The challenge of effective ‘corporate purpose law’ reform

Abstract

Company law commentary is again considering the company’s purpose. Mayer has argued that corporate purpose law in the United Kingdom (UK) should change with an ‘embarrassingly simple policy’ – requiring companies to state their purposes. The aim of this article is to demonstrate how difficult it would be to enact such a change to UK company law. The UK has no overt corporate purpose law: the most direct provision is hidden in the content of duties owed by directors. Yet, if the reason for corporate purpose law reform is that companies are run too much in the interests of their shareholders, then additional changes to company law are needed to remove the ability for shareholder pressure to be applied following corporate purpose law reform. The result is that changing corporate purpose law requires a number of further incidental changes to company law (indirect corporate purpose law), which necessitates a fundamental rewrite of UK company law. Partial reform is undesirable as it will allow the same dynamics to funnel through alternative routes, will present a veneer of change and will use up legislative bandwidth. Changing corporate purpose law in the UK is hard and involves a fundamental rewrite of company law. Alternative methods of regulation, to achieve the same ends, are more readily available.