I'm Catholic. I take creeds seriously. So I was amused and interested by Josh Fershee's statement of belief, which I offer with my annotations:
I believe in the theory of Director Primacy. I believe in the Business Judgment Rule as an abstention doctrine, and I believe that Corporate Social Responsibility is choice, not a mandate. I believe in long-term planning over short-term profits, but I believe that directors get to choose either one to be the focus of their companies. I believe that directors can choose to pursue profit through corporate philanthropy and good works in the community or through mergers and acquisitions with a plan to slash worker benefits and sell-off a business in pieces. I believe that a corporation can make religious-based decisions—such as closing on Sundays—and that a corporation can make worker-based decisions—such as providing top-quality health care and parental leave—but I believe both such bases for decisions must be rooted in the directors’ judgment such decisions will maximize the value of the business for shareholders for the decision to get the benefit of business judgment rule protection. I believe that directors, and to [sic; did he mean not?} shareholder or judges, should make decisions about how a company should pursue profit and stability. I believe that public companies should be able to plan like private companies, and I believe the decision to expand or change a business model is the decision of the directors and only the directors. I believe that respect for directors’ business judgment allows for coexistence of companies of multiple views—from CVS Caremark and craigslist to Wal-Mart and Hobby Lobby—without necessarily violating any shareholder wealth maximization norms. Finally, I believe that the exercise of business judgment should not be run through a liberal or conservative filter because liberal and conservative business leaders have both been responsible for massive long-term wealth creation. This, I believe.
 I concur, of course. See my book The New Corporate Governance in Theory and Practice, especially Chapter 1 thereof. See also Director primacy, http://en.wikipedia.org/w/index.php?title=Director_primacy&oldid=621020942 (last visited Mar. 30, 2015).
 Again, I concur. See my article The Business Judgment Rule as Abstention Doctrine (July 29, 2003). UCLA, School of Law, Law and Econ. Research Paper No. 03-18. Available at SSRN: http://ssrn.com/abstract=429260
 I agree with Henry Manne that an action qualifies as CSR, inter alia, only if it is voluntary and “one for which the marginal returns to the corporation are less than the returns available from some alternative expenditure.” That definition excludes a lot of stuff that we casually call CSR. But as to corporate acts that meet that definition, I think they violate directors’ duties (albeit that in most cases that will not result in liability due to the BJR).
 I agree, subject to the caveat that I think too many hedge funds are pressing too many boards to pursue short-term gains at the expense of sustainable long-run shareholder wealth maximization and, accordingly, that boards need more insulation from shareholder pressure. See my essay Preserving Director Primacy by Managing Shareholder Interventions (August 27, 2013). Research Handbook on Shareholder Power and Activism, Forthcoming; UCLA School of Law, Law-Econ. Research Paper No. 13-09. Available at SSRN: http://ssrn.com/abstract=2298415
 Agreed, subject to the provisos embedded in footnote 3.
 Agreed. Again, see my book The New Corporate Governance in Theory and Practice, especially Chapters 3 and 5 thereof.
 I’m not sure what that means.
 Agreed. Again, see my essay Research Handbook on Shareholder Power and Activism, Forthcoming; UCLA School of Law, Law-Econ. Research Paper No. 13-09. Available at SSRN: http://ssrn.com/abstract=2298415
 Now that gets complicated. But those complications are for another day.
I want to include modules on Citizens United (personhood) and B Corps/L3Cs in my corporate social responsibility course new spring. Anybody got some?
In yesterday's WSJ, William Galston opined that shareholder wealth maximization norm harms workers, citing as an example Timken Corp.:
Timken survived the deep recession of the 1980s, which drove many American manufacturers out of business, only because it made massive investments in state-of-the-art production facilities that meant, says Mr. Schwartz, “lower profits in the short term and less capital to return to shareholders.” Because of this patient approach, Timken was able to dominate the global market in specialized steel while providing good wages to workers and contributing to schools and public institutions in its hometown of Canton, Ohio.
It is often argued that managements, such as Timken’s once was, are violating their fiduciary responsibility to “maximize shareholder value.” But Washington Post economics writer Steven Pearlstein argues that there is no such duty, and UCLA law professor Stephen Bainbridge, past chairman of the Federalist Society’s corporate-group executive committee, backs him up. In practice, Mr. Bainbridge has written, courts “generally will not substitute their judgment for that of the board of directors [and] directors who consider nonshareholder interests in making corporate decisions . . . will be insulated from liability.”
Well, yes, but. Galston took that quote out of context. For the full context, see this post.
