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Journal of Business Ethics (2021) 171:1–13
When theLaw Distinguishes Between theEnterprise
andtheCorporation: The Case oftheNew French Law onCorporate
BlancheSegrestin1 · ArmandHatchuel1· KevinLevillain1
Received: 16 June 2019 / Accepted: 13 January 2020 / Published online: 30 January 2020
© The Author(s) 2020
A recent French reform has revised the legal deﬁnition of the corporation. In essence, the law stipulates that the corporation
must be run with due regard to the social and environmental impacts of its activity. It also introduces the notion of raison
d’être and aﬀords the possibility for any corporation to assign social or environmental purposes to itself, deﬁned in its by-
laws. This reform is similar to recent reforms in the UK and the US, but is based on an original and distinctive theoretical
argument. The aim of our article is to analyze the fundamental tenets of this reform and their implications for the theory of
the corporation. It shows that the new law is based on a new positive deﬁnition of the enterprise as not only an economic
organization or a productive entity, but more fundamentally a space for innovative collective action. We argue that this view
of the enterprise challenges our conceptualization of the corporation in two important ways. First, it shows that the traditional
theories overlook the activities of the enterprise and their related impacts, and that the corporation is not necessarily the
appropriate legal vehicle for the innovative enterprise. Second, it suggests that the stipulation of the enterprise’s purpose or
raison d’être in the corporate by-laws can provide new promising legal foundations for corporate responsibility.
Keywords Corporate law· Corporate responsibility· Purpose-driven corporation
In May 2019, the French parliament passed a new law revis-
ing the deﬁnition of a corporation, especially the treatment
of corporate purpose. This law introduces three elements:
(i) an obligation to consider the social and environmental
implications of the business activity; (ii) an option for any
company to deﬁne its raison d’être; and (iii) a new type of
corporate form, the ‘société à mission,’ for companies that
adopt social or environmental goals by writing them into the
company’s by-laws and by setting up an ad hoc committee
to monitor them.
This reform is a part of an international movement that
started a few years ago, in particular with the introduction
of new corporate forms, such as Beneﬁt Corporations (BCs),
which have now been written into the laws of 33 Ameri-
can states (André 2012; Hiller 2013; Hemphill and Cullari
2014). These new corporate forms were created in the US
“to enhance CSR by providing legal protections to manage-
ments that want both to maximize shareholder income and
to pursue a social or environmental agenda” (André 2012, p.
133). In France, the reform also aims to increase corporate
social responsibility (CSR) and to restore trust in corpo-
rations, but the justiﬁcation diﬀers. Unlike the American
case, in France a director does not have a speciﬁc ﬁduciary
duty that would prevent him or her from prioritizing social
and environmental goals over shareholders’ interests. The
introduction of the société à mission is motivated by another
and original argument, as the Minister of Economy and
Finance, Le Maire, stated during the parliamentary debates.
He argued that the Napoleonic Code is “absolutely inad-
equate in so far it considers [the enterprise] from the angle
of the corporation only (…). Renaming things and doing so
* Blanche Segrestin
1 Mines ParisTech, PSL Research University, Centre de
Gestion Scientiﬁque (CGS), i3 UMR CNRS, 60 boulevard
Saint Michel, 75006Paris, France
2 B.Segrestin et al.
truthfully is extremely important.” [Bulletin Oﬃciel: 9637,
This reform has come at a time when scholars are increas-
ingly questioning the merits and legitimacy of the corpora-
tion (Clarke etal. 2019). While corporations indisputably
create value for their various stakeholders, their interests
are not necessarily correlated with the collective inter-
est (Margolis and Walsh 2003; Scherer and Palazzo 2007;
Lazonick 2014). As they have become global and extraor-
dinarily powerful organizations, it has also become clear
that they can threaten social equilibria as well as life itself
on our planet (Metcalf and Benn 2012). Therefore, scholars
are increasingly calling into question corporate governance
and the legal features of the corporation, such as limited
liability (Ireland 2010; Mayer 2013; Ciepley 2018). In this
context, the French corporate law reform may be meaning-
ful for the debate on the corporation and the legal condi-
tions of corporate responsibility. The aim of the article is
therefore to answer the following questions. First, why is it
that distinguishing the enterprise from the corporation is so
important and what are the fundamental tenets underpinning
the amendment of the articles deﬁning the corporation in the
Civil Code, which had remained practically unchanged since
1804? Second, what are the theoretical implications of these
arguments and to what extent do they challenge or enrich our
views of the corporation?
We were able to collect extensive data relating to the
period that saw the genesis of Articles 169 and 176 of the
PACTE Law (Plan d’Action pour la Croissance et la Trans-
formation des Entreprises [Action Plan for the Growth
and Transformation of Business Enterprises], (2008–2018
period), as we were participating in a research program on
the forms, foundations and possible reforms of French cor-
porate governance.1 However, to characterize the theoreti-
cal background and implications of the reform, this article
focuses speciﬁcally on the Notat-Senard Report. This report
was commissioned in January 2018 by the French govern-
ment from Notat and Senard,2 who were asked to look for
ways to reconcile the interests of corporations and the col-
lective interest. While various institutional reports have been
produced over the past years on the topic of reforming cor-
porate purpose, the Notat-Senard Report directly inspired
the ﬁnal text of the law and was the main reference both
in the parliamentary debates and in the press. It oﬀered a
detailed analysis of the issues, with sound arguments and
evidence, and played a decisive role by synthesizing previ-
ous research and directly informing the government’s draft
bill. The report consists of 122 pages, with numerous histori-
cal and academic references. Its authors heard the testimony
of more than 200 people within the span of a few weeks,
most of whom were from the corporate world.3 Our analysis
will therefore focus primarily on this report, its assessment
of the current situation and contemporary challenges, and
the justiﬁcations for the recommendations that it makes.
We show that the Notat-Senard Report proposes a change
in corporate law based on a new positive view of the enter-
prise: It argues that the enterprise emerged very late, com-
pared to the corporation, and as a distinctive economic
organization. While the corporation—as a legal form—was
already liberalized and widely used by merchants and pro-
ducers to share proﬁts and losses in the mid-nineteenth cen-
tury, the modern enterprise emerged only at the very end of
the nineteenth century, spawned by the upsurge of scien-
tiﬁc and technological research and development in indus-
try. This singular organization was not only productive and
commercial but also creative: its purpose was not only to
produce existing goods, but also to develop new goods and
services, and therefore also to create new technologies, and
new competencies, jobs and methods.
