uaw-big-3-labor-biden-economy-00124368 (noting that the deals giving workers wage raises of approximately 25% may mark a turning point). On the economic power of labour unions, see Angus Deaton, Economics in America: An Immigrant Economist Explores the Land of Inequality (2023), 220–21 (noting that unions ‘not only raised wages for their members, as well as many nonmembers, but also kept an eye on working conditions’ and provided a ‘countervailing power for working people’ in politics); Piketty, A Brief History of Equality (n 220) at 45–47, 119–20 (noting the importance of labour unions in terms of their ‘negotiating power’ with capitalist enterprises).

225 See Shanor, McDonnell and Werner (n 218) at 158 (noting that shareholder proposals targeting political spending and lobbying have recently been the most popular proposals).

226 See Sarah C. Haan, ‘Shareholder Proposal Settlements and the Private Ordering of Public Elections,’ 126 Yale Law Journal 262 (2016). See also discussion above in Part IV.

227 For an optimistic account of long-term trends toward economic equality, see Piketty, A Brief History of Equality (n 220) at 1–2, 16–18. The most recent major causes have been the rise of the welfare state, progressive taxation, and the end of colonialism. Id. at 121–46. On pragmatic hope as an alternative to unthinking optimism or an undue faith in historical progress, see Goldman (n 145) at 1–7, 150.

228 Honneth (n 4) at 198–253.

229 As Honneth writes, ‘the actual heart of the economy lies in the market-mediated sphere of social labour.’ Id. at 223. See Orts (n 3) passim (counting employees as participants in a legal theory of the firm).

230 See Honneth (n 4) at 227–28. For an overview of the development of labour law in the United States, with an emphasis on the recognition of constitutional rights in occupational settings, see Sophia Z. Lee, The Workplace Constitution: From the New Deal to the New Right (2014). Of course, the effectiveness of labour rights depends also on including people as full-fledged employees, rather than temporary labour outside firms.

231 For a proposal for U.S. reforms that would move toward greater labour participation practices such as codetermination and works councils in the European Union and particular countries like Germany, see Leo E. Strine, Jr. et. al., ‘Lifting Labor’s Voice: A Principled Path Toward Greater Worker Voice and Power Within American Corporate Governance,’ 106 Minnesota Law Review 1325 (2022). The main proposal is for a ‘minimalist’ approach to ‘board co-determination,’ and several bills have been introduced in Congress that would move marginally toward this result. Id. at 1327–33 (overview of proposed reforms). Strine and his co-authors believe other large-scale reforms are needed too, including enhanced mandatory reporting and informational disclosure by companies, as well as the adoption of an expansive fiduciary duty of care principle at the federal level. Id. at 1331–32, 1380–94. See also Leo E. Strine, Jr. and Kirby M. Smith, ‘Toward Fair Gainsharing and a Quality Workplace for Employees: How a Reconceived Compensation Committee Might Help Make Corporations More Responsible Employers and Restore Faith in American Capitalism,’ 76 Business Lawyer 31 (2021) (arguing for a reconceptualization of compensation committees on corporate boards to consider ‘gainsharing’ with employees as well as traditional questions of incentive-based executive compensation).

232 One additional example is mandatory top-down safety regulations in the workplace, which firms and unions can then enhance if they wish. In the United States, for example, the most effective mandatory standards are set by administrative agencies such as the Occupational Safety and Health Administration, though the power and effectiveness of these agencies has been waning. See, e.g., Sidney A. Shapiro and Randy Rabinowitz, ‘Voluntary Regulatory Compliance in Theory and Practice: The Case of OSHA,’ 52 Administrative Law Review 97 (2000). Nonprofit associations which are often composed of business firms also play a significant role in standard-setting for safety. See Robert W. Hamilton, ‘The Role of Nongovernmental Standards in the Development of Mandatory Federal Standards Affecting Safety or Health,’ 56 Texas Law Review 1329 (1978) (providing a comprehensive overview of the structure of U.S. law in this area); Lesley K. McAllister, ‘Harnessing Private Regulation,’ 3 Michigan Journal of Environmental & Administrative Law 291 (2014) (discussing contemporary practices in the setting of private standards which are then endorsed or adopted administratively, legislatively, or judicially).

