Today’s column discusses the meaning of “corporate purpose” for a business corporation and the role long-term incentive compensation plays in achieving that purpose. (Each business enterprise, of course, will have its own goals and strategies to attain its corporate purpose in its own specific business or businesses.)

The dominant purpose of a business corporation is to create long-term value for its shareholders. Recent commentators have sought to reconcile this corporate purpose with the needs of other “stakeholders”—the corporation’s employees, its suppliers, its customers, its environment and the communities in which it exists. The problem with many of these commentaries is that they confuse the need for good corporate behavior with the fundamental purpose of the business corporation to provide long-term value to its shareholders. Members of a community—whether individuals or entities—are expected to be good citizens of that community. A business corporation is obligated to constituencies of that community based on employment, business and other relationships. But these obligations to such constituencies should not be confused with the fundamental purpose of a business corporation: to provide sustained growth in value for its shareholders.