No Need for Asia to be Woke: Contextualizing Anglo-America’s ‘Discovery’ of Corporate Purpose

In 2018, Colin Mayer, a stalwart of the British Academy, published Prosperity. The book is the new ‘bible’ of corporate governance that ‘is destined to change the world’, says Martin Lipton, a prolific prophet for America’s white-shoe lawyers. The book’s revelation is that corporations should no longer be governed for the sole purpose of maximizing shareholder value.  In 2019, the Business Roundtable, a club of America’s elite CEOs, reportedly ‘made headlines around the world’ by releasing its new statement on corporate purpose. The statement’s epochal epiphany echoed Mayer’s clarion call for corporations to have a purpose other than maximizing shareholder value: corporations no longer exist principally to serve shareholders but ‘for the benefit of all stakeholders—customers, employees, suppliers, communities and shareholders’. In 2020, Larry Fink, founder and chief executive of the American-cum-global investment goliath BlackRock, issued a letter to CEOs around the world imploring them to govern corporations to embrace ‘purpose and [serve] all stakeholders’—ostensibly spelling an end to the shareholder primacy obsession.

Viewed through an Anglo-American lens, corporate governance around the world is living a woke moment. The ‘discovery’ that corporations have stakeholders (other than shareholders) and purposes (other than maximizing shareholder value) promises to deliver global corporate governance from Tartarus to Elysium—or as Mayer describes it, perhaps drawing on Hinduism for global effect, corporate ‘nirvana’. Mayer tells us that this woke moment has the potential to emancipate the global community from the ‘Friedman Doctrine’, which posits that the corporation’s sole purpose is maximizing shareholder value. In Mayer’s words, the Friedman Doctrine ‘has been a powerful concept that has defined business practice and government policies around the world for half a century’. Not so fast.

That the Friedman Doctrine has played a central role in shaping Anglo-American corporate governance is beyond reproach. Despite their myriad differences, until recently, modern corporate law and governance in the United Kingdom and United States has, in theory and practice, been defined by shareholder primacy. Recognition of the interests of other corporate stakeholders (aside from shareholders) has largely been on the margins of corporate law and governance in both systems—with ‘shareholder primacy’ at the core. At the dawn of the new millennium, two of America’s preeminent law professors, Henry Hansmann and Reinier Kraakman, in their pugnaciously titled article ‘The End of History for Corporate Law’, boldly claimed that ‘[t]he triumph of the shareholder-oriented model of the corporation over its principal competitors is now assured’. In the echo of such Anglo-American shareholder primacy triumphalism, perhaps the iniquities of those who now suggest that the Friedman Doctrine is a powerful concept that has defined business practice and government policies in Asia (and everywhere else) over the last fifty-years can be forgiven.

However, as explained in my recent paper, what seems to have been forgotten is that the Friedman Doctrine is as autochthonous to Asia as the fortune cookie. Asian economic miracles have propelled the world’s economic growth for half a century. However, they have not been built on the Friedman Doctrine. Instead, for better or worse, the corporate governance systems in Asia’s most important economies have been driven by a variety of purposes—with neither the Friedman Doctrine nor its corporate law incarnation in the form of ‘shareholder primacy’ reigning supreme.

This is a positive observation with normative implications. As explained in my paper, the failure to accurately understand the purposes corporations have served—and do serve—in Asia has real-world consequences. It risks the well-intentioned Anglo-American-cum-global corporate purpose movement providing cover for rent-seekers in Asia—who are (or should be) disciplined by shareholder wealth maximization—in systems long steeped in corporate purpose. It may hinder efforts to address climate change, as repurposing corporations for this task requires understanding what their core purpose is to begin with. It cancels convincing evidence that corporate governance without shareholder primacy can produce economic success; and, in some cases, spawn economic miracles that lift hundreds of millions of people out of poverty, produce world leading innovations, and build stable and safe societies. It masks the dark sides of Asia’s economic miracles, in which corporations with core purposes other than shareholder wealth maximization can produce—and have produced—societal ills, which other countries would do well to avoid.

The point is not that a move away from shareholder primacy towards purpose is good or bad. The point is that context matters. As such, outcomes should be the focus of good corporate governance and the purpose corporations serve, not prescribed methods of achieving those outcomes. Ultimately, prosperity requires diversity.  

Dan W. Puchniak is Professor of Law at the Yong Pung How School of Law at Singapore Management University.