233 For example, estimates in the United States show that the percentage of unionised workers declined from approximately 35 percent of the private and public sectors in the 1950s to less than 10 percent today. Lee (n 230) at 257, 261 fig. A1.

234 Id. at 257.

235 The idea of full employment as a policy goal is an old one, and some countries have made efforts in this direction. See, e.g., Alvin H. Hansen, Economic Policy and Full Employment (1947). See also John Low-Beer, ‘Perspectives on Social Inequalities,’ 84 Yale Law Journal 1591, 1599–600 (1975) (book review) (noting that powerful business interests oppose full employment legislation but arguing the idea is not utopian); Pavlina R. Tcherneva and L. Randall Wray, ‘Common Goals-Different Solutions: Can Basic Income and Job Guarantees Deliver Their Own Promises? 2 Rutgers Journal of Law & Urban Policy 125 (2005) (canvassing options and arguing in favour of employer-as-last-resort programs).

236 For an argument along these lines, see Cynthia Estlund, ‘What Should We Do After Work? Automation and Employment Law,’ 128 Yale Law Journal 254 (2018).

237 Honneth (n 4) at 246.

238 Morris R. Cohen, ‘The Basis of Contract,’ 46 Harvard Law Review 553, 560 (1933).

239 Honneth (n 4) at 252–53 (recognizing the ‘misdevelopment’ in labour markets and suggesting ‘transnational’ solutions, though not providing specific recommendations). To date, international efforts to improve labour conditions and expand labour rights have not been particularly successful. See, e..g., Alan Hyde, ‘The International Labor Organization in the Stag Hunt for Global Labor Rights,’ 3 Law & Ethics of Human Rights 153 (2009) (canvassing different approaches and finding them wanting). But see Laurence R. Helfer, ‘The Future of the International Labour Organization,’ 101 American Society of International Law Proceedings 391 (2007) (recognizing that the ILO is ‘widely perceived to be a weak and ineffectual institution’ but noting some possible directions for progress). An employer’s group within the ILO has even argued against the right to strike as fundamental. Janice R. Bellace, ‘The ILO and the Right to Strike,’ 153 International Labour Review 29 (2014).

240 As Honneth observes, the development and expansion of ‘a new culture of consumerism’ enabled ‘the growing dynamism of the market.’ Honneth (n 4) at 199.

241 Id. at 199–200 (quoting Hegel). For an examination of Hegel’s philosophy of property and its relation to human freedom and individuality, see also Peter G. Stillman, ‘Property, Freedom, and Individuality in Hegel's and Marx's Political Thought,’ in Nomos: Property (vol. 22) (1980), 130–67. As Stillman explains, Hegel’s had an ideal in mind of ‘private property within a free community’ in which ‘each individual [could] develop his own determinations through appropriating himself as his own property within a nexus of recognition of the universality and rights of himself and others as persons.’ Id. at 159. He would have rejected the view of contemporary economists: ‘To justify private property because of the wealth that results,’ for Hegal, would be ‘to ignore individuality and freedom.’ Id. at 163.

For a trenchant critique of the implications of Hegel’s philosophy – and particularly his valorisation of the state as an engine of human history with implications that were antithetical to values of individual liberty and freedom – see Isaiah Berlin, Freedom and Its Betrayal: Six Enemies of Human Liberty (2022), 77–104 (reprinting BBC radio lectures given in 1952).

242 Polanyi (n 135) at 79–80. See also Mark Blyth, Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century (2002), 1–7, 274–75 (revisiting Polanyi's account of the ‘double movement’ and extending it to some contemporary social issues). Essentially, Polanyi’s idea is that the development of capitalism creates significant disruptions in social relations, such as when labour markets were first created through the transformation of feudal relationships, and these first-moving disruptions then spur a second or ‘double movement’ of regulatory and other reactions to respond to the disruptions.

