Re-evaluating corporate purpose: a critical assessment of the indian stakeholder governance framework through a historical and comparative analysis

Abstract

In the last century, the meaning and interpretation of the purpose of the corporation has undergone a succession of ideological shifts. Corporate purpose has become the prime focus of wide-ranging debates over the shareholder primacy versus the stakeholder primacy conceptualization of the corporation. While this debate is not new, in recent times, stakeholderism and its enduring viability as a theory of the corporation has gained considerable traction. At the same time, shareholder primacy and its explanatory power as a valid theory of contemporary organizations is being increasingly questioned. The current Indian legal and regulatory framework governing corporate purpose embodies stakeholderism. In sharp contrast to this, the Anglo-American corporate law framework can be characterized as predominantly shareholder-centric. This article seeks to contribute to contemporary discourse on the theorization of corporations by evaluating the stakeholder-oriented corporate purpose framework adopted by India. In doing this, it examines the historical trajectory of the doctrine of corporate purpose in the U.S., the U.K. and India. This comparative analysis provides an opportunity for enhancing discussions on corporate purpose in comparative corporate governance scholarship given the common law heritage of these jurisdictions and the differences between them in terms of ownership patterns, governance structures and philosophies that have guided their experience with corporate purpose. Broadly, this article makes the following arguments: (i) tracing the evolution of corporate purpose demonstrates that there is a need for its re-evaluation; and (ii) despite adopting the pluralistic form of stakeholder governance, the Indian framework governing corporate purpose is lacking in certain fundamental aspects. The article also proposes certain areas for further scholarly investigation to inform the re-evaluation of corporate purpose and the direction of comparative corporate governance scholarship.