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Mark J. Roe, Corporate Purpose and Corporate Competition, 99 Wash. U. L. Rev. 223 (2021).

Abstract: The large American corporation faces ever-rising pressure to pursue a purpose that’s more than just for shareholder profit. This rising pressure interacts with sharp changes in industrial organization in a way that has not been comprehensively analyzed and is generally ignored. Firms’ capacity to accommodate pressure for a wider purpose is rising as well. Three changes are most relevant: the possibility of declining competition, the counter-possibility that what seems to be a competitive decline is really increasing winner-take-all competition, and the possibility that the ownership of the big firms has concentrated (even if the firms themselves have not) and thereby diluted competitive zeal. Consider competitive decline: In robustly competitive economies, firms cannot deviate much from profit maximization for expensive corporate purpose programs unless expanded purpose bolsters profitability (by branding the firm positively for consumers or by better motivating employees, for example). In economies with slack competition, in contrast, monopolistic and oligopolistic firms can accommodate purpose pressure, sometimes even expensive purpose pressure, from the profits they garner above what a competitive firm requires. In simplistic form, purpose can pressure such firms to redirect their excess profit from shareholders to stakeholders—to customers, employees, or the public good—in ways that firms in strongly competitive industries cannot. By most accounts, competition has been declining in the United States. By some accounts, it has declined precipitously. That decline suggests three possibilities: One—the central thesis of this Article— purpose pressure has greater potential to succeed if competition has declined or rents have otherwise grown; in competitive markets, the profit-oriented purpose-pressured firm has no choice but to refuse the purpose pressure (or to give it only lip service), while in monopolistically-organized industries, the purpose-pressured firm has more room to maneuver. Two, the normative bases undergirding shareholder primacy, although still strong, are less powerful in monopolistic markets. Three, declining corporate competition and rising corporate profits create a lush field for social conflict inside the firm and the polity for shareholders and stakeholders to seek a share of those profits. The result can infuse basic corporate governance with social conflict. This new, or expanded, field for conflict can contribute to and exacerbate our rising political and social instability. Expanding purpose pressure is one manifestation of this conflict.