Purpose

Corporate purpose determines beneficiary rights – that is, in whose interests the organization is expected to run. UK company law permits but does not require companies to define a specific corporate purpose in their articles of association. If no such purpose is specified, it defaults, as discussed in Chapter Two, to a position that defines the fiduciary duty of the company directors in terms of promoting ‘the success of the company for the benefit of its members as a whole’ – that is, prioritizing its shareholders. These default rules grant substantive beneficiary rights exclusively to the company's shareholders, and while this encourages an inclusive perspective by asking directors to have regard to other corporate stakeholders’ interests, it does not actively prevent a company from adopting a financialized governance model, where its purpose becomes simply to extract profit for shareholders (see further Chapter Two).

For a contracting authority, this design offers little reassurance that the supplier company will not act opportunistically where it is in the shareholders’ interest to do so. Of course, companies may nonetheless publish a commitment, perhaps in a public statement on their website, to delivering public services. Serco, for instance, identifies ‘a set of four values - Trust, Care, Innovation, Pride – that shape our individual behaviours and hence the way the company behaves’ and commits to creating ‘innovative solutions that make positive impact and address some of the most urgent and complex challenges facing the modern world’. Importantly, however, these are ‘soft’ commitments only and have no impact on the legal design of the organization, nor are they enforceable. Firms wishing, under UK law, to commit to a wider corporate purpose have several options. They may choose to incorporate their venture under a tailored corporate form available for certain social and community enterprises – for example, as a community interest company (see Box 5.1), a cooperative society or community benefit society, or in some cases an adapted company limited by guarantee (which may have members but has no shareholders). They may alternatively choose to incorporate as company limited by shares but, again, adapt this format to suit their mission by defining and incorporating a tailored purpose clause for their venture into the company's articles of association, thus imposing on company directors a legal duty to promote and prioritize the defined corporate purpose.