This view of the enterprise as a locus for collective crea-
tion challenges our conceptualization of the corporation in
two important ways.
First, it shows that the corporation is not necessarily the
appropriate legal vehicle for the enterprise. While the term
‘corporation’ is often used interchangeably with the term
‘enterprise,’ the literature has clearly distinguished the two
words: the enterprise as the ‘organized economic activity’
on the one hand, and the corporation as a legal instrument or
legal personhood on the other (Robé 2011; Deakin 2017). By
doing so, the literature approaches the enterprise by default
as just a reference to deﬁne the corporation. The Notat-
Senard Report shows that this approach to the enterprise by
default is misleading because it overlooks why the enterprise
has emerged only recently as a very distinctive form of eco-
nomic organization. As the process of collective creation can
directly impact our lifestyles and transform our societies, one
has to take into account a contingency parameter which is
the nature of the business and its purpose. Up until now, the
theories of the corporation have disregarded the nature of
the activities undertaken by the enterprise, as well as their
ultimate purpose. We argue that it is necessary to reappraise
1 Research Program at the Collège des Bernardins (2009–2018), led
by Favereau (Roger 2012; Favereau and Roger 2015; Segrestin and
2 Nicole Notat is the former director of the CFDT (one of the leading
labor unions) and the founder of the ﬁrst extra-ﬁnancial rating agency
in France (Vigéo Eiris). Jean-Dominique Senard is currently the pres-
ident of Renault but at the time was the CEO of Michelin. While it
draws on several institutional reports, as well as almost 200 hearings,
the Notat-Senard Report builds upon academic research to suggest a
new theoretical view of the enterprise.
3 Speciﬁcally, 57 people from the public sphere, 121 from the corpo-
rate sphere (including the non-proﬁt sector) and 34 from academia.
When theLaw Distinguishes Between theEnterprise andtheCorporation: The Case oftheNew French…
our distinction between the enterprise and the corporation,
and to recognize that while the corporation was conceived
as the legal vehicle for productive activity, it may not be
the appropriate tool for the enterprise of collective creation.
Second, this new positive view also proposes that corpo-
rate responsibility cannot be considered independently of the
activities undertaken and their objectives, and thus it entails
new governance mechanisms. From this point of view, the
French reform of corporate law adds to the growing body
of research that is critically examining the legitimacy of the
corporate form and exploring alternative forms. The French
reform proposes that stipulating a raison d’être and the
related social and environmental objectives in the by-laws
of the corporation is a way to give a legal existence to the
enterprise per se into corporate law. Therefore, enterprises
are invited to clearly set out their intended contribution to
society and the environment, and to proactively engage their
responsibility for the futures they aim at producing. The
reform thus invites us to consider the responsibility of the
enterprise for the future it creates, and opens new avenues
for scholars to think about the legal foundations of corporate
The article is organized as follows. First, after some clari-
ﬁcations of the terminology used in relation to the enterprise
and the corporation, we brieﬂy review the diﬀerent concep-
tualizations of the corporation and the various contemporary
debates about how to increase CSR and to reconcile the cor-
porate interest with the public interest. We show how these
debates have led to diﬀerent legal movements, including the
movement of purpose-with-proﬁts corporations in the US.
In the second section, we present the French reform, ﬁrst
positioning it in the historical context and then comparing it
with similar legal movements in the UK and the US. In the
third section, our analysis of the Notat-Senard Report shows
that while the French reform includes some of the features
of these movements, it builds upon an original view of the
enterprise.4 In the fourth section, we discuss the implications
of this view, both on the theoretical distinction between the
enterprise and the corporation, and on the ways to improve
corporate responsibility in the twenty-ﬁrst century.
The View oftheCorporation onTrial
The corporation is often considered as “the primary instru-
ment for wealth generation in contemporary economies,”
and its evolving role in society has called for multiple
interpretations (Clarke etal. 2019). In this section, we pre-
sent the main theories of the corporation and the related
debates in the literature before providing an overview of
the reforms initiated or undertaken to make the corporation
more sustainable and responsible.
Enterprise vs Corporation
To review the theories of the corporation, we ﬁrst need to
clarify the distinction between the words enterprise and cor-
poration. While in French the words entreprise and société
are clearly distinct, in the English-speaking world the terms
‘enterprise’ and ‘corporation,’ or ‘ﬁrm,’ are often used syn-
onymously. For instance, O’Kelley states that “in a typologi-
cal sense, the modern corporation is an American business
ﬁrm characterized by separation of ownership and control”
But these terms need to be distinguished. Robé argues
They correspond, however, to totally diﬀerent con-
cepts: a corporation is a legal instrument, with a sepa-
rate legal personality, which is used to legally structure
the ﬁrm; a ﬁrm is an organized economic activity, cor-
porations being used to legally structure most ﬁrms of
some signiﬁcance (Robé 2011, p. 3).
Similar to Robé, several authors distinguish between the
enterprise as an economic and/or productive organization
and its legal vehicle, namely, the corporation (Teubner 1988;
Robé 1999, 2011). For example, Chandler (1977) spoke of a
“modern business enterprise” and not a modern corporation,
as did Berle and Means (1932). Deakin views the enterprise
as “an organization engaged in the production of goods or
services, to which end it combines physical, human and
virtual assets” (Deakin 2012, p. 350), while he deﬁnes the
corporation as “a legal mechanism, and the principal legal-
institutional device through which business ﬁrms operate in
contemporary market economies” (Ibid., p. 351).5
In our case, this distinction is important to avoid any
translation issue from French. We will therefore use the term
‘enterprise’ in the same way as the French termentreprise
to refer to the business organization, regardless of its legal
4 It is worth emphasizing that our aim is not to study the social
movement dynamics (Djelic 2013) that resulted in the new law.
Thus, it is not our intention to analyze the political scene or processes
whereby diﬀerent groups lobbied or inﬂuenced the reform.