243 In the United States, for example, common law actions for fraud and deceit have been supplemented over time by state and federal statutory interventions. As one legal scholar observes, in the context of opposing a law-and-economics inspired bid to undermine the scope of some of these contemporary laws, ‘consumer protection is smart, popular policy, empirically well grounded and part of minimum decency.’ Jean Braucher, ‘Deception, Economic Loss and Mass-Market Customers: Consumer Protection Statutes as Persuasive Authority in the Common Law of Fraud,’ 48 Arizona Law Review 829, 833 (2006). For an early U.S.-based ‘survey of the legal devices that may be employed for the curtailment and suppression of false advertising,’ see also Milton Handler, ‘False and Misleading Advertising,’ 39 Yale Law Journal 22, 23 (1929). For a normative assessment of private actions to protect consumers (as well as other market actors) against ‘competitive wrongs,’ see Nicolas Cornell, ‘Competitive Wrongs,’ 129 Yale Law Journal 2030 (2020).

244 For a comparative and historical overview of this development, see Andreas Maurer, ‘Consumer Protection and Social Models of Continental and Anglo-American Contract Law and the Transnational Outlook,’ 14 Indiana Journal of Global Legal Studies 353 (2007). Recently, some protections have been extended to consumers of financial products as well, though proposals to subject new financial products to the same standards as consumer goods (such as automobiles) have not been adopted. See Oren Bar-Gill and Elizabeth Warren, ‘Making Credit Safer,’ 157 University of Pennsylvania Law Review 1 (2008) (recommending this step).

245 For the history of class actions in the U.S. context, see Anne Fleming, ‘A History of Consumer Class Actions in State Court,’ 15 Brooklyn Journal of Corporate, Financial & Commercial Law 131 (2020); David Marcus, ‘The History of the Modern Class Action, Part I: Sturm Und Drang, 1953–1980,’ 90 Washington University Law Review 587 (2013); Richard Marcus, ‘Revolution v. Evolution in Class Action Reform,’ 96 North Carolina Law Review 903 (2018). On internationalization of class actions, see Deborah R. Hensler, ‘The Globalization of Class Actions: An Overview,’ 622 Annals of the American Academy of Policy & Social Science 7 (2009); Deborah R. Hensler, ‘From Sea to Shining Sea: How and Why Class Actions Are Spreading Globally,’ 65 University of Kansas Law Review 965 (2017). On mass torts and other complex litigation, see Deborah R. Hensler, ‘Improving Our Understanding of Mass Claims Evolution, Management, and Resolution,’ 84 Law & Contemporary Problems 143 (2021).

246 See, e.g., U.S. Food and Drug Administration, Gluten-Free Labeling of Foods (updated Mar. 7, 2022), https://www.fda.gov/food/food-labeling-nutrition/gluten-free-labeling-foods.

247 A gray area in the latter method of informational regulation constitutes what a famous philosopher has defined as ‘bullshit,’ that is, statements or claims that are not intentionally deceitful but are nevertheless made without any serious concern about their truth. Harry G. Frankfurt, On Bullshit (2005).

248 Jamie A. Grodsky, ‘Certified Green: The Law and Future of Environmental Labeling,’ 10 Yale Journal on Regulation 147, 150 (1993). See also Amanda Shanor and Sarah E. Light, ‘Greenwashing and the First Amendment,’ 122 Columbia Law Review 2033 (2022) (providing an overview of U.S. law and arguing in favour of governmental power to regulate false and misleading environmental claims against First Amendment challenges); Jeffrey J. Minneti, ‘Relational Integrity Regulation: Nudging Consumers Toward Products Bearing Valid Environmental Marketing Claims,’ 40 Environmental Law 1327 (2010) (providing an overview of academic legal commentary and approaches in U.S. and European law).

249 Ramsi A. Woodcock, ‘The Obsolescence of Advertising in the Information Age,’ 127 Yale Law Journal 2270 (2018).

250 On the moral lines regarding manipulation in markets, see Sophie Gibert, ‘The Wrong of Wrongful Manipulation,’ 51 Philosophy & Public Affairs 333 (2023).

