Enforcing corporate purpose: comparative approaches

Abstract

Business leaders seem to be embracing a new paradigm where the purpose of for-profit corporations is to profit but lawfully, ethically, sustainably, and in the interests of non-shareholder stakeholders. Skeptical of this Damascene conversion to stakeholderism, some corporate law scholars question how directors might be held accountable for falling short of their commitment to some corporate purpose. One suggestion raised is to concretize corporate purpose as a legally binding director's duty to the company. As legal enforcement plays an essential role in compliance with law, the critical question is: How might a corporate purpose duty be effectively enforced? This Article argues that the answer likely lies with neither classic private enforcement by shareholders nor public enforcement by regulators, but rather a third way with elements of both. Drawing on comparative insights from three East Asian jurisdictions-Taiwan, the People's Republic of China, and Japan-this Article contributes to the enforcement literature in two ways. First, it identifies a novel form of hybrid enforcement (“quasi-private”) with distinct characteristics. Second, it critically compares this new enforcement model with an existing hybrid (“quasi-public”) in the context of enforcing corporate purpose. Quasi-private enforcement offers a potential solution that avoids most of the serious downsides of private, public, or quasi-public enforcement; is uniquely compatible with a corporate purpose duty; and opens fresh perspectives on making directors more legally accountable.