California Corporate Constituency Crack-up

California Senate Bill 1528 has passed the Senate and is on its way to the Assembly for action. This bill would incorporate a so-called nonshareholder constituency provision into the statutory duty of care of directors of California corporations. For a nonpartisan analysis of the bill, go here. As the analysis explains, this law provides that:

[I]n performing the duties of a director, a director may, in considering the best interests of the corporation, consider the interests of any or all of the following:

1. The corporation's employees.
2. The corporation's customers.
3. The corporation's suppliers.
4. The corporation's creditors.
5. The economy of the region, state, and nation.
6. The impact on the community.
7. The environment.
8. The long-term, as well as the short-term, interests of the corporation and its shareholders.

These laws are a terrible idea. I don't have time to do an extended analysis right now, so in the meanwhile let me direct you to two of my law review articles: (1) In Defense of the Shareholder Wealth Maximization Norm, which explains why shareholder wealth maximization is the only interest directors should take into account when making corporate decisions; and (2) Interpreting Nonshareholder Constituency Statutes, which discusses the various legal issues and problems these statutes pose.