The Sustainable Corporation as a Producer of Public Goods: Beyond the Privatized Justification of Limited Liability

The aim of this paper is to clarify the normative justification of limited liability for shareholders in business corporations. In contrast to libertarian positions, we argue that society needs corporations in which shareholders enjoy the freedom of limited liability, and that this privilege can be normatively justified. In the first part of the paper, we critically discuss the attempts made by the Chicago school of law and economics and by Joseph Heath’s business ethics to justify the compatibility of limited liability with public interest. However, the legal and ethical measures proposed by these theories cannot realistically curb the harms perpetrated by business corporations. Moreover, for principled reasons, these positions are normatively untenable. In the second part, we provide a conceptual clarification of our alternative approach, in particular its potential to normatively guide state decisions regarding whether to grant the freedom of limited liability. According to our proposed normative framework, corporations must be committed to produce a public good in order to be granted limited liability. In this way, the freedom granted by limited liability will be accompanied by the corporation’s corresponding responsibility to produce a public good to serve the community. We discuss how society can determine what counts as a public good. We argue that the public good is not a natural fact that is determinable once and for all, but a regulative ideal to guide political and managerial deliberation. We end with reflections on the status our normative framework awards to corporate aims such as profitability and sustainability.