In short, there is a fiduciary duty to maximize shareholder wealth. To be sure, current law allows boards of directors substantial discretion to consider the impact of their decisions on interests other than shareholder wealth maximization. This discretion, however, exists not as the outcome of conscious social policy but rather as an unintended consequence of the business judgment rule. To be sure, some scholars find an inconsistency between the business judgment rule and the shareholder wealth maximization norm. I concede that the business judgment rule sometimes has the effect of insulating a board of directors from liability when it puts the interests of nonshareholder constituencies ahead of those of shareholders, but deny that that is the rule’s intent. Most importantly, the rule is not inconsistent with the indea that the board of directors' duty is to the shareholders.
My thanks to Daniel Sokol for calling this paper to my attention:
Is There a Vatican School for Competition Policy? - Tihamer Toth (Competition Law Research Centre, Hungary ; Peter Pazmany Catholic University - Faculty of Law)
ABSTRACT: This paper examines whether the Catholic Church’s social teaching has something to tell to antitrust scholars and masters of competition policy. Although papal encyclical letters and other documents are not meant to provide an analytical framework giving clear answers to complex competition questions, this does not mean that these thoughts cannot benefit businessmen, scholars and policy makers. The Vatican teaching helps us remember that business and morality do not belong to two different worlds and that markets should serve the whole Man. It acknowledges the positive role of free markets, the exercise of economic freedom being an important part of human dignity, yet warns that competition can be preserved only if it is curbed both by moral and statutory rules. It is certainly not easy to find a balance between the commandments to ‘love your neighbor’ and ‘you shall not collect treasure on earth.’ I argue that market conduct that undermines business virtues should be prohibited, either by antitrust or other forms of self- or government-regulation.
Brett McDonnell has posted The Liberal Case for Hobby Lobby (October 22, 2014), available at SSRN: http://ssrn.com/abstract=2513380:
The recent Supreme Court decision in Burwell v. Hobby Lobby Stores, Inc. has stirred strong objections from political liberals. This article argues that those objections are unwarranted, and that the Court’s opinion reflects core liberal values. The decision has two main parts, and liberal objections to each part are misguided.
In the first part, the Court held that in some circumstances for-profit corporations committed to religious goals may invoke the religious liberty protection of the Religious Freedom Restoration Act (RFRA). Liberals have treated this as an appalling and/or humorous extension of rights which should apply only to humans. However, the Court’s decision rightly recognizes that corporations can and sometimes do pursue goals other than shareholder profits. This fits well with the stress on corporate social responsibility one finds in progressive corporate law scholarship such as the author’s. Where religious beliefs shape a corporation’s purposes, the protections of RFRA may rightly apply. The article suggests a detailed framework for determining when particular corporations are engaged in the exercise of religion, looking to both organizational and ownership dimensions of commitment to religion. This framework clarifies the somewhat sketchy analysis of the Court and more firmly roots that analysis in corporate law and theory.
In the second part of the opinion, the Court held that the contraceptive mandate of the Affordable Care Act substantially burdens the religious exercise of employers, and that the mandate is not the least restrictive means of achieving a compelling governmental objective. Liberals fear that this holding aggressively extends the protection of RFRA while undermining the compelling goal of the contraceptive mandate. The article argues that the holding is quite nuanced and limited, and that much liberal reaction reflects discomfort with RFRA itself. That is a shame, as creating a diverse society where persons and groups with differing beliefs are able to co-exist should be a core liberal commitment. The article suggests that liberals may have lost sight of this commitment as the groups invoking RFRA’s protection have shifted from social outcasts to more mainstream religious conservatives. That may explain, but does not justify, liberal opposition to Hobby Lobby.
As you can imagine, I disagree with the first for reasons well rehearsed in this space many time before.
The second point is one that I think makes a lot of sense. Sadly, however, I do not believe that today's modern liberals value a diverse society when the diversity is expressed along religious lines and, in articular, when diversity requires toleration of opinions that differ from the politically correct liberal catechism. Hence, where Brett says "liberals may have lost sight" of their commitments to religious diversity and freedom, I would say "liberals have definitely lost sight" thereof.
David Millon sent along a response to my post "Corporate Law after Hobby Lobby":
A couple of brief thoughts on your remarks about the freedom of shareholders in closely held corporations to depart from a corporate law profit maximization requirement. First, I had not realized that you considered profit maximization to be a default rather than mandatory rule. Your view would appear to be inconsistent with at least some of the few judicial precedents involving closely held firms that profit maximization proponents cite in support of their view that corporate law mandates that corporate objective, namely the eBay case and also Dodge v. Ford (although, as we explain in our article, that case does not actually mandate profit maximization). Second, I don¹t see the legal basis for distinguishing closely held from public corporations on this point. The law could draw such a distinction, but I don¹t see where it has. Not in the corporate statutes and not in case law either. There may be policy reasons for such a distinction and as a practical matter it is probably impossible for shareholders qua shareholders in a public corporation to redefine the firm’s purpose, but it¹s hard to see where the closely held/public distinction exists in the law. Finally, to be clear, certainly a profit maximization default would be preferable to a mandatory rule, but we don’t think that even a default rule exists on this issue.
