This blog article aims to shed some light on the concept of "corporate purpose". What's behind it? One thing's for sure: It's not a legal concept – at least not in the traditional sense.
So what actually is corporate purpose?
The term "corporate purpose" refers to a specific philosophy that has attracted increasing attention in legal literature and the corporate landscape in recent years. In essence, corporate purpose describes the purpose of a company going beyond economic success and the intention of making a profit and also integrates social responsibility. The idea is simple, but in a way revolutionary. Companies are expected to act not only in the interests of their shareholders, but also in the interests of everyone else who is affected by what they do, i.e. the stakeholders.
The public debate about corporate purpose has gathered pace in recent years. Increasing public awareness of social and environmental responsibility, driven by climate change and the realisation that "unlimited growth on a finite planet is impossible" (as the Club of Rome put it back in 1972), has led to greater scrutiny of companies' legitimacy. Scandals in areas such as environmental pollution and labour exploitation have also contributed to this.
Is it a legal requirement?
There are no legal requirements for implementing such an overriding corporate purpose. It does not have to be included in a company's articles of association. The preamble to the German Corporate Governance Code also makes no mention of any binding requirements to this effect.
Does this mean that corporate purpose is just an empty shell, a fad or flowery management speak?
Legal scholars take a critical view of such an assumption. Holger Fleischer, for example, speaks of "a fundamental realignment of the framework conditions for entrepreneurial activity" (Fleischer, ZIP 2021, 5-15). He argues that the realignment will lead to a shift away from an exclusively profit-orientated approach towards a symbiosis between the pursuit of profit and the pursuit of benefits for society as a whole.
The key point here is that the aim is not to reduce profits in favour of the common good. Rather, a company's economic success should be enhanced in the long term through activities geared towards the common good. Such a corporate purpose creates added value that can have a positive impact on turnover. If a company is perceived both internally and externally as doing good for society as a whole, this not only has an impact on customer loyalty, but also on employee recruitment.
Corporate purpose versus contribution to sustainable management
Having clarified the meaning of corporate purpose, the question arises as to whether and to what extent it is justified: Hasn't the idea of companies voluntarily contributing to sustainable corporate development already been around for a long time? Numerous overlaps can be seen. What is left unconsidered, however, is the direction and dimension that the philosophy behind the corporate purpose concept claims for itself: While voluntary contributions to sustainable management focus on specific corporate measures that integrate social and environmental aspects into business activities in line with the definitions of authoritative but non-binding frameworks (GRI, ISO 26000, etc.), corporate purpose goes further. It is the central corporate purpose that not only concerns individual actions, but also guides all corporate behaviour.
But where does the law come into this?
In view of the increasing significance of the idea of corporate purpose, the question arises as to its codification, the written legal rules and obligations and, above all, its binding nature. No guiding principles can be derived from mere company slogans and advertising texts. However, corporate purpose is still not a focus of statutory provisions or sanctions. Rather, it is a voluntary commitment on the part of companies to act for the greater good of society.
Examples and challenges
In other countries, such as France, the idea of an overriding purpose has already found its way into national corporate law by way of optional inclusion. The voluntary or even mandatory inclusion of an overriding corporate purpose in the articles of association or other contractual agreements would indeed be conceivable in Germany too. However, mandatory inclusion would undoubtedly prompt accusations of paternalism. If the possibility of voluntary implementation were to be standardised, questions about the actual meaning and requirements of corporate purpose would become more relevant.
Conclusion
Ultimately, the implementation of corporate purpose does not focus on legal integration or sanctioning. Perhaps they are not even needed at all. Rather, it is about a clear commitment to an approach that places the good of society as a whole at the centre. Companies that accept this responsibility can not only strengthen their social legitimacy, but also benefit economically in the long term. Corporate purpose is therefore more than just a philosophy; it is an opportunity to combine entrepreneurial success with societal benefit.