5 Similarly, Rajan and Zingales deﬁne the enterprise as the “unit of
economic organization” (Rajan and Zingales 2000, p. 24), in contrast
with the corporation, which is concerned with “ownership of assets”
(Ibid., p. 25).
4 B.Segrestin et al.
form.6 By contrast, the term ‘corporation’ refers to the legal
vehicle of business organizations.7
An Overview oftheTheories oftheCorporation
The corporation is thus primarily a legal device. In its mod-
ern legal form, it has three singular features. Marie-Laure
Djelic summarizes these three features in the following way:
First, it is treated as a ﬁctional individual. As a legal
entity in its own right, the corporation exists, poten-
tially, in perpetuity […]. As a legal entity, the corpo-
ration is protected by strong asset partitioning and it
beneﬁts from complete entity shielding.[…] Second,
ownership of the modern corporation means the hold-
ing of shares. In its modern form, corporate ownership
tends to be dispersed and shares are easily transferable
and marketable.[…] Third, modern corporate share
ownership is associated with the principle of limited
liability. (Djelic 2013, p. 596).
To explain these legal features and interpret the role of
corporate law, diﬀerent theories have been put forward.
State/Private andAggregate/Separate Entities: The Main
We can roughly diﬀerentiate the theories of the corpora-
tion along two main lines. First, the corporation is seen as
either a special entity, distinct from its shareholders, or as an
aggregation of its members. Second, the corporation is either
created by the state or is the result of private initiative. The
prevailing doctrine in the early nineteenth century clearly
recognized the corporation as an entity in its own right [“its
power to sue and amenity to suit and its durational exist-
ence deﬁned without regard to the lives of its shareholders”
(Millon 1990, p. 206)]. The corporation was also ‘artiﬁcial,’
that is, it was created only though a special chartering by the
state (Roy 2019). The privileges of limited liability were
conferred only for the purpose of general welfare. In this
view, the state is the source of managerial power, and the
principle of ultra vires indicated that “a corporation could
not bind itself contractually concerning a matter that was
beyond the objectives deﬁned in its charters” (Millon 1990,
p. 209). Thus, the shareholders, even unanimously, could not
create power not conferred by the state.
In contrast with the idea of an artiﬁcial entity created by
the state, the corporation was later conceptualized in the
twentieth century as a ‘natural’ entity (created freely at the
private initiative of shareholders). This legal ‘contractual-
ism’ (Dine 2000) was made possible by the liberalization of
limited liability, the generalization of the standard of incor-
poration for any lawful purpose in the late nineteenth cen-
tury, and the disappearance of the ultra vires doctrine (Djelic
2013; Ireland 2010; Guinnane etal. 2007, 2017). In the early
twentieth century, the corporation was thus seen as a natu-
ral entity, albeit still as a separate legal entity. The separate
legal entity was put forward in the attempts to conceptualize
corporate social responsibility; it allowed managers to act
as trustees of the corporation (Dodd 1932). But gradually,
the legal contractualism made way to a more economic con-
tractualism in which the corporation is no longer a separate
entity. Instead, it is an ‘aggregation’ of its shareholders, with
no distinct personality (Millon 1990; Dine 2000). Accord-
ingly, the corporation has no separate existence, and is
reduced to a mere nexus of contracts, with the shareholders
as the main principals (Bratton 1989). The source of mana-
gerial powers then comes from the shareholders themselves,
“with directors enjoying only such responsibility as actually
was delegated” (Millon 1990, p. 215). Corporate law would
thus be less concerned by the regulation of the corporation’s
relationship with society than by the internal aspects of cor-
As we know from the literature on corporate governance,
this view was widespread in the twentieth century. However,
the debate is ongoing. Scholars have shown that considering
the corporation as a nexus of contracts or as a “legal ﬁc-
tion” (Jensen and Meckling 1976) poses various problems.
From an institutional perspective, the corporation is created
by a “constitutional contract” (Grandori 2010): this type
of contract not only regulates what is done or exchanged,
but also how to decide. As it deﬁnes only decision proce-
dures and rights, it is seen as an eﬀective mode of govern-
ing under increasing levels of uncertain (Grandori 2010,
2019). Emphasis is also placed on the fact that the corpora-
tion is not a pure economic and transactional organization
(Deakin etal. 2017). For example, the importance of entity
shielding has been demonstrated (Hansmann and Kraakman
2000), along with that of corollary risks to the corporate veil
(Millon 2007). Ciepley notes that “Entity shielding simply
cannot be secured through private contract. It requires the
legal ﬁat of the state. And incorporation can be seen as a
6 The ‘ﬁrm’ is a fourth term, which we equate to the enterprise.
Deakin etal. (2017, p. 194), for instance, distinguish the ﬁrm from
the corporation as follows: “We use the term ‘ﬁrm’ to apply to indi-
viduals or organizations with the legally recognized capacity to pro-
duce goods or services for sale. A corporation is a kind of ﬁrm; it has
a structure as designated under corporate law. All corporations are
ﬁrms, but not all ﬁrms are corporations” (Deakin etal. 2017).
7 To avoid translation issues, we will clarify our choice of ter-
minology. In line with American usage, we use the word ‘com-
pany’(société in French) to refer to both the partnership and the cor-
poration. But most of the time, we use the term ‘corporation’ (société
anonyme in French) in reference to the public stock corporation, with
legal personhood and limited liability. Similarly, we diﬀerentiate
between the ‘purpose’ an enterprise can follow (without stipulating
it in its by-laws) and the ‘corporate purpose’ [objet social]as the for-
mally stated purpose in the by-laws of the corporation.
When theLaw Distinguishes Between theEnterprise andtheCorporation: The Case oftheNew French…
substantial privilege bestowed upon a group by the state”
(Ciepley 2018). The artiﬁcial nature of the corporation is
also evident by virtue of the fact that the corporate contract
creates a “sempiternal legal person” (Stout 2019), i.e., a per-
son that can in theory exist forever.
