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The social purpose of corporations: a literature review and research agenda

Hsieh, N., Meyer, M., Rodin, D. and van’t Klooster, J.

What are corporations for? This paper provides an analytical review of relevant research on this question, and some thoughts on the moral evaluation of corporations. It distinguishes between the concepts of social purpose and corporate purpose. Social purpose concerns the specific contribution that a corporation makes to realising societal goals. Corporate purpose concerns the goals the corporation should actively pursue.

Related questions of whether corporations ought to serve a social purpose, whether they ought actively to pursue their corporate purpose, and how to articulate, pursue and measure corporate purpose are explored. Determining social purpose quickly raises difficult political questions. The arguments for a minimalist and maximalist approach to social purpose are set out and debated.

The authors conducted interviews with 24 business leaders which highlighted frustration at the vague concept of social purpose and exactly how social and corporate purpose relate to each other. There was broad agreement that corporations should serve some social purpose, but not precisely what this might be.

The authors outline three reasons why societies become entitled to make claims on corporations, based on the principle of reciprocity. Corporations rely on society’s legal system for adjudication and protection. They rely on access to scarce resources that might otherwise be deployed elsewhere, and they are a constant source of social and economic disruption as they undertake their business.

Efficiency and market competition are often cited as forces that might steer firms to social purpose, but the paper argues that pervasive market failures suggest social purpose cannot be left entirely to the corporation. A web of other factors might also obstruct that goal.

Likewise, corporate purpose cannot be determined by the corporation alone due to a lack of ‘epistemic competence’ or the ability to balance and judge competing stakeholder interests, and the fact that corporations interact within political and social structures. The paper considers the societal responsiveness and shared value approaches to articulating corporate purpose, and the shortcomings of these methodologies.

One of the most complex challenges is the meaningful measurement of corporate and social purpose. Most current measures of corporate purpose are accounting measures. Social purpose also uses holistic action-guiding measures for environmental, social and governance impacts. However, none are yet satisfactory, and measurement remains ‘the most important condition for giving bite to corporate purpose’.

The paper notes important gaps in existing studies of business ethics, listing six issues which are not sufficiently addressed and which would be useful areas for future study: purpose failures; articulating and measuring corporate purpose; corporate purpose and organisational culture; the corporation’s relation to the political system; social purpose and political legitimacy, and how the legal form of the corporation impacts its ability to pursue a social purpose.

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