About the author

Sofie Cools is a prominent professor of corporate law with a distinguished academic career, currently holding positions at both Radboud University Nijmegen and KU Leuven. She specializes in company law, particularly focusing on sustainable corporate governance. Cools earned her law degrees from KU Leuven and Harvard University. Before transitioning to academia, she practiced law at Cleary Gottlieb in Brussels.

In addition to her teaching and research roles, she has been involved with prestigious institutions such as the Max Planck Institute for Comparative and International Private Law. Her work in comparative corporate governance and financial law is well-respected internationally.

Abstract

Around the globe legislators have introduced social purpose company laws, which allow companies to opt into a set of statutory rules which organize the accountability to a social purpose, while still pursuing financial return for shareholders. To organize the accountability to the social purpose, social purpose company laws deviate from conventional company law. They can do so strongly, by mandating the primacy of the social purpose and imposing stringent profit distribution restrictions, or weakly, focusing mostly on the directors’ duties and disclosure. This paper presents a refined agency framework for social purpose companies, which explains why social purpose company laws depart from central principles of conventional company law. Based on this novel framework, we argue that social purpose company laws should encourage social purpose companies to pursue narrowly defined and clearly specified social purposes. This can considerably reduce the agency costs in social purpose companies, especially because it renders the various strategies used by legislators (e.g. directors’ duties and disclosure) more effective and enforceable. This could both sufficiently alleviate the concerns of purpose washing in lighter social purpose company laws and enable legislators to loosen or remove other stringent requirements in stricter social purpose company laws. By following these recommendations, social purpose company laws are more likely to facilitate and ensure that social purpose companies meaningfully contribute to tackling pressing societal challenges.

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