The Quest forCorporate Social Responsibility
The model of the corporation as a private and aggregate
entity has been criticized, mainly with regard to social
responsibility. Following the early analysis of Dodd (1932),
scholars have more recently revived the theory of the sepa-
rate legal entity, which considers that, despite being created
by private initiative, the corporation is an entity distinct from
its shareholders (Blair and Stout 1999; Biondi etal. 2007;
Veldman 2018). Thus, the corporation is not only a con-
tract between shareholders formed to maximize their joint
interests. The creation of a legal entity allows the corpora-
tion, precisely, to be a vehicle for a broader collective eﬀort,
invested in by multiple stakeholders and oriented towards
their joint welfare (Blair and Stout 1999; Lan and Heracle-
ous 2010). It is not necessary to include the various stake-
holders as co-contractors in the corporate contract. Instead,
it must be acknowledged instead that the board is in charge
both of mediation and of allocating rewards fairly.
This theory of the separate legal entity has been very
inﬂuential in contesting the shareholder view of corporate
governance. However, does corporate law, as it stands, pro-
vide the appropriate governance to ensure that corporations
act responsibly? As it is ultimately the shareholders who
control the board and the top management (Kaufman and
Englander 2005; Smith and Rönnegard 2016), one can doubt
that directors have suﬃcient leeway to consider the vari-
ous stakeholders equally. Even if corporations are under no
obligation to maximize shareholders’ returns, shareholders
can be in a position to demand a quick return on their invest-
ment and then withdraw, even to the detriment of long-term
sustainability (Mac Cormac and Haney 2012). In a nutshell,
companies can pursue social and environmental goals only
when their shareholders consent to it (Kaufman and Englan-
der 2005; Sandberg 2011; Yosifon 2014). Today, given the
huge challenges presented by inequality and climate change,
scholars have started to discuss possible reforms of corporate
law. Researchers are not only investigating governance that
promotes leadership responsibility and sustainable corporate
behavior (Filatotchev and Nakajima 2014; Starbuck 2014;
Scherer etal. 2013), but they are also considering a rede-
sign of the corporate form to facilitate sustainability. The
corporate form “is ailing social technology” (Metcalf and
Benn 2012); it pursues private interests but presumably with
no interest in humanity. The legal features of the corporate
form, such as limited liability, allow for certain irresponsible
conducts (Ireland 2010; Ciepley 2018; Mayer 2013). And
this is all the more worrying given that the new technologies
that are being developed by contemporary corporations, such
as artiﬁcial intelligence, are creating an unpredictable future
(Mulgan 2018). While it was originally designed to facilitate
economic development, “the corporate form now threatens
human survival” (Metcalf and Benn 2012, p. 195).
One of the many proposals designed to reduce corporate
irresponsibility (e.g., changes in CEO compensation) is to
allow a majority of the voting stock of a corporation to be
held by a non-proﬁt organization, or “industrial foundation”
(Mayer 2013; Ciepley 2018). Such shareholder foundations
“are normally chartered for combined business and charita-
ble purposes” (Ciepley 2018, p.1015). Their main advantage
would be to insulate the control of the corporation from the
inﬂuence of short-term shareholders and allow for the needs
of various stakeholders to be taken into consideration in the
long run. This is, however, very demanding as it requires
stocks to be voluntary transferred to non-proﬁt foundations.
International Legal Movements
Two other streams have emerged in the US and the UK: one
that extends the duties of directors with respect to various
stakeholders, and one that creates new corporate forms with
expanded corporate purposes.
Expanding theDuties ofDirectors
Both the US and the UK preceded France in terms of
addressing the social and environmental duties of company
directors. Speciﬁcally, the UK Company Act of 2006 stipu-
lates in Section172 that administrators must act for the suc-
cess of the company and for the beneﬁt of its members, and
in so doing must consider the eﬀects of their decisions on the
interests of employees and other parties (Keay 2007). This
provision followed a wave of constituency statutes in various
American states that either allowed or required, depending
on the case, company directors to take into consideration the
interests of diﬀerent stakeholders (Bainbridge 1992; Bis-
conti 2009; Orts 1992).
New Corporate Forms withExpanded Purposes
While an expansion of ﬁduciary duties concerns all compa-
nies, an alternative was to introduce new corporate forms
as an option rather than an obligation (McMullen and War-
nick 2016). Following the creation of Community Interest
Companies in England in 2004, the ﬁrst BCs were intro-
duced in Maryland in the US in 2010. In 2012, California
simultaneously introduced the BC and the Flexible Purpose
Corporation [later relabelled the Social Purpose Corpora-
tion (SPC)]. Today, the BC has been adopted in 31 states in
the US (Hiller 2013) and has spread beyond the US to Latin
6 B.Segrestin et al.
America and Europe (e.g., Società Beneﬁt in Italy in 2014).
While proﬁt-with-purpose corporations take several diﬀerent
forms, depending on the state, with diﬀerent missions and
diﬀerent evaluation or enforcement mechanisms, the gen-
eral framework is relatively ﬁxed (Clark and Babson 2012;
Deskins 2012; Hemphill and Cullari 2014; Hiller 2013;
Michelle 2017; Rawhouser etal. 2015) and can be summa-
rized as follows: they adopt “(i) a corporate purpose to create
a material positive impact on society and the environment;
(ii) expanded ﬁduciary duties of the directors requiring the
consideration of non-ﬁnancial interests; and (iii) an obliga-
tion for the corporation to report on its overall social and
environmental performance” (Hemphill and Cullari 2014, p.
520). The French reform, as we will see in the next section,
introduces the same framework in corporate law, but with
additional features and distinctive justiﬁcations.
The Context oftheFrench Reform
The French Reform fromaHistorical Perspective
While the historical background may be quite similar in
other countries (Djelic 2013; Ireland 2010; Guinnane etal.
2007, 2017; Ciepley 2018), it is important to contextual-
ize the present reform in the history of French corporate
law, in particular regarding the role played by the corporate
In France, following the abolition of guilds and their
equivalents during the French Revolution, the Civil Code
under Napoleon formally recognized the possibility of incor-
poration with limited liability, but deﬁned it cautiously. The
corporation was introduced into commercial law in 1807.
