Apr 8, 2025
The Purpose and Social Responsibility of Companies – From Shareholder Interests to Sustainability
What is a company's purpose, and whose interests should the company serve? These questions are central to both legal, economic, and societal debates. Traditionally, companies' primary goal has been to maximize shareholder value, but increasingly, attention is directed toward companies' responsibilities to other stakeholders and society as a whole. This article sheds light on how views on a company's purpose have evolved from a singular focus on shareholders' interests to a recognition that companies also bear responsibilities toward other stakeholders and society in general.
Protected Interests in Corporate Law
From Ownership Focus to Broader Interest Protection
Historically, a company was considered the sum of its owners' interests, and corporate law primarily aimed to protect the shareholders' positions. Although the Companies Act still states that shareholders, through the general meeting, exercise the highest authority in a limited company (see Companies Act Section 5-1 first paragraph), the perspective has broadened over time.
The traditional goal of regulations protecting shareholders' interests has been threefold:
Ensure that potential shareholders do not make their investments on faulty premises
Protect the economic interest that the share contribution represents
Give owners insight into the company's affairs to provide them with a real opportunity for influence
Conflicts of Interest Among Shareholders
A complicating factor is that there may be conflicts of interest between different shareholder interests, typically between majority and minority shareholders. In such cases, it makes sense to let the collective, long-term interest of the shareholders in the company be decisive.
In exercising their discretion, management should particularly emphasize the shareholders' collective interest in long-term value increase for the company. This means not every decision needs to be proven to benefit shareholders directly—the decisive factor is whether the overall long-term strategy is apt to serve shareholders' interests.
Creditor Protection as a Counterbalance to Limited Liability
Attention has gradually also been directed toward creditors' interests. The consideration of creditor protection must be seen in conjunction with the shareholders' limited liability: Creditors take a risk by only being able to hold the corporate assets liable. As a counterbalance, rules on capital protection were introduced in corporate law.
Creditor protection was long based on rules concerning bound corporate capital, but this is in the process of changing. The minimum capital requirement for limited companies has been reduced from 100,000 to 30,000 kroner, and work is underway within the EU on new company forms with slender capital requirements. At the same time, the formal capital protection principle is gradually being replaced by more substantive, discretionary rules, like the requirement in Companies Act Section 3-4 that equity must be justifiable given the risks and scale of the business.
Employee Co-Determination Rights
In the 1970s, the focus expanded to also include the interests of employees, leading to rules on representation rights in governing bodies. This can be seen in connection with societal developments and political changes on the continent and in Scandinavia.
Today, employees' co-determination rights are taken for granted, depending on factors like company size and company form.
Societal Interests as Part of Corporate Interests
In recent times, the focus has increasingly turned toward economic theories and considerations regarding how companies operate and should operate in a larger societal context.
The Supreme Court recognized in HR-2018-570-A that societal interests are included as a protected interest:
"The corporate interest is a less clear-cut concept. A company should naturally safeguard shareholder interests, but it also has responsibilities towards employees, the company's contracting parties and creditors, and for fulfilling other obligations it may have towards its surroundings and society at large. Therefore, ensuring the company's continued operation can be part of the corporate interest."
This development can be described as a "corporate law paradigm shift," where the perspective has shifted from how corporate law should prevent abuse to how it should promote economic efficiency.
Economic Theories about the Company's Purpose
Shareholder Value Theory
Traditionally, it has been considered a goal that limited companies are run based on theories of "shareholder wealth maximization," later modified to a theory of "shareholder value." The theory applies to both listed and unlisted companies and simply put it aims at securing optimal returns on share investments as the ultimate company goal.
For listed companies, the return should directly affect the dividend distributed and the stock price of the company's shares (the company's market value).
Principal-Agent Theory
For large companies, especially public limited companies, challenges arise concerning the separation between owners and management. This led to the development of principal-agent theory, which demands economic efficiency in the organization of companies.
The core of the theory is that shareholders must spend time and effort controlling management, which suggests that corporate law rules should be designed so that shareholders can exercise this control at minimal cost.
Capital Structure Theory
From a financial perspective, shareholding is viewed as an investment meant to yield returns, and the company becomes a vehicle for raising capital. Capital structure theory focuses on optimal capital structure for the company, considering that the company can be financed in several ways—from equity capital via intermediate forms to pure loan capital.
In larger companies, there is now a deliberate strategy to arrange the capital structure to achieve an optimal balance between equity and debt capital, as well as various forms of equity (like A-shares and B-shares).
Corporate Social Responsibility (CSR)
From Shareholder to Stakeholder Value
Alongside the development towards economic efficiency, a sharper socioeconomic focus has been directed at companies. There are demands for transparency and that companies assume social responsibility (Corporate Social Responsibility, CSR).
This entails a shift from solely focusing on owners' interests (shareholder value) to recognizing that other stakeholders—such as employees, contracting parties, local communities, and the environment—should also be included in corporate interests (stakeholder value).
