The Historical Evolution of Corporate Social Responsibility: A Foreword to the ELI Guidance

Table of Contents

1. Foreword

2. References

Better Company Law for Sustainable Business Conduct: ELI Guidance On Company Capital and Financial Accounting for Corporate Sustainability

1. ELI Guidance on Company Capital and Financial Accounting for Corporate Sustainability: A Foreword, by Fausto Pocar, https://doi.org/10.1515/ael-2024-0131.

2. The Historical Evolution of Corporate Social Responsibility: A Foreword to the ELI Guidance, by Reuven Avi-Yonah, https://doi.org/10.1515/ael-2024-0050.

3. Introduction to “Better Company Law for Sustainable Business Conduct: ELI Guidance on Company Capital and Financial Accounting for Corporate Sustainability”, by Yuri Biondi, Colin Haslam and Corrado Malberti, https://doi.org/10.1515/ael-2025-2001.

Part 1 – ELI Guidance on Company Capital and Financial Accounting for Corporate Sustainability

1. ELI Guidance on Company Capital and Financial Accounting for Corporate Sustainability, by Yuri Biondi, Colin Haslam and Corrado Malberti, https://doi.org/10.1515/ael-2024-0024.

2. The Effects of Applying the ELI Recommendations for Corporate Sustainability: Illustrative Examples, by Christopher Hossfeld, https://doi.org/10.1515/ael-2024-0017.

3. Financial Sustainability of the Company and the Principle of Share Capital Maintenance, by Yuri Biondi, https://doi.org/10.1515/ael-2024-0007.

Part 2 – Background Studies

1. Accounting Policies and Dividend Limitation: A European Comparison, by Anne Le Manh, https://doi.org/10.1515/ael-2021-0041.

2. Important Features of Capital Maintenance in Germany, by Christopher Hossfeld, https://doi.org/10.1515/ael-2024-0021.

3. Financial Reporting and the Determination of Distributable Profits: A Broken Link. The Case of Italy, by Maria Di Sarli, https://doi.org/10.1515/ael-2024-0018.

4. Accounting Standards for Equity Capital Management and Dividend Distributions in France, by Anne Le Manh, https://doi.org/10.1515/ael-2024-0014.

5. Financial Statements and the Determination of Distributable Profits in Croatia, by Ana Ježovita and Hana Horak, https://doi.org/10.1515/ael-2024-0009.

6. Shareholders’ Equity and Dividend Regulation in Japan: How Can Financial Reporting and Capital Maintenance Be Reconciled?, by Akio Hoshi, Mioko Takahashi and Clémence Garcia, https://doi.org/10.1515/ael-2024-0040.

1 Foreword

This issue includes the “ELI Report on Company Capital and Financial Accounting for Corporate Sustainability” and accompanying studies, including Anne Le Manh, https://doi.org/10.1515/ael-2021-0041, “Accounting Policies and Dividend Limitation: A European Comparison”, and country reports from Germany, Italy, France, Croatia, Japan, and the UK. The focus of the Report is on environmental, social and governance (ESG) considerations, which “concern broad matters pointing to the sustainable and responsible long-term relationship of companies with stakeholders, society and nature … In this context, an important and timely debate is ongoing as to how companies could and should be sustainable and responsible for the benefit of business and society at large. As a matter of fact, it is quite evident that only financially robust companies may be able to afford the pursuit of corporate sustainability over time and circumstances.”

This focus on ESG is controversial, because the academic literature in the US has been dominated by the Milton Friedman view that “the social responsibility of business is to increase its profits.” ESG is part of corporate social responsibility (CSR), and Friedman and his acolytes reject the legitimacy of CSR.^[1]

However, if one takes a longer historical view, it is clear that CSR and ESG are well grounded in the dominant view of the corporation since the 14th century, which is that the corporation is an entity separate from the state and from its shareholders.^[2] Therefore, it is not true that the only goal of corporate management is to maximize shareholder profits.

Historically, the corporation evolved from its origins in Roman law in a series of four major transformations. First, the concept of the corporation as a separate legal person from its owners or members had to be developed, and this development was only completed with the work of the civil law Commentators in the fourteenth century. By the end of the Middle Ages, the membership corporation – a corporation with several members who chose others to succeed them – had legal personality (the capacity to own property, sue and be sued, and even bear criminal responsibility), unlimited life, and was well established in both civil and common law jurisdictions.^[3]

The second important step was the shift from non-profit membership corporations to for-profit business corporations, which includes the corporations established under Royal privileges since the eighteenth century in Holland, Britain, and France, and more widely in the United States at the end of the eighteenth and beginning of the nineteenth century.^[4]

The third transformation was the shift from closely-held corporations to corporations whose shares are widely held and publicly traded, and with it the rise of limited liability and freedom to incorporate, as well as their capacity to own other corporations – implying corporate groups – which took place by the end of the nineteenth century and the beginning of the twentieth.^[5]

Finally, the last major transformation was from corporations doing business in one country to multinational enterprises whose operations span the globe, which began after World War II and is still going on today.^[6]

Each of these four transformations was accompanied by changes in the legal conception of the corporation. What is remarkable, however, is that throughout all these changes spanning two millennia, the same three theories of the corporation can be discerned. Those theories include the aggregate theory, which views the corporation as an aggregate of its members or shareholders; the artificial entity theory, which views the corporation as a creature of the state; and the real entity theory, which views the corporation as neither the sum of its owners nor an extension of the state, but as a separate entity controlled by its managers.^[7]

Every time there was a shift in the role of the corporation, all three theories were brought forward in cyclical fashion. And every time the real entity theory prevailed, and it was the dominant theory during periods of stability in the relationship between the corporation, the shareholders, and the state. Under the real view, which is historically the dominant view of the corporation, CSR is normatively acceptable even when it does not contribute to the long-run welfare of the shareholders. That includes ESG.^[8]