At the time, the corporate purpose played an essential role,
revealing a conceptualization of the corporation as both a
separate legal entity and a state creation:
– First, corporations could no longer be known by the
names of their owners: “A corporation [société anonyme]
is anonymous. It is only known by the description of its
purpose” [the ﬁrst draft of the code (year IX) in Lefebvre-
– Second, given the risk of fraud and traps for investors, the
creation of a corporation was subject to special authori-
zation from the government. This authorization was
granted following an in-depth examination of the corpo-
rate purpose to see whether the public call for investors
was justiﬁed and whether the company had a chance of
– Finally, corporate purpose was also a way to deﬁne the
latitude granted to the directors responsible for running
the business, based on the doctrine of ultra vires
Examination and authorization procedures gradually came
to be viewed as increasingly burdensome, but the experience
helped to develop a series of rules relating to the incorpora-
tion of corporations. The law for instance gradually intro-
duced the requirement of a minimum amount of capital, as
well as a special auditor (commissaire aux comptes). Follow-
ing numerous heated debates, government authorization was
ﬁnally done away with in 1867 in the name of freedom of
association. From then on, corporate purpose was no longer
subject to the formal control of the state, and could be freely
determined, as long as it was legal (Lefebvre-Teillard 1985).
This freedom has not been called into question since
then. Several jurists have noted that corporate purpose was
progressively likened to sectors of activity [“ﬁelds of possi-
bilities” (Vernac 2015)] and was often worded very broadly
(e.g., “for any lawful purpose”) to preclude the risk of direc-
tors overstepping their authorization. To our knowledge, no
proposals were made in the twentieth century in France to
reform corporate purpose. It was only recently, in 2017, that
the concept was taken up again in government reﬂection.
The Rise ofCorporate Purpose asaPolicy Issue
In October of that year, President Emmanuel Macron men-
tioned in a televised speech the need to “redeﬁne the enter-
prise” and its purpose. At the time, the French Ministry of
Economic Aﬀairs and Finance had just launched a large-
scale consultation to prepare the PACTE law, the objective
of which was to rebuild French citizens’ ‘trust’ in business
(cf. Club des Juristes 2018, p.15).
One of the components of this consultation was a com-
mission that examined issues of value creation through
governance, the involvement of employees in value crea-
tion (e.g., profit-sharing, employee shareholdings), and
company stakeholders as contributors to sustainable value
(Bercy 2017, p. 8). However, even before the report of this
commission was published, the Ministry of Labour wished
to strengthen this component and convened a government
meeting on corporate purpose on 5 January 2018. In addi-
tion to Muriel Pénicaud, the Minister of Labour, the partici-
pants in this meeting were Nicole Belloubet, the Minister of
Justice, Nicolas Hulot, the Minister for the Ecological and
Solidary Transition, and Bruno Le Maire, the Minister of
Economy and Finance. All the social partners (trade union
leaders) were also invited (Barthet 2018). At this meeting,
the ministers expressed their wish to prepare a more ambi-
tious reform, and commissioned Nicole Notat and Jean-
Dominique Senard to draw up a report on the relationship
between corporations and the collective interest. Consider-
ing the growing societal expectations with respect to busi-
ness enterprises, the ministers thought it was necessary to
When theLaw Distinguishes Between theEnterprise andtheCorporation: The Case oftheNew French…
forge a new vision of the ﬁrm by examining its role, legal
framework and mission.
The letter of intent, dated January 11, 2018, shows that
the task entrusted to Notat and Senard was ambitious, and
was aimed at reopening a discussion around corporate
Our idea is to open up the ﬁeld of possibilities and
consider all levers allowing any stakeholders that so
desire to give an enterprise a wider corporate purpose
[objet social]. In short, this means giving an enterprise
a purpose that is not exclusively guided by short-term
considerations, thus promoting a vision of capitalism
that is more respectful of the general interest and that
of future generations. [our translation]
The schedule was very tight, as the report had to be submit-
ted by March 1, 2018. While various institutional reports
had been produced over the years on reforming corporate
purpose, the Notat-Senard Report provided a detailed analy-
sis of the issues and a clear justiﬁcation for its proposals. It
played a decisive role by oﬀering a synthesis of previous
research, and directly informed the government’s draft bill.
The Core Elements oftheLaw
The report was published in March and the resulting bill did
the rounds in April. Chapter3 of the bill concerned “fairer
businesses,” and the second section was titled “Rethinking
the place of companies in society.” This section incorporated
Notat and Senard’s main recommendations, albeit watered
down. The suggestions of the Notat-Senard Report were
raised in parliamentary debates, and after several consulta-
tions, the National Assembly validated the report’s sugges-
tions on October 5, 2018. They were partially vetoed by the
Senate, but ﬁnally reintroduced by the National Assembly
on March 16, 2019. The ﬁnal version was approved by the
Senate on April 9, 2019 and by the National Assembly on
April 11, 2019.
Table1 summarizes Articles 169 and 176 of the PACTE.
It shows three key elements of the reform: (1) a “considera-
tion clause,” i.e., the obligation to consider the social and
environmental implications of a corporation’s activities, (2)
the possibility for a corporation to deﬁne its raison d’être,
and (3) a new status of société à mission.
The French Reform inComparison totheUS andUK
The French reform must not be taken out of its international
context. In this particular case, it clearly borrows from other
legislative developments that preceded it, mainly in the US
and the UK, but the French position diﬀers from the other
reforms in several ways. The diﬀerences can be character-
ized along three main dimensions (see Table2):
– First, the French law combines two paths that could be
seen as alternatives: a general obligation for companies
to consider social and environmental issues, and an
option for a company to make social and environmental
Table 1 The Key amendments of the Articles 169 and 176 [our translation]
Article 1833 of the Civil Code is completed as follows: “The company should be managed in its own self-interest, while considering the social
and environmental impact of its operations”
Article 1835 is completed as follows: “By-laws can specify a raison d’être, consisting of the principles that the company adopts, with respect
for these principles taking place through the company allocating resources to them as a part of its operations”
The Company Law [in the Code of Commerce] is modiﬁed. Extract:
“Art. L. 210–10.—A société à mission is a corporation that has a raison d’être in line with Article 1835 of the Civil Code, the by-laws of
“1. Deﬁne a mission of pursuing social and environmental goals in accordance with its raison d’être;
“2. Deﬁne the composition, operation, and means of a corporate body, separate from the bodies established by the present book, which must
contain at least one employee, and which is exclusively responsible for successfully fulﬁlling the mission indicated in Item 1”
Table 2 The French reform in comparison to the US and UK reforms
General path: expansion of ﬁduciary duties for company directors France: Optional path