A revised version of my article Corporate Social Responsibility in the Night Watchman State: A Comment on Strine & Walker is now available at SSRN: http://ssrn.com/abstract=2494003
Abstract: Delaware Supreme Court Chief Justice Leo Strine and Nicholas Walter have recently published an article arguing that the U.S. Supreme Court’s decision in Citizens United v. FECundermines a school of thought they call “conservative corporate law theory.” They argue that conservative corporate law theory justifies shareholder primacy on grounds that government regulation is a superior constraint on the externalities caused by corporate conduct than social responsibility norms. Because Citizens United purportedly has unleashed a torrent of corporate political campaign contributions intended to undermine regulations, they argue that the decision undermines the viability of conservative corporate law theory. As a result, they contend, Citizens United “logically supports the proposition that a corporation’s governing board must be free to think like any other citizen and put a value on things like the quality of the environment, the elimination of poverty, the alleviation of suffering among the ill, and other values that animate actual human beings.”
Delaware Chief Justice Leo Strine and Nicholas Walker recently posted an article (forthcoming in the Cornell Law Review) entitled Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United, which is available at SSRN: http://ssrn.com/abstract=2481061, and argues that:
One important aspect of Citizens United has been overlooked: the tension between the conservative majority’s view of for-profit corporations, and the theory of for-profit corporations embraced by conservative thinkers. This article explores the tension between these conservative schools of thought and shows that Citizens United may unwittingly strengthen the arguments of conservative corporate theory’s principal rival.
Citizens United posits that stockholders of for-profit corporations can constrain corporate political spending and that corporations can legitimately engage in political spending. Conservative corporate theory is premised on the contrary assumptions that stockholders are poorly-positioned to monitor corporate managers for even their fidelity to a profit maximization principle, and that corporate managers have no legitimate ability to reconcile stockholders’ diverse political views. Because stockholders invest in for-profit corporations for financial gain, and not to express political or moral values, conservative corporate theory argues that corporate managers should focus solely on stockholder wealth maximization and non-stockholder constituencies and society should rely upon government regulation to protect against corporate overreaching. Conservative corporate theory’s recognition that corporations lack legitimacy in this area has been strengthened by market developments that Citizens United slighted: that most humans invest in the equity markets through mutual funds under section 401(k) plans, cannot exit these investments as a practical matter, and lack any rational ability to influence how corporations spend in the political process.
Because Citizens United unleashes corporate wealth to influence who gets elected to regulate corporate conduct and because conservative corporate theory holds that such spending may only be motivated by a desire to increase corporate profits, the result is that corporations are likely to engage in political spending solely to elect or defeat candidates who favor industry-friendly regulatory policies, even though human investors have far broader concerns, including a desire to be protected from externalities generated by corporate profit-seeking. Citizens United thus undercuts conservative corporate theory’s reliance upon regulation as an answer to corporate externality risk, and strengthens the argument of its rival theory that corporate managers must consider the best interests of employees, consumers, communities, the environment, and society — and not just stockholders — when making business decisions.
As promised, I've knocked out a reply, which has just been posted to SSRN and is entitled Corporate Social Responsibility in the Night Watchman State: A Comment on Strine & Walker, and is available at SSRN: http://ssrn.com/abstract=2494003:
Delaware Supreme Court Chief Justice Leo Strine and Nicholas Walter have recently published an article arguing that the U.S. Supreme Court’s decision in Citizens United v. FEC undermines a school of thought they call “conservative corporate law theory.” They argue that conservative corporate law theory justifies shareholder primacy on grounds that government regulation is a superior constraint on the externalities caused by corporate conduct than social responsibility norms. Because Citizens United purportedly has unleashed a torrent of corporate political campaign contributions intended to undermine regulations, they argue that the decision undermines the viability of conservative corporate law theory. As a result, they contend, Citizens United “logically supports the proposition that a corporation’s governing board must be free to think like any other citizen and put a value on things like the quality of the environment, the elimination of poverty, the alleviation of suffering among the ill, and other values that animate actual human beings.”