251 See Honneth (n 4) at 216–17 (describing the ‘so-called ‘moralization’ or ‘ethicization’ behavior’ of consumers who are ‘said to follow ecological, social and moral considerations when they make their purchases,’ though noting that numbers of ‘post-material’ consumers tend to be exaggerated). As Honneth argues, ‘consumer cooperatives’ could coordinate market pressure for normative change, but ‘existing consumer organizations are often far too large and bureaucratic to represent vital forums,’ and the internet to date has not helped much either. Environmental consumer action groups are hampered by a lack of reliable information about products and services. For an example of movement in this direction, however, see Marta L. Tellado, ‘From Our President: Greener Choices Ahead,’ Consumer Reports, June 9, 2022, https://www.consumerreports.org/environment-sustainability/from-our-president-greener-choices-ahead-a9429970485/.

252 On the ethics of consumer boycotts, see Brian Berkey, ‘Ethical Consumerism, Democratic Values, and Justice,’ 49 Philosophy & Public Affairs 233 (2021).

253 See Honneth (n 4) at 218–19. See also Yann Truong, ‘Personal Aspirations and the Consumption of Luxury Goods,’ 52 International Journal of Market Research 655 (2010) (providing a literature review tracking the growth of this market and possible motivations driving it). The classic in the field of course is Thorstein Veblen, The Theory of the Leisure Class (1899).

254 Honneth (n 4) at 218.

255 Although generally somewhat pessimistic in his assessment of these trends, Honneth admits ‘it cannot be denied that this [moral and post-material] change of attitude in one part of the population has moved many firms and corporations to show greater respect for these values in their production processes, and to emphasize these norms of quality in their advertising.’ He agrees that ‘companies, in their business interest, have followed the moral signals sent by different groups of consumers by changing their buying habits and have increasingly fulfilled their task of serving the satisfaction of consumer needs.’ Id. at 216.

256 Beckert (n 70), ch. 9.

257 Id. at 194 (quoting Sidney J. Levy, ‘Symbols for Sale,’ 37 Harvard Business Review 117, 118 (1959)).

258 See Brian Trelstad, Nien-hê Hsieh, Michael Norris and Susan Pinckney. ‘Patagonia: 'Earth Is Now Our Only Shareholder,’’ Harvard Business School Case 323–057 (Mar. 2023, revised Sept. 2023), https://www.hbs.edu/faculty/Pages/item.aspx?num=63834.

259 Id. For a legal description and generally positive assessment of the ‘noncharitable perpetual purpose trust’ or ‘stewardship trust’ used by Patagonia, see Beck Groff and Susan N. Gary, ‘Patagonia, Purpose Trusts, and Stewardship Trusts – Business with a Purpose,’ 37 Probate and Property 36 (Jan./Feb. 2023).

260 See Erin McCormick, ‘Patagonia’s billionaire owner gives away company to fight climate crisis,’ Guardian (Sept. 14, 2022), https://www.theguardian.com/us-news/2022/sep/14/patagonias-billionaire-owner-gives-away-company-to-fight-climate-crisis-yvon-chouinard; Charles Conn, ‘Patagonia Chair: ‘We are turning capitalism on its head by making the Earth our only shareholder,’’ Fortune (Sept. 14, 2022), https://fortune.com/2022/09/14/patagonia-chair-we-are-turning-capitalism-on-its-head-by-making-the-earth-our-only-shareholder-charles-conn/.

From a business point of view, one value that can drive change is a return to ‘quality’ and away from the production and consumption of cheap, wasteful products. Yvon Chouinard, ‘The High Stakes of Low Quality,’ New York Times (Nov. 23, 2023), https://www.nytimes.com/2023/11/23/opinion/patagonia-environnment-fast-fashion.html (making this argument).

261 See Light and Orts (n 182). See also Joshua Ulan Galperin, ‘Environmental Governance at the Edge of Democracy,’ 39 Virginia Environmental Law Journal 70 (2021) (arguing for a need to embed internal firm governance options to democratic oversight); Michael P. Vandenbergh, ‘Private Environmental Governance,’ 99 Cornell Law Review 129 (2013) (describing the promise of governance reforms within firms): Michael P. Vandenbergh and Jonathan A. Gilligan, ‘Beyond Gridlock,’ 40 Columbia Journal of Environmental Law 217 (2015) (describing private governance solutions available specifically to address the climate problem).

