196 Performance, purpose or ecosystem flourishing?

In order to answer this question, a closer look at the propositions of each perspective in Dutch corporate legal theory is merited, particularly regarding the environment which directs the legal constitution of the corporation. The partnership perspective constitutes the legal corporation in a contractual agreement between partners in a free-market environment based on their own terms of cooperation.1 Since individual partners are considered to join the corporation in order to receive individual value for themselves, their shared expectation from the corporation is the efficient creation of market value.2 Success therefore becomes defined by the financial performance of a corporation in its market environment.3 By pursuing the efficient creation of value in a competitive market environment, the market mechanism is enabled to coordinate individual corporate performance towards the highest aggregate economic welfare.4 The welfare-creating ability of the market mechanism therefore justifies a narrow focus of success on the efficient creation of market value.5 The leap towards short-term profit maximization for the benefit of shareholders does not seem to be implied in the partnership perspective, as discussed above in relation to the unnecessary dominance of shareholders in the contemporary partnership perspective.6 Both the circle of partners involved in a corporate partnership and the terms of their cooperation could equally be argued to include the interest of other partners in continued market value creation (beyond mere profits). While profits may be necessary for those partners seeking the rentability of their financial assets, the commitment of other partners may be better served by the long-term continued creation of value.7 The definition of success for the partnership perspective therefore seems to involve profit as a boundary condition but not necessarily as its sole criterion for success. Rather, the criterion of success seems to be the continued ability to deliver value to all partners by being efficient and competitive in a global market environment.

By contrast, the institutional perspective as I interpret it constitutes the legal corporation in a concession received from society and all its stakeholders through binding legal rules.8 As a result, the success of the corporation acquires a dual nature. On the one hand, the corporation becomes an institution with an interest in its own continued existence, defining success as maintaining the stability and integrity of the corporation as a whole.9 On the other hand, the corporation is perceived as receiving its concessionary license to operate for the purpose of serving society and all its stakeholders.10 The ultimate success of the corporation therefore becomes defined in terms of the larger public purpose for which it was incorporated. Historically, corporations were chartered by the monarch for an explicit public purpose, such as the construction of public works or the administration of the colonies.11 In recent years, several authors have suggested that modern corporations could be considered to be similarly chartered for implicit public purposes such as the general creation of welfare for society, a commitment to solve societal problems, or the provision of necessary societal infrastructure.12 These implicit public purposes could be extended to include a general commitment to the goals and objectives adopted by society, such as SDGs, climate goals or national policies. After all, if corporations are perceived to be established by society through the government, then it seems reasonable that corporations should be expected to be committed to the larger objectives adopted by society and their governments.13 Based on this, the institutional perspective allows for corporate success to be defined in terms of public interests or a public purpose.

An important caveat suggested by Ciepley is that while corporations may be constituted similar to public entities, they operate freely similar to private agents.14 As a consequence, corporations are constituted somewhere in between the traditional dichotomy of private versus public spheres. Their constitution as corporate entities therefore implies both a commitment to a public purpose as well as the maintenance of private autonomy.15 In my view, this has two key implications for defining corporate success in terms of public interests and public purpose. First, to a certain extent, corporations should be allowed to choose their own individualized version of a public purpose, for example by reference to a general public purpose to serve the needs and problems of society.16 Second, the process of adopting and reviewing the public purpose of a corporation should be formalized by means of binding rules and should potentially involve all stakeholders as well as a form of legal evaluation.17 Through this, the success of the institutional corporation can be defined in terms of public interests and public purposes while its autonomy to pursue its own strategy towards achieving this public purpose is maintained.

Finally, the ecosystem perspective constitutes the legal corporation in the factual reality of its operating enterprise.18 Consequently, the corporate enterprise is perceived as operating as an ecosystem embedded in larger social and ecological ecosystems.19 Due to this embeddedness, the success of the corporate enterprise becomes intertwined with the flourishing and health of its environment.20 Simply put, corporations can only be successful if their larger environment is successful as well. As a result, corporate success becomes defined in terms of the common good and the needs and limits of its larger social and ecological environment.21 In order for boards to be aware of and include these environmental needs, the ecosystem perspective introduces scientific methods into corporate governance. In my view, this involves science-based objectives capable of capturing the environmental needs as they are discovered in specific factual circumstances.22 For example, the SDGs or climate goals may become relevant for the definition of corporate success according to the extent to which they represent real social and ecological needs based on scientific research into the specific ecosystems in which corporations operate. The relevance of such social and ecological objectives for corporate success is therefore not the result of the public constitution of corporations (as suggested by the institutional perspective) but due to the factual embeddedness of their enterprise. A corporate purpose therefore becomes relevant for the definition of success to the extent in which it is evidence-based rather than just being in alignment with public interests.23

Meanwhile, the ecosystem perspective considers corporate ecosystems to have their own agency and boundaries as well.24 Therefore, the board does not have to be concerned with all of the possible environmental needs. Rather, its principal role is to steward the dynamic and resilient operation of its enterprise in a healthy relationship with its environment.25 The corporate enterprise is therefore the focal point for analyzing which social and ecological interests become part of the definition of its success.26 For example, if the corporate enterprise acquires a vital utility function in its larger environment, then the social and ecological interests related to maintaining this utility function become part of its definition of success. By contrast, if the corporate enterprise has no such utility function in a given environment, then any related interests need not necessarily be included. The factual circumstances in which a corporate enterprise operates therefore define the specific interests that are required to be part of the definition of success. An important consequence of this approach is that an adopted corporate purpose can be evaluated objectively by assessing the extent to which it aligns with the factual circumstances of the operating enterprise.27 Rather than adopting any self-chosen public purpose, the board needs to discover the specific evidence-based purpose that is implicit in the operation of its enterprise and to seek interventions which best serve the self-organization of its corporate ecosystem towards this purpose.