Optional path: creation of a company with an extended corporate purpose
Authorization for com-
pany directors to take
Requirement for directors to take multiple stakehold-
ers (or the legal entity) into account
Possibility for a com-
pany to formulate its
based on standardized
Company commitment based on a speciﬁc purpose
e.g., Constituency statutes e.g., UK Company ActFrance: Corporate interest
(interest of the legal
entity) while consider-
ing social and environ-
With a distinct committee
stakeholders to evaluate
the respect of the purpose
8 B.Segrestin et al.
– Second, concerning the general obligation, the French
law, like the UK one, stipulates that companies must be
managed in the corporate interest [intérêt social]. How-
ever, while the UK law deﬁnes the success of the com-
pany as the objective, and the means to ensure that the
stakeholders’ interests are taken into consideration, the
French law stresses that the company’s interests do not
guarantee the consideration of social and environmental
aspects. The idea is not only to manage a company in its
own interests, but also expressly to consider the social
and environmental impacts of its operations.
– Third, regarding the option to make social and environ-
mental commitments, the French law, contrary to US
BCs (but similar to SPCs), does not establish standard-
ized assessment frameworks, leaving it up to the sociétés
à mission to deﬁne both their mission and their evalua-
tion methods. It does nonetheless require the creation
of a special committee to monitor the execution of the
mission and to report to the board, as opposed to SPCs,
which leave it entirely up to the board of directors to
evaluate the strategy with respect to the mission (in
which case a decree must subsequently specify the pub-
licity and reporting methods).
Theoretical Background: ANewPositive
While they have many similarities, the starkest contrast
between the French reform and those in other countries con-
cerns their justiﬁcation. The Notat -Senard Report follows
the US movement’s analysis of the limitations of corporate
law in relation to corporate responsibility, but it diﬀers in
its ‘positive’ approach to the enterprise. Usually, as noted
above, the enterprise is seen as the substratum of the corpo-
ration: the ‘economic activities.’ By ‘positive approach’ we
mean, on the contrary, the elements that characterize the dis-
tinctive features of the enterprise. While business organiza-
tions or ‘organized economic activities’ have always existed,
the enterprise has a recent history and a speciﬁc rationale.
To justify its proposals, it builds upon academic research
to advance a new view of the enterprise, with a purpose of
Rather than considering enterprises as the root cause of
our current sustainability challenges, the report suggests
reversing the viewpoint, arguing that enterprises are “a part
of the solution.” Its recommendations are based on three
original positions: (i) the ‘enterprise’ (entreprise) must be
distinguished from its legal vehicle, which is the company
(société); (ii) it is the collective capacity to create that distin-
guishes the enterprise and that contributes to the collective
interest; and (iii) deﬁning the raison d’être of the enterprise
within the corporate contract protects the enterprise in this
capacity, and therefore also protects the collective interest.
Let us consider these propositions in detail.
Collective Creation astheDriver oftheModern
Based on past research (Robé 1999, 2011), the Notat-Sen-
ard Report starts by emphasizing the importance of distin-
guishing the enterprise [entreprise] from the corporation
[société]. In terms of French law, the corporation is formed
by shareowners who agree, by contract, to appropriate prop-
erty for a common venture. But employees, for instance,
are not part of this contract; they are only a third party. The
enterprise, which is the term currently used to denote the
organization invested primarily by employees and managers,
is not deﬁned in the law.
The Report adds a historical perspective, based on recent
academic work (Segrestin and Hatchuel 2012; Favereau
2014; Favereau and Roger 2015), to distinguish between
the corporation and the enterprise. While the corporation
was liberalized in France in 1867 (and also around the mid-
nineteenth century in England, Germany and the United
States), the modern enterprise only emerged at the very end
of the nineteenth century. It was not until the beginning of
the twentieth century that the employment contract [contrat
de travail] replaced the personal service contract [contrat
de louage], which was classiﬁed in the ‘law of things’ and
was highly contractual and commercial in nature, such as
client − supplier contracts between the employee and the
employer (Deakin 2009) (Notat-Senard Report, pp. 25 − 26).
This was also the period during which professional manage-
ment and the role of executives emerged as distinct func-
tions, separate from those of directors. Why has the enter-
prise, with its complex contractual relationships, emerged?
The report suggests that the modern enterprise emerged
during this period not only as a result of industrial develop-
ment and the concentration of capital. The modern enter-
prise cannot be fully comprehended as an alternative model
of production (Perrow 2002), nor as an integration of various
functions designed to address the growing complexity of
industrial activities (Chandler 1990). It can be understood
only by considering the rise of a new regime of activity
that emerged when technical inventions and technological
progress were becoming collective and organized activities,
and a new generation of engineers and researchers began
to join companies. “They became aware that invention is
an activity that can (and must) be both collective and gov-
erned” (Segrestin and Hatchuel 2012, p. 27, quoted on page
25 of the Notat-Senard Report). It is “collective creation,
inventive activities, and the organization of innovation that
constitute the core of the industrial enterprise, and that
When theLaw Distinguishes Between theEnterprise andtheCorporation: The Case oftheNew French…
grant it its legitimacy” (p. 25, our translation). New types of
organization emerged to organize and systematize innova-
tion, and with them new industrial relationships arose. Pro-
fessional management and business administration courses
appeared. Supplier − purchaser-style contracts with workers
were clearly no longer suﬃcient, for to develop electricity,
automobiles, or synthetic fertilizers, it was necessary to
develop new competencies and new methods. The employ-
ment contract, based on the principle of subordination, was
seen as a way to train workers and to make them adopt new
and changing collective methods.
This distinction between the enterprise and the cor-
poration, and the conceptualization of the enterprise as a
dynamic of collective creation are borrowed from academic
research (Segrestin and Hatchuel 2012) and play a central
role in the Notat-Senard Report, in which the term ‘collec-
tive creation’ appears nine times: the enterprise is “created
only if it addresses a speciﬁc need, and remains only if it
maintains a dynamic of invention, innovation, and collective
creation” (p. 4, our translation).
Collective Creation: Why theEnterprise Must be
From this point of view, Notat and Senard note a kind of his-
torical mismatch between the law and the rise of the modern
enterprise. During the twentieth century, diﬀerent branches
of the law had to deal with the enterprise, primarily labor
law, but also areas such as competition law and tax law.