262 John Armour, Luca Enriques and Thom Wetzer, ‘Green Pills: Making Corporate Climate Commitments Credible,’ 65 Arizona Law Review 285 (2023).

263 See Eric W. Orts, ‘Reflexive Environmental Law,’ 89 Northwestern University Law Review 1227 (1995) (introducing the idea of reflexivity in this context); John S. Dryzek and Jonathan Pickering, ‘Deliberation as a Catalyst for Reflexive Environmental Governance,’ 131 Ecological Economics 353 (2017) (describing the importance and complexity of deliberation in reflexive institutional processes). See also note 158 above.

264 See Magali Delmas, Michael Gerrard and Eric Orts, ‘In California and Europe, a New Dawn for Corporate Climate Disclosure,’ The Hill (Oct. 5, 2023), https://thehill.com/opinion/energy-environment/4238182-in-california-and-europe-a-new-dawn-for-corporate-climate-disclosure/. For a critical assessment of this trend, see also John Armour, Luca Enriques and Thom Wetzer, ‘Mandatory Corporate Climate Disclosures: Now, But How?’ 2021 Columbia Business Law Review 1085 (2022).

In the U.K., narratives and other reports are required to inform shareholders and the public about the behaviour of very large companies with respect to environmental performance, employment practices (including accommodations for disabled people), anti-corruption, anti-slavery practices, global tax policies, gender pay gaps, and executive remuneration. See Micheler (n 1) at 175–86.

In the U.S., these kinds of requirements are less extensive. However, the Environmental Protection Agency requires greenhouse gas reporting for many large companies. U.S. EPA, Resources by Subpart for GHG Reporting (updated July 24, 2023), https://www.epa.gov/ghgreporting/resources-subpart-ghg-reporting. The Securities and Exchange Commission has also proposed new disclosure rules for climate-related issues and Environmental, Social, and Governance (ESG) strategies and metrics. U.S. SEC, Climate-Related Disclosures/ESG Investing (updated Sept. 11, 2023), https://www.sec.gov/securities-topics/climate-esg.

265 For a recent statement of this view, see also Joel Seligman, ‘Framing the Issues: Board Diversity and Corporate Purpose,’ 12 Harvard Business Law Review 249 (2022).

266 On path dependence in corporate law and governance, distinguishing between the ‘structure-driven path dependence’ of initial ownership structures and the ‘rule-driven path dependence’ of the inherited legal background, see Lucian Arye Bebchuk and Mark J. Roe, ‘A Theory of Path Dependence in Corporate Ownership and Governance,’ 52 Stanford Law Review 127 (1999). For a discussion of path dependence from the perspective of comparative law, see John Bell, ‘Path Dependence and Legal Development,’ 87 Tulane Law Review 787 (2013).

267 I do not pretend to have provided anything close to a complete answer here – thus ‘Toward a Theory of Plural Purposes of the Firm’ in the title. I hope to return to this theme in the future and hope also that others will continue to contribute new answers as well.

268 See Part I above.

269 See Honneth (n 4) at viii, 1–11, 62–67, 197–98. See also Zurn (n 168), ch. 4 (discussing Honneth’s ‘diagnoses of social pathologies’ in the context of his other work). But see Julian Culp and Leah Soroko, ‘Normative Reconstruction without Foundation.’ 15 European Journal of Political Theory 248 (2016) (criticizing Honneth’s theory essentially as too Hegelian rather than Kantian or post-Kantian and therefore missing essential philosophical foundations); Jörg Schaub, ‘Misdevelopments, Pathologies, and Normative Revolutions: Normative Reconstruction as Method of Critical Theory,’ 16 Critical Horizons 107 (2015) (arguing that Honneth’s approach abandons the methodology of ‘radical critique’ inherited from the Frankfurt School of critical social theory and is therefore insufficiently ‘revolutionary’).

270 These actions are of course subject to constraints of access to democratic political processes (which are radically reduced in authoritarian states) and some economic surplus above a subsistence income.

271 Ralph Waldo Emerson, ‘Man the Reformer’ in Emerson: Essays and Lectures (Joel Porte ed.) (1983) (1841), 147.