These two trends may seem to contradict each other, but in practice, the relationship between shareholder and stakeholder value should be viewed more from a compromise perspective than a contradictory perspective. However, this requires a principled acknowledgment that corporate interests can encompass both shareholders and stakeholders.
Regulation of Social Responsibility in Norwegian Law
Although Norwegian corporate legislation does not contain general rules requiring management to consider local interests, the environment, etc., companies' social responsibility has gained increased attention in the framework legislation:
Accounting Act Section 3-3b: Listed companies are obliged to report on their principles and practices of corporate governance.
Accounting Act Section 3-3c: "Large entities" are required to account for social responsibility, including considerations of the environment, social conditions, working environment, equality, human rights, and anti-corruption efforts.
Oslo Stock Exchange, along with the Norwegian Forum for Responsible and Sustainable Investments (Norsif), has prepared guidance on reporting social responsibility, which listed companies can choose to follow.
Social Responsibility in Case Law
Case law also contains decisions that recognize interests other than just those of shareholders and creditors. In Rt 1922 p 272, it was deemed lawful for Freia Chokolade Fabrik to allocate a significant amount as a gift for medical research.
In recent times, the Supreme Court has more directly emphasized that social interests form part of corporate interests, cf. HR-2018-570-A cited above.
Perspectives on Social Responsibility
The discussion about companies' social responsibility no longer centers so much on whether to acknowledge interests other than the traditional shareholder and creditor interests, but rather on how these different interests should be prioritized internally.
A central question is whether the legislator should prioritize the protection of various social interests in special legislation or whether such considerations should also motivate or serve as mandates for corporate management through corporate legislation.
In recent years, research efforts have focused extensively on companies' social responsibility, particularly through the research project SMART (Sustainable Market Actors for Responsible Trade), which aimed to redefine companies' purposes towards sustainability and social value creation rather than solely focusing on payouts to owners.
Corporate Governance
Definition and Importance
Corporate governance (ownership management and corporate leadership) concerns norms affecting the understanding of legal rules and the efficient management of companies’ operations.
Narrowly, it concerns ownership management and making boards accountable to shareholders, especially in companies with dispersed ownership. Good corporate governance is considered a prerequisite for increased shareholder values, investor confidence, and low capital costs for listed companies.
More fundamentally, the rules and principles of corporate governance must be seen in connection with economic theories about optimal corporate governance and which interests should be promoted and prioritized.
The Role of Institutional Investors
An important question in the discussion on corporate governance is whether corporate law protection should consider who the shareholders are—whether they are private individuals, institutional investors like banks and insurance companies, or the state.
Norway has lower personal ownership in listed companies compared to other European countries and leads in state ownership. This raises important questions about the economy and power distribution in society.
The international debate has emphasized that institutional investors have a particular responsibility to safeguard societal concerns through active participation in companies' governing bodies. The EU has also taken steps to increase shareholders' long-term engagement in companies through changes to the Shareholder Rights Directive.
Norwegian Guidelines for Ownership Management and Corporate Leadership
The Norwegian Committee on Corporate Governance (NUES) has prepared a recommendation for ownership management and corporate leadership. The recommendation has gained wide acceptance in practice and is the closest to a consensual Norwegian corporate governance code.
Companies listed on the Oslo Stock Exchange must follow the recommendation or explain why they do not ("comply or explain" principle). The Accounting Act Section 3-3b also formalizes companies' obligation to report on how they adhere to NUES.
The NUES recommendation also requires that the company should have guidelines on how it integrates considerations for the surroundings into value creation. This must be seen in connection with the rules in Accounting Act Section 3-3c on the duty to account for social responsibility.
Future Perspectives
Balancing Different Interests
The development is moving towards a more balanced approach to companies' purposes, where the interests of shareholders, creditors, employees, and society are recognized as legitimate considerations.
Corporate law thus becomes an arena for balancing various and partly conflicting interests. This balancing cannot be resolved solely through legal rules but must also be addressed through corporate governance recommendations, industry standards, and companies' own ethical guidelines.
Sustainability as an Overarching Principle
The UN's Sustainable Development Goals have set a new standard for how companies should contribute to sustainable development. This means that companies are increasingly expected to integrate environmental, social, and governance considerations (ESG) into their operations.
Sustainability is becoming an overarching principle that influences legislation, case law, and companies' own priorities. This represents a continuation and strengthening of the transition from a singular focus on shareholder value to a broader understanding of corporate social responsibility.
Conclusion
The view of companies' purposes has undergone significant development—from being solely focused on shareholders' interests to recognizing a broader social responsibility. This development is reflected in legislation, case law, and corporate governance recommendations.
Although shareholders' interests still remain central, it is increasingly acknowledged that companies also have responsibilities towards other stakeholders and society as a whole. The challenge moving forward will be to find an appropriate balance between these different interests, as well as to develop regulations and governance mechanisms that promote both economic efficiency and sustainable development.
In this context, corporate governance principles and social responsibility reporting will play a crucial role as a supplement to formal corporate legislation. At the same time, there will be a need for continued research and debate on companies' roles in society and how corporate law can best promote both value creation and sustainability.