However, corporate governance remained within the domain
of corporate law, which hardly changed at all. Business oﬃc-
ers have continued to be hired and mandated by shareholders
in accordance with the rule of corporate law as if there had
been no fundamental transformation of business organiza-
tions from classical companies to modern enterprises.
While the innovative aspect of the enterprise contributes
to the general interest, the paradox pointed out by the Notat-
Senard Report is that governance practices tend to “empty
the enterprise of its substance” (p. 19). For example, the
short-termism of investors can limit R&D eﬀorts (Auvray
etal. 2016). Therefore, the issue is, above all, not to relin-
quish proﬁts, but to restore the role of the enterprise and its
capacity to generate value beyond proﬁts.
Raison d’être asaWay toProtect theEnterprise
From this distinction between the enterprise and the cor-
poration, the Report concludes that the enterprise has until
now been lacking a legal vehicle consistent with its creative
nature. Because of its innovative nature, the enterprise can
aﬀect the society and the environment both negatively or
positively. Thus, the following legal changes are suggested:
– On the negative impact of the enterprise, this led to the
recommendation to amend the Civil Code by adding a
‘consideration clause’ to Article 1833: The enterprise
cannot be run in the sole interests of the shareholders
or in the interests of the private corporation. Corporate
law should consider the activities and their social and
environmental impacts. No enterprise should be managed
without due regard to the impacts of the related activities.
– On the positive contribution of the enterprise, the report
recommends two additional provisions: the board of any
corporation can deﬁne the raison d’être [of its enterprise];
and if the shareholders so desire, the raison d’être can be
translated into objectives written into the by-laws, thus
making it a contractual commitment. Accordingly, the
entreprise à mission status deﬁnes its purpose with spe-
ciﬁc social and environmental objectives in the by-laws.
Here again, the report draws on academic research (Seg-
restin etal. 2015; Levillain 2017). The entreprise à mission
makes CSR initiatives credible and avoids greenwashing as
the objectives contractually bind the corporation. By speci-
fying the mandate of directors, the contractual objectives
also increase directors’ leeway to refuse excessive demands
for proﬁts from shareholders. The entreprise à mission thus
secures long-term collective eﬀorts for desirable futures.
From our point of view, the combination of these three
points (a consideration clause, deﬁning a raison d’être,
and entreprise à mission status) deﬁnes the Notat-Senard
Report’s scope and originality. All three elements have now
been enshrined in the law.
Discussion: Enriching our Theories
The PACTE law has just passed in France and it is too early
and out of the scope of our paper to analyze the practical con-
sequences of the changes it introduced. Modifying the purpose
of the corporation is obviously something that has raised ques-
tions, and several commentators have already expressed their
concerns, which often overlap with debates in the UK and
the US. For instance, will this change be a source of rapidly
increasing litigation (Yosifon 2017)? Will entreprises à mis-
sion only concern a small number of companies? Will green-
washing actually be prevented (Rawhouser etal. 2015)? How-
ever, beyond these issues, the theoretical reach of the French
law has frequently been pointed out.8 Next, we examine more
closely some of the theoretical implications of this reform.
8 Some commentators speak not only of a change in mindset “by
taking the general interest on board in their concerns,” but also of
a “paradigm shift,” a “renewal of liberalism,” or even “a concep-
tual revolution”; the law is seen to create “a fundamental hole in the
10 B.Segrestin et al.
Is theCorporation theAppropriate Vehicle
fortheEnterprise? Towards anEnriched Theory
The French law brings to light a parameter that was pre-
viously not visible in the approach to the corporation. As
noted above, the theories of the corporation have ﬂuctuated
in two respects: the aggregate versus separate entity dimen-
sion, and the private/natural initiative versus state creation
dimension. The Notat-Senard Report mentions these con-
troversial issues. However, it suggests a need to change the
focus: in both dimensions, the questions of what the activity
of the enterprise will be, and what the enterprise will eﬀec-
tively do to society, play no role.
The distinction introduced earlier between the enterprise
and the corporation is fully realized here. This absence of
a reference to the activity of the enterprise has largely con-
tributed to the unhinging of the corporate framework from
contemporary business. Since the mid-nineteenth century,
the corporation has been a legal tool concerned only with
share capital: (i) some owners contribute to the share capi-
tal by investing their assets; (ii) the corporation is formed
as a legal entity, which owns the share capital; and (iii) the
constitutional contract deﬁnes the respective rights—includ-
ing the control rights—and liabilities of the asset provid-
ers. Rajan and Zingales (2000) noted that in the nineteenth
century, the ownership of capital ensured the ownership
of the means of production and therefore value creation.
However, is this approach still valid today? Rajan and Zin-
gales consider that in modern economies, “since ownership
is relatively unimportant, and human capital is not tied to
inanimate assets, the legal deﬁnition of the ﬁrm, which
centers around the ownership of the inanimate assets, is not
very helpful” (Rajan and Zingales 2000). However, Rajan
and Zingales continue to see the enterprise as the “unit of
economic organization” (Ibid., p. 25), and do not make any
proposal to change the law. By contrast, the French reform
is based on the idea of a historical diﬀerentiation between
classical capitalist organizations and modern ones, arguing
that the creative nature of the modern enterprise calls for a
change in the law. By virtue of its creative nature, modern
enterprises can change the world, just as BASF in the early
twentieth century with its synthetic fertilizers and as Mon-
santo more recently with its glyphosate, changed the world
(positively or negatively). Corporate law allows them to do
so, in the interests of the shareowners, or at best in the inter-
ests of the corporation itself. This can explain in part why
the corporation has become an “ailing social technology”
(Metcalf and Benn 2012).
The main theoretical implication, from our standpoint,
derives from the new view of the enterprise. As noted above,
the literature has already distinguished the enterprise, as an
economic (productive) organization, from its legal vehicle,
the corporation. But if we follow the French argument, the
enterprise is not just an economic organization, nor is it
just a productive organization; it is a creative organization.
Therefore, we must recognize that although the corporation
was conceived as the legal vehicle for productive commer-
cial activity, it is not necessarily the appropriate legal vehicle
for the creative enterprise (see Table3).