This essay argues that Strine and Walker’s analysis is flawed in three major respects. First, “conservative corporate law theory” is a misnomer. They apply the term to such a wide range of thinkers as to make it virtually meaningless. More important, scholars who range across the political spectrum embrace shareholder primacy. Second, Strine and Walker likely overstate the extent to which Citizens United will result in significant erosion of the regulatory environment that constrains corporate conduct. Finally, the role of government regulation in controlling corporate conduct is just one of many arguments in favor of shareholder primacy. Many of those arguments would be valid even in a night watchman state in which corporate conduct is subject only to the constraints of property rights, contracts, and tort law. As such, even if Strine and Walker were right about the effect of Citizens United on the regulatory state, conservative corporate law theory would continue to favor shareholder primacy over corporate social responsibility.
Now it just needs to find a law review home.
A post by Lissa L. Broome, Wells Fargo Professor of Banking Law and Director of the Center for Banking and Finance at the University of North Carolina School of Law, John M. Conley, William Rand Kenan Jr. Professor of Law at the University of North Carolina School of Law, and Kimberly Krawiec, Kathrine Robinson Everett Professor Law at Duke University Law School, at CLS Blue Sky blog reports results of their research:
Our overall conclusion is that, while everyone we have spoken to endorses diversity in the abstract, very few have been able to tell us why it matters. In fact, pushing the topic has yielded difficult and sometimes uncomfortable conversations. ...
As we discuss at length in other published work, there are numerous tensions in directors’ accounts of race and gender in the boardroom. In this essay, we discuss what we view as the central tension in our respondents’ views on corporate board diversity – their overwhelmingly enthusiastic support of board diversity coupled with an inability to articulate coherent accounts of board diversity benefits that might rationalize that enthusiasm. ...
While conversations about diversity in the boardroom may be fraught with ambiguity, the numbers are not: the corporate boardroom remains an overwhelmingly white, male club.
But apparently nobody can explain why that's a bad thing.
On 24 June 2014 White & Case and PwC hosted a round table breakfast to discuss the effect of recent sanctions on financial institutions. Sir Andrew Wood gave a keynote address in which he considered the relevant macroeconomic and political factors that come into play when doing business in Russia in the current environment as well as the future prospects for business and investment in the region. He then led a discussion (under the Chatham House Rule) on the impact of sanctions against Russia and Ukraine together with sanctions experts from White & Case and PwC.
You can download an extended review of the program here.
Given the new sanctions the US just announced and the potential for even more sanctions if Russia turns out to be responsible for the downing of that Malaysian passenger jet, this is an especially timely program for business persons and the lawyers that advise them.
I just ran across Farmers' Loan & Trust Co. v. Pierson, 130 Misc. 110, 119, 222 N.Y.S. 532, 543-44 (Sup. Ct. 1927), which held that:
... a corporation is more nearly a method than a thing, and that the law in dealing with a corporation has no need of defining it as a person or an entity, or even as an embodiment of functions, rights and duties, but may treat it as a name for a useful and usual collection of jural relations, each one of which must in every instance be ascertained, analyzed and assigned to its appropriate place according to the circumstances of the particular case, having due regard to the purposes to be achieved.
There are two intersting points here. First, to describe the corporation as "a useful and usual collection of jural relations," sounds an awful lot like saying the corporation is a nexus of contracts. Second, to say that the corporation's status is "in every instance be ascertained, analyzed and assigned to its appropriate place according to the circumstances of the particular case," sounds a lot like a point I made to KCRW's Madeleine Brand. I argued that we grant the corporation constitutional status as a legal person in situations in which it is convenient to allow the fictional entity standing to represent the constitutional rights of its shareholders (and, in some cases, directors and managers). As the late Larry Ribstein explained, "corporate speech should be constitutionally protected only to the extent necessary to protect the rights of individuals connected with the corporation."
Hard liners on both sides of debates about corporate rights and duties show stupidity, arrogance, or mendacity when declaring either, on the right, “of course corporations are persons” or, on the left, “of course corporations are not persons.” In fact, organizations are not natural persons. But for some purposes, they should be treated as natural persons are and for others they should not.
Context is key and hard liners tend to forget context. In the talk these days about these two SCOTUS cases, it looks as if the Divided States of America is increasingly peopled by hard liners. Alas, that’s not something to celebrate this Fourth of July.
He's right on both counts, of course. Corporate personhood obviously is a legal fiction, but it's a very useful--I would argue necessary--fiction. And the culture wars suck. It is a pity that people of good will are unable to agree without being disagreeable (and I say that as someone who occasionally errs badly in this area, usually to my regret), but we live in an era of kulturkampf.