Staff and students on from the Private and Commercial Research Thematic Group were delighted to welcome Dr. Fatjon Kaja from University of Amsterdam for a staff seminar. The title of the seminar was: The Corporate Purpose: A Historical Approach.

The seminar began with two thought-provoking questions: (1) What is the purpose of the corporation? And (2) How can we commit the corporation to a particular purpose?

There followed a really interesting timeline of how we think about corporate purpose, where Kaja referenced Friedman’s seminal magazine article, and earlier Berle and Means work on the Modern Corporation and Private Property. These works would see the purpose of the corporation as being for the interest of its members/shareholders. It remains the dominant understanding in Anglo-American company law/corporate governance today (albeit conditioned somewhat by Enlightened Shareholder Value in the UK at least– for more on this see here). Kaja however challenged the idea of shareholder primacy as ‘the’ purpose of the corporation as it assumes one form of incorporation, a form, which as he has it, is embedded in Administrative Charters (dating from 1856 to present day). Rather, Kaja focussed on Royal Charters, how they were conceived, and how they operated.

A Royal Charter is an instrument of incorporation, granted by The King, which confers independent legal personality on an organisation and defines its objectives, constitution and powers to govern its own affairs. The terms of each Charter are therefore somewhat different, depending on the individual requirements of the type of organisation that is being incorporated. Royal Charters can be traced back as far as 1155, with over 1000 of them having been granted since then. They can still be granted today. These charters were traditionally hard to get. Add to this, the nature of their granting usually brought a high risk of expropriation. It required loyalty to the Crown (during less stable times for the UK monarchy) and there was the risk of a charter holder falling out of favour with the Crown. [At this – Kaja made a great comparison (and teaching point!) with Game of Thrones!] Beyond, the Crown typically wanted something in return for the granting of the separate legal personality that comes as part of the charter (for guidance on separate legal personality see here, and here).

Refreshingly, this talk looked at some of the charters granted, including the Weavers Company Charter (1155), Cambridge (1231), Oxford (1248), QUB (1848) and Campbell College Belfast (1950) and noted the requirement of a ‘public orientated’ or ‘social/charitable’ element to their purpose. This might seem straight forward with educational or livery establishments, but it was particularly interesting when looking at companies who were awarded charters. Kaja’s methodology was fascinated – use of NLPs to identify word patterns – showcased an abundance of organisations that had been granted charters (universities, charities, educational establishments – notably all with a discernible public orientated sense of purpose) but the most popular type were (pre-1856) companies.  With considerable scrutiny placed on petitioners for charters (i.e. those who are requesting the granting of a royal charter from the Crown), those with a public-orientated element were more likely to succeed.  (For more on this see Butler (1986) and Mahoney (2000).)

After 1856 (and the rise of Administrative Charters – centred around Registration Acts and the repeal of the Bubble Act etc) companies were less likely to be in the top lists for royal charters. Of those that continued to petition for royal charter after 1856 many were livery companies, their very nature fulfilling the public-orientated sense of purpose.

 That is not to say that commercial companies were not successful. Kaja used the example of the British South Africa Charter (1886) where the Crown emphasised the public interest component (as outlined in Clause 16)noting in Clause 56 that the charter would be revoked if Clause 16 was not fulfilled.  Clause 16 – was to allow free harbour access to British Ships (a question from Dr. Marisa McVey in the discussion led to conversation around the ‘narrow’ or ‘wide’ understanding of public). At this point, Dr. Kaja then talked us through the limited examples of where a royal charter has in -fact been revoked (using the example of the quo warranto of Massachusetts Bay Company) and highlighting the delay (twenty years) in doing so. Of course, context is everything (delays could be attributed to civil procedure issues) but the significance of this example is the legal mechanisms which exist in Royal Charters (and common law) to enforce corporate purpose.  

Finishing up this exciting seminar, Kaja addressed the implications of this discussion for the present day. Many of us in attendance either study, research or teach Company Law and Corporate Governance in some format, so there were keen discussions. The takeaway point was that there is an overreliance on Friedman’s understanding of the firm. The type of incorporation process changes how you define corporate purpose. Shareholder primacy…. except when it isn’t.