Therefore, the question is, what is the appropriate legal
vehicle for the enterprise? How should the law recognize the
creative enterprise and hold it responsible?
Purpose‑Driven Corporations astheLegal Form
In this respect, it seems that the French reform does a good
job of making visible the activities of the enterprise and their
eﬀects, as it mentions both the impact of those activities
and their purpose in the law. Thus, it informs the growing
body of research that explores the possible linkages between
corporate law and corporate responsibility (Aguilera etal.
2015; Ciepley 2018, Filatotchev and Nakajima 2014; Gran-
dori 2019; Mayer 2013; Scherer and Voegtlin 2017).
Table 3 The distinction between enterprise and corporation revisited
Economic activity Legal vehicle
Productive activity Organization engaged in productive activity
“Organized economic activity” (Robé 2011, p. 3)
“An organization engaged in the production of goods or ser-
vices, to which end it combines physical, human and virtual
assets” (Deakin 2012, p. 350)
“Unit of economic organization, which they call the
‘enterprise’”(Rajan and Zingales 2000, p. 24)
“A legal mechanism, and the principal legal-institutional
device through which business ﬁrms operate in contem-
porary market economies” (Deakin 2012, p. 351)
“Constitutional contract” (Grandori 2010)
“Separate legal entity” (Blair and Stout 1999)
“Ownership of assets” (Rajan and Zingales 2000, p. 25)
Creative activity Entreprise
“Organization of collective creation processes” (Segrestin and
“Organized collective creation” (Segrestin and Hatchuel 2012;
Notat and Senard 2018)
When theLaw Distinguishes Between theEnterprise andtheCorporation: The Case oftheNew French…
In terms of social and environmental responsibilities, the
French reform introduces a new proposal that revisits the
classical debate on the nature of the corporation as either a
private initiative or a state one. The speciﬁcation of a raison
d’être or mission means that the corporate purpose cannot be
reduced to the interests of the shareowners, thereby clearly
implying that the corporation is a separate legal entity. But
it goes further than that: the private interest of the corpo-
ration cannot be the sole guide for business leaders. The
corporation must avoid negative impacts and must integrate
due regard to social and environmental impacts. It can also
pursue positive impacts and integrate other parties’ interests,
and even the public interest. Interestingly, the new French
law proposes a path that goes beyond the classical opposi-
tion between the corporation viewed as private or a state ini-
tiative. The purpose of the corporation is freely determined
by private initiative but does not amount to a private interest.
Second, the French reform introduces a new conceptual-
ization of the enterprise, one that is not limited to a for-proﬁt
organization. By referring to the activities of the enterprise
beyond the constitution of joint stock for the corporation, it
makes the enterprise exist legally. In this way, the French
reform builds upon former cases. For instance, industrial
foundations are already set up with a clear commitment to a
purpose. However, most of the time, industrial foundations
are seen as a way of combining the proﬁt objective with a
charitable one (Ciepley 2018). Fundamentally, they do not
change the view that the enterprise is a for-proﬁt ‘economic
organization,’ devoted to maximizing proﬁts. By contrast,
the French law stipulates that the enterprise can be intrinsi-
cally constituted to pursue broader and more diverse aims.
The purpose of the enterprise’s activities needs to be speci-
ﬁed because the entrepreneurial aim is not necessarily to
maximize proﬁts. In other words, the deﬁnition of the raison
d’être in the law makes visible the enterprise as an entity
distinct from the corporation, and allows entrepreneurial
projects to pursue goals other than proﬁt maximization.
Finally, we believe that the French reform has paved
the way for a new approach to corporate responsibility. It
is now acknowledged that responsible businesses must not
only “avoid doing harm” but also aim to “do good” (Scherer
and Voegtlin 2017). In this respect, the innovative capabili-
ties of the enterprise raise concerns as well as expectations.
Business enterprises can contribute to alleviating hunger or
speeding up the transition to renewable energy sources. By
deﬁning their purpose, corporations can now make explicit
how they see their responsibility, that is, the contribution
they intend to make, and to which they are committed.
As Grinbaum and Groves (2013) noted, “we have to
acknowledge that the responsibility associated with inno-
vation necessarily is responsibility for the future it helps
to create” (Grinbaum and Groves 2013). In this respect,
purpose-driven corporations provide new and promising
legal foundations for enhanced CSR.
In essence, the French reform changes the framework of
business responsibility in two ways. First, it obliges corpo-
rations to run their business with due regard to the impacts
of their activities. Second, it opens up the possibility of a
company deﬁning its raison d’être and becoming, on a vol-
untary basis, a société à mission. Thus, a company can adopt
a purpose that does not renounce proﬁt-making or shareown-
ers’ interests, but that expressly includes the pursuit of social
and environmental goals.
In this study, we have shown that France’s recent reform
is part of an international movement, but is underpinned
by novel theoretical arguments. The reform introduces a
new conceptualization of the enterprise as an organization
that has emerged with a creative purpose. We argue that
this new conceptualization has important theoretical impli-
cations. First, it shows that the corporation is not only the
legal form of its economic activities. It is also a special form
historically conceived for productive activities, but not nec-
essarily appropriate for the creative nature of contemporary
enterprises. Second, it invites us to add a new dimension to
the theories of the corporation, that of the purpose, the con-
tribution to the world that the enterprise intends to achieve.
Clearly, the practical eﬀects of this new form of govern-
ance remain to be evaluated. However, at this stage, the
positive view of the enterprise that is embedded in this law
invites researchers in business ethics to explore new legal
and governance frameworks that are appropriate for con-
In this way, the French proposal calls for important
further research. It will, of course, be useful to follow the
eﬀects of this legal change at various levels: who is adopting
société à mission status, what are their missions and how are
they evaluated? Does the reform protect and secure CSR,
and does it oﬀer an eﬀective framework for responsible inno-
vation? More generally, the new law challenges our theories
of the corporation and suggests that it is possible to conceive
alternative forms of business law. Thus, it calls for further
research to explore alternative legal frameworks for innova-
tive and responsible enterprises in the twenty-ﬁrst century.
Compliance with Ethical Standards
Conflict of interest The authors declare that they have no conﬂict of
Informed Consent Informed consent was obtained from all individual
participants included in the study.
12 B.Segrestin et al.
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