Lessons from India’s Struggles with Corporate Purpose

Abstract

The debate on corporate purpose is not confined to Western developed economies. Rapidly developing economies like India are similarly grappling with how to define and develop a legal framework around corporate purpose. For over a decade, India has taken a multi-pronged approach toward redefining corporate purpose. These include voluntary guidelines, corporate social responsibility mandates in corporate law, a stakeholder-oriented articulation of director fiduciary duties, and increased sustainability disclosure for listed firms. The success of India’s multi-pronged initiatives has been mixed. While domestic philanthropic giving has increased significantly, it is unevenly distributed. And mandatory CSR, a stakeholder-oriented approach to corporate law, and additional sustainability disclosures have made little dent in India’s massive inequality, poverty, corruption and pollution. The Indian experience presents an important perspective for the corporate purpose debate from a country where firms are dominated by controlling stockholders. In a country where politics and business are deeply intertwined, and where powerful controlling stockholders have an outsized role, stakeholderism may make little headway. Instead, the Indian approach to stakeholderism provides an environment where corporations can use their CSR efforts and corporate purpose rhetoric to curry political favor with the state, while the state can use stakeholderism to politically signal that it values society, even in the face of rising inequality and persistent poverty.